Last week was CERAWeek in Houston – an annual oil and gas industry conference put on by S&P Global. US Special Presidential Envoy for Climate, John Kerry’s speech usually opens up the event; this year he wasn’t exclusively talking about how oil and gas companies should pivot and go green. No, this year it was he who pivoted and spoke about how the US natural gas industry shall play a pivotal role in transitioning the world to clean energy by exporting natural gas to more countries in the developing world. Indeed, there are signals that LNG exports could grow more than originally thought, such as Asian imports of US LNG possibly being replaced with those from Russia, sending North American LNG on shorter runs across the Atlantic and allowing for a greater volume of exports. In support of this theory, there are 13 FERC-approved, not under construction LNG Export Terminals whose capacity totals over 25 Bcf/d – that’s about a quarter of the current US production level. Generally, the timeline for these facilities is well under 5 years, so while this change won’t happen overnight, we can certainly presume the global market’s influence over domestic prices is not a current phenomenon, and is likely here to stay.
This is a Henry Hub natural gas futures for April are trading at US$4.94/MMBtu as of 1:30pm EDT. The Russia and Ukraine conflict continues to heighten volatility for natural gas and a bullish EIA storage report has put upward pressure on forward prices, up 19 cents from yesterday’s close of US$4.748/MMBtu. US liquified natural gas (LNG) exports remain strong at 13 Bcf/d, with volumes near capacity in part to support European demand and supply concerns from the Russian invasion of Ukraine. US dry gas production averaged 94 Bcf/d for the week ending March 11th – 900 MMcf/d higher than the previous week. As reported in the EIA March Short-Term Energy Outlook (STEO), it is forecasted the Henry Hub spot market price will average US$3.83/MMBtu in the second quarter of 2022, average US$3.95/MMBtu in 2022, and decrease to average US$3.59/MMBtu in 2023 as US production levels increase to an all-time high of 100.1 Bcf/d in Q4, representing a year-over-year increase of 2.5%.
The EIA estimated working gas storage was 1,440 Bcf for the week ending March 11th, following an overall withdrawal of 79 Bcf. This bullish pull was higher than market expectations (which averaged 73 Bcf), and higher than the five-year average of 65 Bcf. Storage levels are now 19.3% below year-ago levels and, relative to the five-year average, 17.4% less. A withdrawal of 75 Bcf is expected for the week ending tomorrow.
In Canada, the March month-to-date AECO 5a spot rate is C$4.75/GJ, while the month-to-date Dawn Next Day weighted average index rate is currently C$5.49/GJ. March spot prices have increased 6% at AECO and 2% at Dawn compared to February. Prompt-month futures for AECO are trading at C$4.39/GJ, while Dawn is trading at C$5.60/GJ. Prices have risen, with week-over-week increases of $0.35/GJ and $0.22/GJ at AECO and Dawn, respectively. In other news, on April 1st, 2022, the federal carbon tax will increase from $40 to $50 per tonne. The carbon charge for natural gas will increase to 9.79 cents per cubic meter, up from the previous rate of 7.83 cents per cubic meter. The rate is set by the Government of Canada and is part of a multi-year plan.
– Karyn Morrison, Energy Advisor / Grace Wilton, Senior Energy Advisor
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