Volume 18, Issue 10 August 22, 2022
In this Issue
Editor's Note
Whats Moving the Market?
Energy Market Charts
Washington, D.C. Area Cooling/Heating Degree Days
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Editor's Note
Whats Moving the Market?
Week in review for August 14-20, 2022

Production, Storage, LNG (Freeport/Ukraine), Weather

Gas and power prices were up significantly this week. The prompt 12-month NYMEX natural gas strip (Sep 22–Aug 23) was up 4.8% for the week, the 12-month PJM STD 7x24 strip was up 5.1%.

Although the answer to what moves markets can invariably be “it’s complicated” and “nobody fully knows” with energy we can at least point to supply/demand fundamentals for some guidance as to what is going on. This article attempts to put some context on recent market-moving news in terms of relative impact on the supply/demand balance for U.S. natural gas which influences both natural gas and power prices, focusing on  Bcf/day for this coming winter.

For supply, by far the biggest component is U.S. production. EIA projects 2022 production will be 96.6 Bcf for 2022, which is 3 Bcf/day higher than 2021. As the market gets new signals that suggest production will be higher or lower, that directly impacts the view of supply/demand.

Over the winter, another significant portion of supply is gas withdrawn from storage. Thursday, the U.S. Energy Information Administration (EIA) reported that working gas in storage as of Friday August 29, 2022, was 2,519  Bcf. This was an increase of 18 Bcf from the previous week, a lower injection than expected. Inventories are still very low, now 296 Bcf lower than this same time last year, and 367 Bcf below the 5-year average. How does this influence the supply/demand balance? If that 296 Bcf short-fall to last year results in that same amount less being withdrawn from storage during this winter, that translates to 2 Bcf/day (over the traditional Nov-Mar withdrawal period).

LNG has also been in the news lately both due to impacts from Ukraine as well as a fire at the large Freeport LNG exporting facility. LNG exports have been averaging roughly 11 Bcf/day since the Freeport fire. When that facility comes back online, potentially as early as October, it will increase demand by 2 Bcf/day. In terms of the situation in Ukraine, because international gas prices are more than triple what they are in the U.S. many experts agree that U.S. LNG will be maxed out this winter (regardless of any improvement or worsening with the situation in Ukraine).

Weather also has a significant impact on demand and thus prices change as weather forecasts change. Roughly for every degree colder it is in U.S. during the winter, there is an additional 1.4  Bcf of residential and commercial heating consumption of natural gas. Obviously 1 degree on 1 day will have a little impact on the overall picture, but 1 degree colder on average over the whole winter would mean 1.4 Bcf/day more consumption (and likewise 1-degree average warmer would mean 1.4 Bcf/day less consumption). It appears the market is expecting temperatures around the 10-year historical average, which is warmer that the 30-year average (which NOAA and other providers of long-range forecasts use as a benchmark for comparison), but colder than last year. Roughly, the current forecast would suggest demand 0.5/day less than at the 30-year average temperature, but 0.8 Bcf/day more than last year.

Putting it all together to see relative impacts, production is forecast to be 3 Bcf/day higher in 2022 vs 2021, the current storage deficit equates to 2 Bcf/day less gas to withdraw over the winter, Freeport will add 2 Bcf/day of LNG demand once it comes back online, the situation in Ukraine is not expected to significantly alter US supply /demand for gas, and weather forecast suggest 0.8  Bcf day more heating demand versus last winter.

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