Natural Gas Market Indicators – December 13, 2023
Natural Gas Market Summary
The EIA reports that domestic and international storage levels are well above average this winter heating season. The U.S. began the season with its highest storage levels since 2020, above-ground storage levels in both Japan and Korea have reached new highs, and storage in Europe began the heating season at 96 percent fullness. In the US, moderate domestic demand has kept stocks healthy a month into the heating season. Last week a drop in domestic demand of 9.3 Bcf per day driven by the residential and commercial sectors led in part to a muted weekly withdrawal from storage of 117 Bcf. The moderate demand, coupled with enduring strong production has helped keep prompt-month futures below $3.00 per MMBtu through the end of the year.
Reported Prices
Prompt-month futures remain below $3.00 per MMBtu as of December 13, with January 2024 pricing below $2.35, according to data from CME. Futures remain below $3.00 per MMBtu through November of 2024, rising to roughly $3.40 per MMBtu in December. As of today, spot prices vary across the country, with the highest prices of $4.04 per MMBtu seen out of Northern California.
Weather
Warmer temperatures have descended from Canada and settled over the Midwest and Western U.S. while the East Coast experiences a cold front. NOAA anticipates the colder temperatures to remain in the East through the end of the week before the warmer temperatures push from the West to the East over the weekend. The week ending December 9 saw temperatures roughly 16 percent warmer than last year and 19 percent warmer than normal as measured by heating degree days (HDD). All regions experienced warmer temperatures than normal, while the weather in the U.S. was roughly two percent warmer than last year and four percent warmer than normal for the month of November.
Demand
Total natural gas consumption fell an average of 9.3 Bcf per day from 99.1 to 89.8 Bcf per day for the week ending December 6, according to data from the Energy Information Administration. The primary driver for the drop in demand was the 7.8 Bcf per day week-over-week decline in consumption from the residential and commercial sectors, falling from 40.8 to 33 Bcf per day. Both the power generation and industrial sectors experienced marginal declines in consumption, which is likely due to the milder temperatures across the country.
Production
U.S. dry gas production remains above 103 Bcf per day according to S&P Global Commodity Insights, contributing to the daily average of 105 Bcf for the week ending December 6 as reported by the EIA. The 105 bcf per day is three Bcf per day higher than the daily average of 102 Bcf one year ago.
Pipeline Imports and Exports
The EIA reports an average of 5.6 Bcf per day in pipeline imports from Canada for the week ending December 6, a 0.3 Bcf per day increase week-over-week. While pipeline imports from Canada declined week-over-week, average daily exports to Mexico increased 0.4 Bcf per day week-over-week from an average of 6.1 Bcf per day to 6.5 Bcf per day for the same period.
LNG Markets
According to the EIA’s Natural Gas Weekly Update, natural gas deliveries to U.S. LNG terminals declined by 0.2 Bcf per day week-over-week, producing an average of 14.1 Bcf per day in terminal deliveries for the week ending December 6. Prompt-month futures for LNG cargoes out of both JKM and TTF declined week-over-week, $0.47 decline from $16.57 to $16.10 in JKM and $1.06 from $13.97 to $12.91 per MMBtu reported out of TTF. On December 11, Bloomberg reported that the European Union reached a tentative deal that would allow member countries to ban gas imports from Russia and Belarus, as part of a wider package that set common rules for natural gas, hydrogen, and RNG. The EU Council said in a statement that the regulation aims to protect “the essential security interests of the member states or of the EU, while taking account of security of supply and diversification objectives.”
Working Gas in Underground Storage
Withdrawals from storage this winter heating season continue as the EIA Natural Gas Storage Dashboard reports a 117 Bcf withdrawal for the week ending December 7. This puts working gas in underground storage at 3,719 Bcf, which is still seven percent above last year and the five-year average. The EIA’s December 7 edition of Today in Energy reported that the U.S. began the winter heating season with the most working natural gas in storage in the lower 48 since 2020. In addition to being the highest levels since 2020, natural gas inventories are five percent higher than the previous five-year average and seven percent higher than October 2022 levels. The high storage levels are partially the result of the mild 2022-2023 winter heating season which allowed working gas inventories to total 1,823 Bcf at the conclusion of the season, roughly nineteen percent higher than storage levels at the conclusion of the past five winter heating seasons.
Taking a look at global LNG storage levels, EIA reports monthly volumes of LNG stored in Japan’s above-ground storage tanks reached all-time highs from August 2022 through July 2023. South Korea’s LNG storage inventory in above-ground tanks tells a similar story as storage has reached record levels from October 2022 through August 2023.
Rig Count
Baker Hughes reports that the total rig count in the U.S. increased slightly with the addition of three gas-directed rigs and the decommissioning of two oil-directed rigs. OF the 626 total operational rigs in the U.S., 503 are oil-directed, 119 are gas-directed, and four are miscellaneous. Associated natural gas production has tripled in the top three Permian oil plays as reported by the December 6th edition of the EIA’s Today in Energy. Associated natural gas is natural gas produced from oil wells, which has averaged 13.7 Bcf per day in the Wolfcamp, Spraberry, and Bone Springs oil plays in the Permian region for the first seven months of 2023. The gas-to-oil ratio in every barrel of oil a well produces has been increasing as crude oil production levels have increased among the oil wells in these three oil plays.
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