Henry Hub natural gas futures for April are trading at US$4.75/MMBtu as of 2:30pm EDT Thursday afternoon, as cold weather forecasts for mid-March and the ongoing geopolitical instability have put upward pressure on futures prices. Liquified natural gas (LNG) exports remain strong, as robust demand from Europe could intensify with the Russian invasion of Ukraine. That said, US LNG export plants are running close to full utilization, limiting the ability to increase LNG exports. Market analysts believe the higher US natural gas prices linked to the Russia and Ukraine conflict will likely be short-lived and are not expected to push significantly higher. In addition, increased US dry gas production is forecasted to improve tight supply/demand fundamentals, and be sufficient to meet increased natural gas demand and robust LNG exports in 2022 and 2023. The plan to extricate Europe, specifically Germany, from Russia’s energy hold is underway. It is widely regarded that Nord Stream 2 will be permanently cancelled, as 106 Nord Stream 2 AG employee contracts were terminated in the wake of U.S. sanctions on the pipeline.
The EIA estimated working gas storage was 1,643 Bcf for the week ending February 25th, following an overall withdrawal of 139 Bcf. The pull was in line with market expectations averaging 141 Bcf, and above the five-year average withdrawal of 98 Bcf. The supply/demand balance continues to tighten as storage levels are now 11.6% below year-ago levels and, relative to the five-year average, 13.4% less.
In Canada, prompt-month futures for AECO are trading at C$4.49/GJ, while Dawn is trading at C$5.57/GJ. Prices have risen, with week-over-week increases of $0.14/GJ and $0.17/GJ at AECO and Dawn, respectively. Point Logic reports Canadian natural gas storage for the week ending February 25th was sitting at 285 Bcf, after a withdrawal of 42 Bcf. This withdrawal decreases storage inventories to 28.4% below the 5-year average and 26.5% below storage levels last year at this time. Canadian storage is 33% full, with Eastern storage levels now at 25% of capacity and Western storage 38% full. A withdrawal of 30 Bcf is expected for the week ending tomorrow. As reported in the HIS Markit North American Natural Gas Short-Term Outlook report, the Canadian gas-directed rig count has averaged 137 in February 2022, higher than the pre-pandemic peak of 83 in January 2020. Canadian production grew by an estimated 0.8 Bdf/day in 2021 and is forecasted to increase by 0.5 Bcf/d in 2022 as stronger natural gas prices have continued to support production.
– Karyn Morrison, Energy Advisor
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