NATURAL GAS PRICE OUTLOOK - January 11, 2020 - SpaceCraft
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NATURAL GAS PRICE OUTLOOK January 11, 2020
The EIA reported a weekly draw of 130 bcf for the week ended January 1st. This compares to a similar 130 bcf draw for the same week last year but was 50 bcf below the five-year average for that same week. So, the market begins 2021 with respective surpluses of 169 and 191 bcf to last year and the five-year average. The next three weeks should incur a total withdrawal of around 505 bcf as the market is in the climatological peak of the winter. And if valid, total storage levels will then be only 22 bcf above last year and 188 bcf higher than the five-year average. The market has seen decent draws over December and looks to do the same in January despite lower-than-average seasonal heating demand. This is largely due to the near-capacity level of LNG exports of recent. The market must incur average weekly draws of 128 bcf over the remining twelve weeks of the withdrawal season to be below the five-year average of 1,800 bcf by the end of March. And an e-o-s level of 1,800 bcf is likely price neutral, much above is bearish and below 1,600 is price supportive - if not bullish.
Dry marketed production averaged 89.0 bcf/d for October according to the latest actualized data released by the EIA. This is 0.6 bcf lower on a month-on-month basis and 6.8 bcf/d below the same month last year as the market was approaching its all-time highest level of production. A large part of the m-o-m decline was due to a very active storm season with Hurricanes Gamma, Delta, and Zeta in the Gulf of Mexico shutting in offshore on three occasions. Total GOM production averaged 1.2 bcf/d for the month compared to July’s 2.2 bcf/d average when no hurricanes occurred in the Gulf. As offshore production has returned to “normal”, it is helping maintain total U.S. “baseline” production back above 90 bcf/d. For the year thus far, Jan-Oct 2020 has cumulatively averaged 91.1 bcf/d and compares to 91.4 for the period of Jan-Oct 2019. So, despite currently elevated lower year-on-year levels - the calendar year has not seen that large of y-o-y decline overall.
Total U.S. demand for October was at 75.1 bcf/d on an actual basis - essentially flat with the same month last year. And for 2020, this brings cum-to-date demand to an average of 81.7 bcf/d through October versus 82.8 bcf/d for the same period last year. This is not nearly as much of a year-on-year decline as I and many analysts expected back in 1Q with the Covid issue beginning. Industrial demand continues its comeback from earlier this year. October usage was at an average of 22.5 bcf/d for a year-on-year increase of 0.4 bcf/d compared to October 2019. And cum-to-date figures indicate a modest 0.4 bcf/d decline y-o-y through October. Demand for power generation was at 30.8 bcf/d for the month - compared to a level of 31.0 bcf/d for October of last year. Estimated data recently has power-gen demand all over the place; lower by 3 bcf/d the last few weeks 2020 with mild temps and high dispatch from renewables - but then 2 bcf/d higher y-o-y this past week. And going forward, LNG exports will mostly supplant power-gen as the demand-swing factor to balance over-supply in the U.S. market.
Total U.S. exports averaged 8.95 bcf/d on an actualized basis for October. This aggregate level was second only to March 2020 before the world went into Covid-lockdown and obviously represents a huge recovery from the summer low ebb. For the month; (i) LNG imports were literally at -0- , (ii) Canadian pipeline imports averaged 4.21 bcf/d, (iii) Mexican pipeline exports were very slightly below the month before at 5.97 bcf/d, and (iv) LNG exports averaged 7.19 bcf/d - high but below the January 2020 peak of 8.07 bcf/d. LNG exports look to remain quite high when the actuals are later reported at around 10ish bcf/d to finish 2020. And going forward into the reasonably-predictable period of 1Q - total U.S. exports could and should average around 11.5 bcf/d. Any projection after 1Q becomes a lot less certain as the Asian and European price arb shrinks seasonally and as any continued marginal increases of pipeline exports into Mexico are not certain.
We have not checked in on U.S. nuclear supply since September and so thought that we would take a quick look at same. Most units have to and will run in the dead of winter season. Thusly, there is typically not a lot of year-on-year gain or loss for incremental gas demand therefrom. As of late last week; the y-o- delta in outages was 2,500 mw or roughly 0.4 bcf/d available in theoretical market share gain y-o-y for natural gas (less renewables share therefrom). And looking ahead to Spring - even though the outage levels were quite high last Fall, we would expect a decent year-on-year incremental demand gain for natural gas this Spring. Our estimate for the seasonally-heavy outage months of April and May will likely see outage levels exceed last year by an average of around 3,500 mw. And this should equate to around a 40 bcf y-o-y pick-up for the Apr-May period - less what renewables grab of that.
A few quick random items within ERCOT; (i) it is difficult to see with the scale of the graphic to the right - but Texas is estimated to have added just under 400,000 residents in 2020 and thus the current 15.5% reserve margin for Summer 2021 may be overstated if this growth rate continues into 2021, (ii) wind surpassed coal last year in ERCOT’s total fuel mix - and coal lost market share to wind not price-induced dispatch for gas-fired generation for the first time ever, (iii) ERCOT incurred the highest number of late releases of DAM clearing prices since 2011 but fortunately most occurred on low volatility day-ahead and thus did not too much effect bal-day trades, and (iv) this winter thus far has incurred high wind-avails heavily muting Real-Time prices and seasonally strong wind-avails lie ahead for Spring - likely keeping prices on the defensive.
Winter heating demand continues to underperform as
above normal temps continue on with only brief outbreaks
of colder conditions. Cum-to-date HDD’s this withdrawal
season are 2.6 degrees above normal and 2.5 degrees
warmer than last year. Note too that there has only been
one week since the first week of November that has seen
HDD levels reach normal. The Euro model has been
trending cooler over the last few weeks. But that is simply
taking relative conditions from blowtorch to warm-oven.
And February looks to be extremely mild in the eastern 2/3
of the country if the Euro extended forecast is later valid. So
as of right now - weather help for gas still looks elusive.
HDD NORMAL HDD NORMAL HDD 2019-2020 HDD 2020-2021
NOV 110 128 78 340
NOV 127 175 95 HDD NORMAL HDD 2019-2020 HDD 2020-2021
320
NOV 143 144 118
NOV 160 148 131 300
DEC 175 172 166 280
DEC 189 175 161
260
DEC 202 202 204
DEC 212 167 183 240
JAN 220 160 193
220
JAN 224 172 191
JAN 226 179 200
JAN 227 210
180
JAN 225 180
FEB 220 175 160
FEB 212 200 140
FEB 204 190
120
FEB 193 169
MAR 181 140 100
MAR 170 114
80
MAR 157 133
MAR 144 122 60
MAR 131 107
40
TOTALS 4,052 3,562 1,520
CUM-TO-DATE 1,318 1,311 1,136 20
HDD DELTA NA -7 -182 0
NOV
NOV
NOV
NOV
DEC
DEC
DEC
DEC
JAN
JAN
JAN
JAN
JAN
FEB
FEB
FEB
FEB
MAR
MAR
MAR
MAR
MAR
# OF DAYS NA 70 70
AVERAGE HDD DELTA NA -0.1 -2.6You can also read
