Pricier Gas is on the Horizon
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas
After a muted shoulder season for North American gas markets, summer has arrived with a bang and demand is set to surge.
That’s what Rystad Energy Analyst Ade Allen said in a North America gas and LNG market update, which was sent to Rigzone on Tuesday.
“Strong supply and cooler weather kept prices low in the last few months, but as temperatures rise across the region, the need for cooling in residential and commercial settings means pricier gas is on the horizon,” Allen said in the update.
“The frequency of Cooling Degree Days (CDDs) has a significant impact on gas demand, and as much of the U.S. deals with a crippling early-summer heat wave, there will be a material uptick in gas demand,” he added.
Allen noted in the update that Rystad modeling projects daily Lower 48 gas power demand will reach 50 billion cubic feet per day this summer due to limited coal-to-gas switching and domestic gas price competitiveness.
“We expect gas for power demand for the summer period (June to August) to average 42.4 billion cubic feet per day, with demand peaking in July at 45.0 billion cubic feet per day,” Allen said in the update.
“South-Central and East regions will utilize the most, averaging 12.7 billion cubic feet per day and 18.5 billion cubic feet per day, respectively,” he added.
CDDs Trajectory
As the trajectory of CDDs changes with warmer weather, domestic balances will see a significant impact via increases in gas-for-power demand, Allen stated in the update.
“Our estimates indicate CDDs will average 332 Fahrenheit days over the summer period (June to August), which is on par with the same period in 2022,” he added.
“Weather is unpredictable and our forecasts are conservative as a result, so if temperatures are warmer than the three-year average, gas for power demand averages will be higher than expected,” he continued.
In the update, Allen noted that this week could serve as a precursor for regional gas demand overshooting estimates “as temperatures in Texas are expected to average over 100 degrees Fahrenheit, potentially putting the grid to the test”.
“As of yesterday [Monday], per the Electricity Reliability Council of Texas (ERCOT), natural gas represents ~56 percent of the fuel mix,” Allen said.
“At those levels, natural gas is running at around 81 percent utilization relative to summer capacity, so if temperatures remain elevated, the regional market can expect higher gas demand,” he added.
Henry Hub Price
Summer gas-for-power demand will have material implications on 2023 balances and short-term Henry Hub prices, Allen highlighted in the statement.
“The domestic market has been loose in 2023, as the market dealt with elevated inventories due to a warmer than normal winter in 2022/23,” he said.
“This scenario, combined with the growth in supply, has precipitated the decline in Henry Hub prices and diminished the price outlook for 2023,” he added.
“Our estimates indicate prices will remain subdued in 2023, however, the uptick in summer demand will provide some much-needed tightening for domestic balances and set a short-term floor for Henry Hub prices,” he continued.
“We estimate summer Henry Hub prices will average $2.73 per MMBtu (+2.5 percent premium to the current futures curve) and $2.91 per MMBtu for the balance of 2023,” Allen went on to state.
The Rystad analyst noted that the company’s central view indicates the futures curve is discounting the implications of summer gas demand and said that, barring a material weather event, “we could see narrower than expected weekly injections, which will change the trajectory for Lower 48 storage and provide short-term bullish price action”.
In its latest short term energy outlook, which was released earlier this month, the U.S. Energy Information Administration projected that Henry Hub natural gas spot price would average $2.66 per MMBtu this year. The June EIA STEO sees the commodity coming in at $2.20 per MMBtu in the second quarter and $2.62 per MMBtu in the third quarter. Last year, the Henry Hub spot price averaged $6.42 per MMBtu, the latest STEO highlighted.
In its previous STEO, which was released in May, the EIA projected that Henry Hub would average $2.91 per MMBtu in 2023.
Henry Hub Fundamentals
In a separate market update sent to Rigzone on Wednesday, Rystad Senior Analyst Lu Ming Pang highlighted that Henry Hub prices increased to $2.54 per MMBtu on June 20 from $2.41 per MMBtu on June 15.
“The fundamentals remain the same, with high storage levels continuing to suppress prices, especially amidst a period of lower gas demand following maintenance at liquefaction plants,” Pang said in the update.
“Storage levels are now at 2,634 billion cubic feet as of June 9, some 15 percent higher than the five-year average and 27 percent higher than the same period last year,” Pang added.
“Injections into storage reached 84 billion cubic feet on June 9, some seven percent higher than the five-year average and 11 percent lower than the 94 Bcf seen this time last year,” Pang continued.
In the update, the Rystad analyst pointed out that the U.S. Central and South Atlantic regions are indicating higher CDDs than the Middle Atlantic and Pacific regions, which he said are tracking closer to baseline temperatures.
“As a whole, the U.S. is still indicating about 35 CDDs, implying that temperatures are not much above the baseline, meaning we are still awaiting a pick-up in gas power demand for cooling,” Pang said.
“This is set to change in July when temperatures are expected to be warmer than average, which may cause gas power demand for cooling to increase,” he added.
“However, strong storage levels so far this year could result on only modest changes to prices,” he continued.
by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas