Natural Gas Market Indicators – October 3, 2023
With the shoulder season typically comes milder weather and lower natural gas demand. This year, actual temperatures are trending much higher than average, bringing elevated electricity requirements and, consequently, higher gas flows serving power generators. Meanwhile, as gas utilities and other storage consumers replenish stocks ahead of the winter heating season, the overall market continues to meet record domestic demand and record export volumes year to date. And prices? Today’s landscape has shifted dramatically from last year. The U.S. market continues to price next-month delivery of natural gas below $3 per MMBtu, a stark difference from September 2022’s average of $7.76. Today’s market pricing is shaped by record year-to-date dry gas production, above-average storage inventories, and the flexibility enabled by infrastructure connections within the U.S. and our neighbors to the North and South.
As of October 2, prompt-month futures are trading below $2.90 per MMBtu at the Henry Hub, and longer-term futures remain below $3.60 per MMBtu through October 2024. Prices in most major hubs across the U.S. have dropped over the last week of September and into October, but the cooler temperatures in the Northeast have been followed by increasing prices at the Algonquin.
The Atlantic Basin continues to see some tropical storm activity, but no storm is currently expected to impact the U.S. The last storm to directly impact the U.S. was Tropical Storm Ophelia, which made landfall over the mid-Atlantic region on October 23. Turning to temperatures, the last week of September was hot across most of the country, with temperatures 20 percent warmer than last year and 25 percent warmer than normal as measured by cooling degree days. The West North Central census region was 322 percent warmer than normal. The six-month period ending September 30 was 11 percent cooler than 2022 and 6.5 percent warmer than normal. According to the NOAA Global Forecasting System Ensemble model, temperatures are expected to remain relatively warm across the U.S. over the first and second weeks of October, outside a cold front that is expected to make its way starting on the Pacific coast over the first three days of October and moving to the East coast by the beginning of the week of October 9.
According to the EIA’s latest natural gas weekly update, total domestic natural gas consumption increased by nearly 1 Bcf per day to about 68.4 Bcf per day for the week ending September 27, a 1.3 percent increase over the previous week. Requirements for natural gas-fueled power generation are driving the increased gas use in the short term. The long-term trend for gas flows to power generation is reflected in the EIA Monthly Electric Power Industry Report, which reports that the capacity factor of natural gas combined cycle power plants in the U.S. has steadily increased from around 40 percent in 2008 to 57 percent in 2022. The increase in the capacity factor has been primarily driven by efficiency gains as newer gas-powered plants come online, coupled with a significant reduction in the price of natural gas. Typically, during the Fall months, natural gas demand for power generation decreases as cooling requirements become less widespread, while residential and commercial customers ramp up demand for natural gas for home heat. For the week ending September 27, residential and commercial demand increased by 7.4%.
The U.S. continues to produce near-record-setting amounts of natural gas in 2023. The EIA reports that for the week ending September 27, production averaged 101.2 Bcf per day. Since October 2022, production has remained in the 101 to 103 Bcf per day range. The first quarter of 2023 saw demand outpace supply, which is typical for winter months. Still, market demand has lagged supply ever since, despite increasing demand for natural gas for electric generation, reflecting the above-average levels of working gas in underground storage.
Pipeline Imports and Exports
According to EIA, pipeline exports to Mexico increased by 1.5 percent to 6.7 Bcf per day for the week ending September 27. Pipeline imports from Canada averaged 5.1 Bcf per day over the same period.
A new report by Visiongain, a consulting firm out of the U.K., forecasts that the global LNG market will grow at a compounded annual growth rate of 2.2 percent over the next ten years. The same firm valued the global LNG market at US$190.2 billion in 2022. According to Visiongain, the U.S. has emerged as a major LNG exporter powered by its vast supply of shale gas, and LNG will play an important role in helping the global market meet its energy needs, providing solutions to remote and off-grid regions that have historically been underserved. According to Bloomberg Finance, the U.S. exported 79 Bcf of LNG between September 21 and September 27. This represents a decrease from previous weeks, primarily driven by near-zero exports from Cove Point as it undergoes annual maintenance. On October 2, gas was trading at $13 per MMBtu at the Dutch TTF, and $14.60 at the JKM.
Working Gas in Underground Storage
Weekly natural gas volumes injected into storage have lagged the five-year average consistently from July through mid-September. While overall working gas levels remain above the five-year average, the slower pace of injections led to a narrowing spread between current levels and the average. However, the week ending September 16 showed a 90 Bcf net change, which was 6 Bcf above the weekly five-year average. The Natural Gas Storage Dashboard from the EIA reports nationwide stocks of 3,359 Bcf, which is 13 percent above last year’s stocks and 7.6 percent above the five-year average. Of note, storage stocks in every region are now above the five-year average for the first time this calendar year, led by the Mountain region, which currently holds 20 percent more gas than the five-year average, and a rapid refill underway in the Pacific area.
Baker Hughes reports that the rig count in the U.S. continues its recent downward trend, losing seven rigs over the week ending September 29 for a total rig count of 623. Following a pronounced decline in rigs following the COVID-19 pandemic, the rig count had grown for three straight years to nearly 800 rigs. However, the growing trend has inverted since the beginning of the year.
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