Strong US production and lower than expected heating demand have driven Henry Hub futures lower. Prompt-month futures for February fell over 7% to close at US$3.311/MMBtu on Wednesday, the lowest settlement since June 22, 2021. US natural gas production averaged over 100 Bcf/day the past week. As reported in the EIA January Short-Term Energy Outlook (STEO), the EIA forecasts US production will reach record highs, averaging 109.11 Bcf/d in 2023 and 111.24 Bcf/d in 2024. The EIA has lowered its Henry Hub natural gas spot price forecast, expecting prices to average US$4.90/MMBtu in 2023 and US$4.80/MMBtu in 2024. Compared to those forecasts, current Henry Hub forwards are trading at discounts of US$1.37/MMBtu (-28%) and US$0.90/MMBtu (-18%), respectively! Prices are expected to increase in late January and February amid colder winter temperatures, and with Europe expected to have an even tougher time filling their natural gas storage in time for winter 2023/24, we are expecting both U.S.-based and Canadian-based monthly natural gas indices to average higher and higher as 2023 progresses and international influences compel markets.

The EIA estimated working gas storage was 2,820 Bcf for the week ending January 13th, following an overall withdrawal of 82 Bcf. The bullish pull exceeded market expectations averaging 72 Bcf, but was considerably lower than the five-year historic average withdrawal of 156 Bcf. Storage levels are now 1.2% above year-ago levels and, relative to the five-year average, 0.7% less. A withdrawal of 78 Bcf is expected for the week ending tomorrow.

In Canada, natural gas indices generally follow what we see south of the border. Indeed, we are seeing similar discounts on Canadian natural gas forwards versus forecasts. Prompt-month futures for AECO are trading at C$3.94/GJ, while Dawn is trading at C$4.31/GJ. Prices have fallen, with week-over-week decreases of $0.14/GJ and $0.40/GJ at AECO and Dawn, respectively, as January temperatures have remained moderate. Point Logic reports Canadian natural gas storage for the week ending January 13th was sitting at 502 Bcf, after an overall withdrawal of 19 Bcf. Eastern Canadian storage had a withdrawal of 11 Bcf, while Western Canadian storage had a withdrawal of 8 Bcf. Storage levels have now risen 0.2% above prior year storage levels but remain 7% below the five-year average. Canadian storage is 57% full, with Eastern storage levels now at 73% of capacity and Western storage significantly lower at 52%. A net withdrawal of 13 Bcf is expected for the week ending tomorrow.

– Karyn Morrison, Energy Advisor

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