Natural Gas Market Indicators – December 15, 2022

Market Summary

• The EIA estimates an increase in production for the month of December compared to previous estimates, compounding on near record levels of production as 2022 comes to an end.
• Henry Hub prompt month futures have been relatively low recently, dropping to prices not seen since March. The long-term strip is trading below $6.00 from March of 2023 through the end of the year.
• The most recent installment of the Energy Information Administration’s weekly storage report posted a net withdrawal of 21 Bcf, 73% lower than the prior week’s withdrawal of 80 Bcf.

Weather

Winter Storm Diaz is bringing arctic temperatures and snowfall to large areas of the U.S. The winter storm developed off the Pacific west coast on December 10th as an Artic trough descended from the North. Weather models in the early part of the week forecasted the storm to track across the U.S. as a single front that could bring heavy snow and blizzard conditions to the North and thunderstorms with flooding potential to the Southeast. The Weather Channel reports that as of Wednesday, December 14, winter storm Diaz is bringing Blizzard conditions with heavy snow and wind to the High Plains. North Dakota, South Dakota, Nebraska, and Colorado were posting travel advisories throughout the state as winter conditions turned severe. Winter Storm Diaz is expected to push colder temperatures into the East and Southeast later in the week and into early next week, potentially bringing more snow to an already blanketed Northeast. NOAA’s 16-day forecast mirrors current conditions while also forecasting colder temperatures to persist in the Midwest and East throughout the final two weeks of December, with comparatively mild temperatures bringing in the new year. For the week ending December 10, the weather in the U.S. was roughly one percent colder than last year, and the month of November saw temperatures roughly 13 percent warmer than last year while also being 13 percent warmer than normal.

Demand

EIA’s Weekly Natural Gas Update reported an increase of 7.2 Bcf per day in natural gas demand for the week ending December 7 compared to the week prior. The increase from 83.5 Bcf per day to 90.7 Bcf per day, was largely due to a 4.2 Bcf per day increase in demand from the residential and commercial sectors. Although not as large as the 18.2 Bcf per day increase from the report week ending November 16, total U.S. consumption is up 8.8 Bcf per day year over year.

Production

The EIA’s Drilling Productivity Report released on December 12, shows an estimated increase in production for the month of December in six of the seven reported regions. Of the seven reported regions, Appalachia is estimated to have the highest production for December at roughly 35,417 MMcf per day, followed by the Permian and Haynesville regions at 21,268 MMcf and 16,257 MMcf per day respectively. The Drilling Productivity Report estimates January 2023 production will rise in all seven of the reported regions, for an estimated cumulative increase of 535 MMcf per day. The Haynesville is expected to have the largest forecasted increase in production at 152 MMcf per day. Data from PointLogic reported in the EIA’s Natural Gas Weekly Update reports a 0.6 Bcf per day decrease in production from 100.8 to 100.2 week over week. Although production is slightly down week-over-week, production is up 3.7 Bcf per day year over year for the week ending December 7.

LNG Markets

On November 14, Freeport LNG stated that the necessary reconstruction work to their idled facility was 90% completed, and that approximately 2 Bcf per day in production was expected to come back online in January of 2023. However, on December 12 the FERC provided a list of requirements Freeport will have to meet before a restart authorization is issued. The list is lengthy and could potentially delay Freeport’s reopening plans. The Natural Gas Weekly Update by the EIA reported overall natural gas deliveries to LNG export terminals increased by 0.2 Bcf per day to 11.8 Bcf per day for the week ending December 7th. Deliveries to South Louisiana export terminals decreased by 0.1 Bcf per day from 8.5 Bcf per day to 8.4 Bcf per day for this report week. Although deliveries to South Louisiana decreased, natural gas deliveries to other LNG terminals increased by 0.3 Bcf to 3.4 Bcf per day for the report week ending December 7. As of December 14, prompt-month futures at the Dutch TTF were trading at around $43 per MMBtu, while prompt-month futures at the Japan-Korea Marker were trading at around $33 per MMBtu.

Pipeline Imports and Exports

According to PointLogic, imports from Canada were flat week over week, remaining at 5.1 Bcf per day, and are down only 0.1 from the 5.2 bcf per day weekly average from the same time last year. Exports to Mexico dropped by 0.1 Bcf to 5.6 Bcf per day week over week for the week ending December 7.

Underground Storage

The most recent installment of the Energy Information Administration’s weekly storage report posted a net withdrawal of 21 Bcf, 73% lower than the prior week’s withdrawal of 80 Bcf. The 21 Bcf withdrawal is also roughly 56% lower than the withdrawal from one year ago. As of December 2nd, working gas in storage totaled 3,462 Bcf, 1.6 percent lower than the five-year average.

Rig Count

The total U.S. rig count decreased by 4, with two of the rigs being oil-directed and two rigs being gas-directed. As of December 9th, 780 rigs remain in service across the U.S. The total rig count one year ago was 576 rigs.

Reported Prices

Prompt-month future prices at the Henry Hub have remained relatively low, dropping to as low as $5.47 per MMBtu on December 6, the lowest closing price since March. Prices bounced back up to around $7.00 per MMBtu on December 13 and were trading at around $6.90 per MMBtu on December 15. Spot prices, on the other hand, have been heavily affected by Winter Storm Diaz, with regions directly affected by the storm seeing the largest surges in spot prices. On December 12 some areas in the Pacific Northwest and California saw spot prices rise to as much as $55 per MMBtu. As of December 15, the long-term strip remains below $6.00 from March 2023 through the end of the year.