As the global energy crisis unfolds, recent energy data reveals natural gas’ representation in Germany’s YOY Q3 electricity generation mix declined by 40%, with coal having to pick up the slack because the country’s entire fleet of nuclear energy plants is in the process of being shut down by 2022. Similarly, China’s coal production hit record heights in December 2021. To “help the world manage”, this week Chinese State-owned Sinopec put 45 of its LNG cargoes secured for 2022 up for sale to the highest bidder! Among the topics ripe for contemplation these days is the notion that natural gas has the potential to responsibly meet the clear short- to medium-term need for a flexible, cleaner fuel that will fit the bill until technology and Mother Nature can close the gap.
The market continues to be volatile, with Henry Hub natural gas futures tumbling from Tuesday’s high of US$4.39/MMBtu, trading at US$3.84/MMBtu as of 1:15pm EDT Thursday afternoon. Despite freezing January temperatures, weather forecasting models are showing signs of warming into February, putting downward pressure on prompt-month prices. Demand for US liquefied natural gas (LNG) exports remains strong and US production levels are down, estimated at 93.8 Bcf/d. As published in their January Short-Term Energy Outlook, the EIA expects US dry gas production to grow 2.7% to average 96 Bcf/d in 2022 and increase to 97.6 Bcf/d in 2023. The risk of volatility for the winter remains, as ongoing changes to weather forecasts and extreme temperatures can quickly drive prices higher.
The EIA estimated working gas storage was 2,810 Bcf for the week ending January 14th, following an overall withdrawal of 206 Bcf. This bullish withdrawal was higher than market expectations, averaging 196 Bcf. Increased heating demand and production declines, due to temporary freeze-offs, tightened the supply/demand balance. Storage levels are now 7.4% below year-ago levels and 1.2% above the five-year average. A withdrawal of 199 Bcf is expected for the week ending tomorrow.
In Canada, the January month-to-date AECO 5a spot rate is C$4.17/GJ, while the month-to-date Dawn next-day weighted average index rate is currently C$4.69/GJ. Next-day Dawn index prices have climbed a full dollar since the beginning of January, reaching a high of C$5.25/GJ yesterday, mainly due to recent extremely cold temperatures in Quebec and Ontario. We expect Dawn index prices to remain elevated next week and forecast the average Dawn index will finish the month at C$5.04/GJ. Prompt-month futures for AECO are trading at C$4.34/GJ, while Dawn is trading at C$4.96/GJ. Prices have declined, with week-over-week decreases of $0.58/GJ and $1.08/GJ at AECO and Dawn, respectively. Point Logic reports Canadian natural gas storage for the week ending January 14thwas sitting at 535 Bcf, after a withdrawal of 27 Bcf. This withdrawal decreases storage inventories to 3.9% below the 5-year average and 12% below storage levels last year at this time. Canadian storage is 61% full, with Eastern storage levels now at 83% of capacity and Western storage 52% full. A withdrawal of 19 Bcf is expected for the week ending tomorrow.
– Karyn Morrison, Energy Advisor / Grace Wilton, Senior Energy Advisor
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