On August 12th, Europe reached its September 1st goal of filling their natural gas storage to 75% capacity. It has now upped its October 1st and November 1st goals to 85% and 95%, respectively. However, these targets may be harder to attain than the one already reached. Russian flows to the EU have been throttled down to 20% and Gazprom will be cutting off flows completely next week from August 31st to September 2nd as part of planned compressor station maintenance which will be carried out by Siemens. Presumably the maintenance will involve the sanction-exempt turbine returned to them by Canada back in mid-July. It’s safe to assume that prices will continue to be volatile until maintenance is complete and flows resume.
Natural gas futures soared on Tuesday and hit US$10.028/MMBtu for the first time since 2008, before tumbling on reports of a delay in the restarting of operations at Freeport’s LNG export facility in Texas. A partial restart was planned in October but has since been pushed back to mid-November, at 85% capacity, and is expected to be in full operation by March 2023. The June 8th explosion at the Freeport LNG export facility has forced an additional ~2.0 Bcf/d to remain in the US, helping to reduce extremely low domestic storage levels. Heatwaves in July and August, however, have increased power sector gas demand as near-record-high coal prices make it uneconomical for natural gas-to-coal switching. Henry Hub natural gas futures are still pushing above US$9/MMBtu through to February 2023, attributed to weaker-than-expected US production growth and strong demand for US LNG exports.
The EIA estimated working gas storage was 2,579 Bcf for the week ending August 19th, following an overall injection of 60 Bcf. The build was in line with market expectations in the low-60’s and above the five-year average injection of 46 Bcf. Storage levels are now 9.4% below year-ago levels and, relative to the five-year average, 12% less. We are expecting an injection of 72 Bcf for the week ending tomorrow.
In Canada, the August month-to-date AECO 5a spot rate is C$2.91/GJ, while the month-to-date Dawn Next Day weighted average index rate is currently C$10.00/GJ. AECO spot prices have dropped dramatically in August, due to pipeline constraints, but winter forward prices remain high. Alberta’s NOVA Gas Transmission Ltd. (NGTL) pipeline system maintenance pushed AECO spot prices into negative territory twice this month and caused extreme price swings. Negative prices are rare and are driven by logistical bottlenecks when the natural gas volumes produced exceed available take away capacity. This means Alberta natural gas producers don’t have the ability to get the gas into storage or out of the province to higher priced markets. We expect AECO prices to be suppressed for the remainder of the month. Dawn prices have risen with demand and are more than double the price from this time last year. Point Logic reports Canadian natural gas storage for the week ending August 19th was sitting at 525 Bcf, after an overall injection of 21 Bcf. Eastern Canadian storage had an injection of 11 Bcf, and Western Canadian storage had an injection of 10 Bcf. The storage deficit is narrowing, with storage inventories 11% below the 5-year average and 4% below storage levels last year at this time. Canadian storage is 60% full, with Eastern storage levels now at 76% of capacity and Western storage 54% full. An injection of 18 Bcf is expected for the week ending tomorrow.
– Karyn Morrison, Energy Advisor / Grace Wilton, Senior Energy Advisor