An explosion yesterday afternoon at Freeport LNG export terminal in Texas sent Henry Hub prompt-month natural gas futures tumbling, dropping almost 60 cents to close at US$8.699/MMBtu. Prior to the incident, July futures hit a mid-day high of US$9.664/MMBtu, as hot temperatures in the Southern US increased cooling demand. Any fundamentals-based forecast has been out of step with the current market, as the summer market has been fully wrapped in a technical rally that, to fizzle out, was waiting for something in the fundamentals to point to a clear need for a major price correction: production growth or demand destruction. The Freeport plant, which provides about 18% of US LNG processing, has removed ~2 Bcf/day of LNG export capacity for a speculated three weeks. The Freeport LNG terminal While this outage is not good for Europe’s supply shortage, it lowers short-term domestic demand considerably, while production struggles to ramp up. If the facility remains out of operation for an extended period, it could result in roughly 1.95 Bcf/d of gas supply, temporarily putting more gas into storage to reduce the current deficit. As of 1:30pm EDT Thursday afternoon, futures are back up 7 cents, trading at US$8.77/MMBtu. European gas prices surged up to a fifth on concerns of lost US LNG exports, as they work to wean themselves off Russian natural gas supply. This will most likely be a short-term event, cooling domestic natural gas prices, with a potential buying opportunity ahead of next winter.
The EIA estimated working gas storage was 1,999 Bcf for the week ending June 3rd, following an overall injection of 97 Bcf. The build was below market expectations averaging 98 Bcf, and means we are still without a triple-digit injection for this quarter. Storage levels are now 16.6% below year-ago levels and, relative to the five-year average, 14.5% less. Point Logic reports this injection season’s power burn level is a whopping 38% higher than last year at this time. This higher demand for natural gas as a power generation source is due to lower than normal US coal stocks.
In Canada, prompt-month futures for AECO are trading at C$7.18/GJ, while Dawn is trading at C$9.87/GJ. Prices have fallen at Dawn, with a week-over-week decrease of $0.73/GJ, whereas prices increased at AECO by $0.37/GJ. Point Logic reports US imports from Canada are up 12.3% from last week and, season-over-season, up 14.3% from last summer. Canadian natural gas storage for the week ending June 3rd was sitting at 279 Bcf, after an overall injection of 23 Bcf. Eastern Canadian storage had an injection of 12 Bcf, and Western Canadian storage had an injection of 10 Bcf. Storage inventories are 29% below the 5-year average and 33% below storage levels last year at this time. Canadian storage is 32% full, with Eastern storage levels now at 39% of capacity and Western storage 29% full. An injection of 18 Bcf is expected for the week ending tomorrow.
– Karyn Morrison, Energy Advisor / Grace Wilton, Senior Energy Advisor