Despite record-breaking heat in the Western US, news that Freeport’s LNG export terminal in Texas won’t resume partial operations for three months sent Henry Hub prompt-month natural gas futures tumbling nearly 17% on Tuesday to close at US$7.189/MMBtu. Following the explosion on June 8th, it was speculated the liquefaction facility’s ~2 Bcf/day of LNG export capacity would be stranded for just three weeks but reports now state that full operations won’t resume until “late 2022.” This has helped alleviate some supply concerns, but power burn demand is forecasted to be significant in July and August. As of 2:00pm EDT Thursday afternoon, futures have trended upward, trading at US$7.42/MMBtu, as soaring heat, high European and Asian natural gas prices, and robust demand for liquefied natural gas (LNG) exports remain. European natural gas prices jumped as Gazprom, Russia’s state-owned energy firm, announced a ~40% reduction in natural gas to Germany through the Nord Stream pipeline after Canadian sanctions over the Russian invasion of Ukraine prevented German partner Siemens Energy from delivering equipment that is undergoing maintenance in Canada. The domestic supply/demand balance remains tight, with US dry gas production estimated at 94.3 Bcf/d, and with the EIA forecasting production to increase to an average of 95.7 Bcf/d in June and 97.9 Bcf/d in the second half of 2022.
The EIA estimated working gas storage was 2,095 Bcf for the week ending June 10th, following an overall injection of 92 Bcf, which was in line with market expectations. Storage levels are now 13.6% below year-ago levels and, relative to the five-year average, 13.4% less. Injections for the next few weeks are forecasted to be smaller-than-normal, with the record-setting heat wave in the Western US increasing natural gas demand for power generation.
In Canada, the June month-to-date AECO 5a spot rate is C$7.52/GJ, while the month-to-date Dawn Next Day weighted average index rate is currently C$9.88/GJ. Spot prices have more than doubled from this time last year, as storage levels remain significantly below the five-year average and unexpected global events continue to put upward pressure on domestic prices. Prompt-month futures for AECO are trading at C$7.21/GJ, while Dawn is trading at C$8.80/GJ. Prices have fallen at Dawn, with a week-over-week decrease of $1.08/GJ, whereas prices increased at AECO by $0.03/GJ. Point Logic reports Canadian natural gas storage for the week ending June 10thwas sitting at 302 Bcf, after an overall injection of 22 Bcf. Eastern Canadian storage had an injection of 15 Bcf, and Western Canadian storage had an injection of 7 Bcf. Storage inventories are 26% below the 5-year average and 30% below storage levels last year at this time. Canadian storage is 35% full, with Eastern storage levels now at 45% of capacity and Western storage 31% full. An injection of 24 Bcf is expected for the week ending tomorrow.
– Karyn Morrison, Energy Advisor