The rally continues this week, as Henry Hub natural gas futures for July are trading at US$8.63/MMBtu as of 1:00pm EDT Thursday afternoon. Early summer heat set a May record for power demand in Texas, burning more natural gas to generate electricity due to high coal prices and minimal wind power. The demand for US liquified natural gas (LNG) remains strong with high global prices, and the ongoing Russian invasion of Ukraine. The amount of gas flowing to US LNG export plants has risen to average 12.7 Bcf/d in June, up from 12.5 Bcf/d in May and 12.9 Bcf/d in March. As reported in the EIA May Short-Term Energy Outlook, it is forecasted LNG exports will average 12 Bcf/d in 2023, up 23% from 2021. US LNG export capacity is limited, with the ability to only turn around 13.6 Bcf/d of gas into LNG. After a two-day decline in US dry gas production, daily production levels have increased, averaging 95.7 Bcf/d, with forecasts to rise to 96 Bcf/d for July. Rig counts continue to trend upward and can be expected to further impact production within a four-to-six-month window.
The EIA estimated working gas storage was 1,902 Bcf for the week ending May 27th, following an overall injection of 90 Bcf. The bearish build was larger than market expectations averaging 86 Bcf and smaller than the five-year average injection of 100 Bcf. Storage levels are now 17.3% below year-ago levels and, relative to the five-year average, 15.1% less.
In Canada, the May AECO 5a spot price averaged C$7.10/GJ, up 7.4% from March’s price of C$6.61/GJ. The Dawn index averaged C$9.53/GJ, up 24% from April’s average of C$7.68/GJ. The upward price action continues to be influenced by below average storage levels, economic demand recovery, constrained production growth, and the ongoing Russian invasion of Ukraine. Prompt-month futures for AECO are trading at C$6.81/GJ, while Dawn is trading at C$10.60/GJ. Prices have fallen from last week’s highs, with week-over-week decreases of $0.52/GJ and $0.04/GJ at AECO and Dawn, respectively. Point Logic reports Canadian natural gas storage for the week ending May 27th was sitting at 221 Bcf, after an overall injection of 3 Bcf. Eastern Canadian storage had an injection of 10 Bcf, while Western Canadian storage had a withdrawal of 7 Bcf. Storage inventories are 44.8% below the 5-year average and 41.5% below storage levels last year at this time. Canadian storage is 25% full, with Eastern storage levels now at 35% of capacity and Western storage 21% full. An injection of 4 Bcf is expected for the week ending tomorrow.
– Karyn Morrison, Energy Advisor
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