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Gas price hikes coming to North America after off-season
2023/6/27
After a quiet off-season in the North American natural gas market, this summer has arrived and natural gas demand will then surge, according to a June 22, 2023, report on the Drilling Zone USA website.
That's according to Ed Allen, an energy analyst at Norwegian energy information agency Rysted, in a June 20 update on North American natural gas and LNG markets sent to Drilling Zone USA.
In the update, Allen said, "Strong supplies and colder weather have kept natural gas prices low over the past few months, but as temperatures rise across the region, demand for cooling in residential and commercial locations means higher natural gas prices are on the horizon."
"The frequency of cooling days (CDD) has a significant impact on natural gas demand, which is set to rise materially as much of the U.S. deals with a severe heat wave in early summer." Allen added.
In the update, Allen noted that Resta Energy's model predicts that natural gas demand for electricity in the continental U.S. will reach 50 billion cubic feet per day this summer due to limited coal-to-gas conversion and competitive domestic natural gas prices.
"We expect natural gas electricity demand to average 42.4 billion cubic feet per day this summer (June through August), with natural gas demand peaking at 45 billion cubic feet per day in July." Allen said in the latest report.
He added, "The South Central and Eastern regions of the U.S. will utilize the most natural gas, averaging 12.7 billion cubic feet per day and 18.5 billion cubic feet per day, respectively."
Trajectory of cooling days
In his latest report, Allen said the trajectory of cooling days changes as the climate warms and the domestic balance will be significantly impacted by increased demand for natural gas-fired generation.
"Weather is unpredictable, so our forecast is conservative, so if temperatures are above the 3-year average, natural gas electricity demand will average higher than expected." Allen continued.
In the update, Allen noted that this week could be a precursor to higher-than-expected regional natural gas demand "as average temperatures in Texas are expected to exceed 100 degrees Fahrenheit (37 degrees Celsius), which could put the grid to the test."
According to Allen, "Through June 19, natural gas demand accounted for 56 percent of the fuel mix, according to data released by the Electric Reliability Council of Texas (ERCOT)."
"Based on these data, natural gas utilization is about 81 percent relative to summer capacity, so regional markets can expect higher natural gas demand if temperatures continue to rise." Allen added.
Henry Center Prices
In his update, Allen emphasized that summer natural gas generation demand will have a significant impact on market balance and short-term Henry Center prices this year.
He said, "The U.S. natural gas domestic market has been accommodative this year as the market copes with increased inventories due to a warmer than normal 2022/2023 winter."
He added, "This, combined with the increase in supply, has led to lower prices at Henry Center and reduced the price outlook for the year."
Allen continued, "Our estimates suggest that natural gas prices will remain depressed this year, however, rising summer demand will provide some much-needed tightening of the domestic balance and set a short-term floor for Henry Center prices."
Allen continued, "We estimate an average summer gas price of $2.73 per million Btu (a 2.5% premium to the current futures curve) for the Henry Center and $2.91 per million Btu for the remainder of the year."
The firm's core view suggests that the futures curve is absorbing the impact of summer gas demand, according to analysts at Restat Energy, adding that barring a major weather event, "we could see fewer weekly injections than expected, which would alter the storage trajectory in the continental U.S. and provide short-term bullish price action."
In its latest Short-Term Energy Outlook report released earlier in June, EIA projected natural gas prices at $2.20 per million British thermal units at the Henry Center this year and $2.62 per million British thermal units in the third quarter. The latest Energy Outlook report highlighted that the Henry Center's natural gas spot price averaged $6.42 per million British thermal units last year.
In its last Short-Term Energy Outlook report released in May, EIA projected the average cost of natural gas at the Henry Center to be $2.91 per million British thermal units by this year.
Henry Center Price Fundamentals
In a separate market update sent to the Drill Zone USA website on June 21, Resta Energy Senior Analyst Lu Ming Pang highlighted that Henry Center natural gas prices rose to $2.54 per million British thermal units on June 20 from $2.41 per million British thermal units on June 15.
In his latest report, Pang said, "Fundamentals remain unchanged, with high inventory levels continuing to dampen prices, especially during a period of lower gas demand following liquefaction plant maintenance."
"Henry Center natural gas inventories currently stand at 2,634 billion cubic feet as of June 9, about 15 percent above the five-year average and 27 percent above the year-ago level." Pang adds.
"Injected gas storage through June 9 reached 84 billion cubic feet, about 7 percent above the five-year average and 11 percent below the 94 billion cubic feet at the same time last year," Pang continued.
In the update, the agency's analyst noted that the Central and South Atlantic regions of the U.S. had more cooling days than the Mid-Atlantic and Pacific regions, where he said temperatures are closer to baseline temperatures.
"Overall, the U.S. is still showing about 35 cooling days, which means temperatures are not much higher than the baseline, which means we're still waiting for natural gas generation cooling demand to pick up." Pang said.
He added, "This will change in July, when temperatures are expected to be above average, which could lead to increased demand for natural gas-fired generation cooling."
That's according to Ed Allen, an energy analyst at Norwegian energy information agency Rysted, in a June 20 update on North American natural gas and LNG markets sent to Drilling Zone USA.
In the update, Allen said, "Strong supplies and colder weather have kept natural gas prices low over the past few months, but as temperatures rise across the region, demand for cooling in residential and commercial locations means higher natural gas prices are on the horizon."
"The frequency of cooling days (CDD) has a significant impact on natural gas demand, which is set to rise materially as much of the U.S. deals with a severe heat wave in early summer." Allen added.
In the update, Allen noted that Resta Energy's model predicts that natural gas demand for electricity in the continental U.S. will reach 50 billion cubic feet per day this summer due to limited coal-to-gas conversion and competitive domestic natural gas prices.
"We expect natural gas electricity demand to average 42.4 billion cubic feet per day this summer (June through August), with natural gas demand peaking at 45 billion cubic feet per day in July." Allen said in the latest report.
He added, "The South Central and Eastern regions of the U.S. will utilize the most natural gas, averaging 12.7 billion cubic feet per day and 18.5 billion cubic feet per day, respectively."
Trajectory of cooling days
In his latest report, Allen said the trajectory of cooling days changes as the climate warms and the domestic balance will be significantly impacted by increased demand for natural gas-fired generation.
"Weather is unpredictable, so our forecast is conservative, so if temperatures are above the 3-year average, natural gas electricity demand will average higher than expected." Allen continued.
In the update, Allen noted that this week could be a precursor to higher-than-expected regional natural gas demand "as average temperatures in Texas are expected to exceed 100 degrees Fahrenheit (37 degrees Celsius), which could put the grid to the test."
According to Allen, "Through June 19, natural gas demand accounted for 56 percent of the fuel mix, according to data released by the Electric Reliability Council of Texas (ERCOT)."
"Based on these data, natural gas utilization is about 81 percent relative to summer capacity, so regional markets can expect higher natural gas demand if temperatures continue to rise." Allen added.
Henry Center Prices
In his update, Allen emphasized that summer natural gas generation demand will have a significant impact on market balance and short-term Henry Center prices this year.
He said, "The U.S. natural gas domestic market has been accommodative this year as the market copes with increased inventories due to a warmer than normal 2022/2023 winter."
He added, "This, combined with the increase in supply, has led to lower prices at Henry Center and reduced the price outlook for the year."
Allen continued, "Our estimates suggest that natural gas prices will remain depressed this year, however, rising summer demand will provide some much-needed tightening of the domestic balance and set a short-term floor for Henry Center prices."
Allen continued, "We estimate an average summer gas price of $2.73 per million Btu (a 2.5% premium to the current futures curve) for the Henry Center and $2.91 per million Btu for the remainder of the year."
The firm's core view suggests that the futures curve is absorbing the impact of summer gas demand, according to analysts at Restat Energy, adding that barring a major weather event, "we could see fewer weekly injections than expected, which would alter the storage trajectory in the continental U.S. and provide short-term bullish price action."
In its latest Short-Term Energy Outlook report released earlier in June, EIA projected natural gas prices at $2.20 per million British thermal units at the Henry Center this year and $2.62 per million British thermal units in the third quarter. The latest Energy Outlook report highlighted that the Henry Center's natural gas spot price averaged $6.42 per million British thermal units last year.
In its last Short-Term Energy Outlook report released in May, EIA projected the average cost of natural gas at the Henry Center to be $2.91 per million British thermal units by this year.
Henry Center Price Fundamentals
In a separate market update sent to the Drill Zone USA website on June 21, Resta Energy Senior Analyst Lu Ming Pang highlighted that Henry Center natural gas prices rose to $2.54 per million British thermal units on June 20 from $2.41 per million British thermal units on June 15.
In his latest report, Pang said, "Fundamentals remain unchanged, with high inventory levels continuing to dampen prices, especially during a period of lower gas demand following liquefaction plant maintenance."
"Henry Center natural gas inventories currently stand at 2,634 billion cubic feet as of June 9, about 15 percent above the five-year average and 27 percent above the year-ago level." Pang adds.
"Injected gas storage through June 9 reached 84 billion cubic feet, about 7 percent above the five-year average and 11 percent below the 94 billion cubic feet at the same time last year," Pang continued.
In the update, the agency's analyst noted that the Central and South Atlantic regions of the U.S. had more cooling days than the Mid-Atlantic and Pacific regions, where he said temperatures are closer to baseline temperatures.
"Overall, the U.S. is still showing about 35 cooling days, which means temperatures are not much higher than the baseline, which means we're still waiting for natural gas generation cooling demand to pick up." Pang said.
He added, "This will change in July, when temperatures are expected to be above average, which could lead to increased demand for natural gas-fired generation cooling."
"However, the strong natural gas inventory levels so far this year will likely only lead to modest changes in natural gas prices," Allen said.
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