Henry Hub natural gas futures have tumbled to a ten-month low to start 2023, closing at US$3.988/MMBtu on Tuesday, January 3rd. A warmer-than-expected start to winter has helped ease natural gas demand fears and, as a result, prices have fallen below US$4/MMBtu for the first time since February 2022. The risk of volatility remains, however, once the cold weather returns and demand for liquified natural gas (LNG) exports increases. Uncertainly remains as to when Freeport’s LNG export terminal in Texas will resume operations, as numerous delays has pushed the restart date from October to possibly the first quarter of 2023. Once Freeport returns, demand will jump as the plant can turn about 2.1 Bcf/d of gas into LNG, which is ~2% of US daily production. Market forwards for US coal prices remain high, trading near US$7/MMBtu, widening the spread between coal and natural gas prices for the upcoming spring and summer. This will keep the demand for natural gas used to generate electricity strong, as high coal prices make it uneconomical for natural gas-to-coal switching.

The EIA estimated working gas storage was 2,891 Bcf for the week ending December 30th, following an overall withdrawal of 221 Bcf. The pull was considerably larger than the five-year historic average withdrawal of 98 Bcf but lower than market expectations averaging 237 Bcf, putting further downward pressure on prices. Storage levels are now 9.6% below year-ago levels and, relative to the five-year average, 6.7% less. With the warmer weather, a decline of 31 Bcf is expected for the week ending tomorrow.

In Canada, the December AECO 5a spot rate settled at C$5.75/GJ, while the December Dawn Next Day weighted average index rate settled at C$6.84/GJ. Compared to last year, December spot prices increased 50% at AECO and 49% at Dawn, as the global energy crisis has impacted North American natural gas prices. Due to recent bearish weather outlook, Dawn and AECO fixed prices for rest of 2023 have dropped off 30% since December highs. Point Logic reports Canadian natural gas storage for the week ending December 30th was sitting at 527 Bcf, after an overall withdrawal of 31 Bcf. Eastern Canadian storage had a withdrawal of 13 Bcf, while Western Canadian storage had a withdrawal of 18 Bcf. Storage levels are now 8% below the 5-year average and 4% below prior year storage levels. Canadian storage is 60% full, with Eastern storage levels now at 75% of capacity and Western storage significantly lower at 55%. With temperatures warming across Canada and production recovering from freeze-offs, an overall net withdrawal of 0 Bcf is expected for the week ending tomorrow.

– Karyn Morrison, Energy Advisor

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