For natural gas report week, July 9, 2020, the EIA reported a net increase in storage of 56 Bcf. The build was in line with forecasts of injections ranging from 50 Bcf to 66 Bcf, averaging 56 Bcf. Last year for the same week there was an injection of 83 Bcf and the five-year average is 68 Bcf.

Working gas in storage was 3,133 Bcf as of Friday, July 3rd, 2020 per EIA estimates. Inventory was reported at 685 Bcf (28.0%) higher than last year for the same week and 454 Bcf (16.9%) more than the five-year average of 2,679 Bcf.

Natural Gas Report – July 9, 2020

1. Natural Gas Fundamentals

Overall supply averaged 93.9 Bcf/d last week as imports from Canada increased by 2.4% while production grew by 1.4%.

The average rate of injections into storage is 15% more than that of the five-year average this point in the refill season. If the injection rate matches the five-year average of 8.7 Bcf/d through the end of refill season (October 31^st), withdrawal season will begin with 4,177 Bcf in storage, 454 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 1.5% from the prior report week, averaging 83.4 Bcf/d. Consumption for power generation increased by 6.9%.  Exports to Mexico fell by 5.4% and industrial demand decreased by .98% from last week. Residential-commercial consumption remained steady, averaging 8.7 Bcf/d.

LNG pipeline receipts decreased by 29.5%, falling from 4.4 Bcf/d to 3.1 Bcf/d. That’s a 50% decline from last year at this time. According to S&P Global Platts, an increase in cargo cancellations provides an explanation. “More than 40 LNG cargoes scheduled to be loaded in August at US export terminals were canceled by customers, similar to July figures, market sources said. That new cancellations push the summer total over 100.”

The number of rigs in operation increased by 5 to 276 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs are down by one to 75 from last week, 97 less than last year at this time.

2. Natural Gas Prices 

While natural gas futures price movement across the report week is generally marked by slight losses, it’s only part of the story. Over the last two weeks, prompt month prices are up 23.9 cents, 12-month strip up 18.8 cents, the balance of the summer strip up 24.8 cents, and the winter strip up 9.5 cents.

The bearish price environment may have summer weather to thank. Natural gas used for power generation is up in recent weeks due to warm summer temperatures. At the same time sluggish production resulted in injections totaling below last year and the five-year average. Following a week of Midwest temperatures that set 2020’s current PJM peak demand days, analysts have looked to forecasts to understand where prices may move. If weather is a factor, it may be a bullish predictor as a hotter-than-average finish to July is expected for much of the country, especially in the Midwest and Northeast.  

Analyst Andy Weisman cautions tumbling LNG demand may undercut hot weather’s contribution. 

If the crude oil market can sustain the gains seen in this week’s above-$40/bbl settle, it may prompt reactivation of curtailed wells. This, in turn, will contribute to higher associated natural gas production, adding to an already healthy (and bearish) storage surplus to the five-year average.

3. Energy Industry Warning Signs?

By late April, trouble surrounding global oversupply of oil drove prices below zero for the first time in U.S. history. Failed OPEC talks in March collided with demand destruction brought about by early COVID-19 control efforts. As prices remained low, energy producers confronted investors concerned by evaporating profits. Under pressure to protect profitability, producers cut capital budgets and eliminated infrastructure projects. The latest such casualty is the cancellation of the Atlantic Coast pipeline project, a cooperative venture between Dominion Energy Incorporated and Duke Energy Corporation. According to a joint statement, the decision resulted from legal delays and cost uncertainty.

A Miscalculation

Early CNBC analysis suggested the overall impact to the industry would be contained, as debt wasn’t the immediate problem for most drillers. “As markets for energy companies’ bonds crater on lower crude oil prices, bond analysts offer one big piece of comforting news amid the chaos: Very few major energy companies have any debt due before next year, when the crisis sparked by the COVID-19 coronavirus is likely to be over. Of $86 billion in debt that exploration and production companies have to refinance or repay by 2024, only $5.3 billion is due this year, and only $1.7 billion of that is junk. The biggest chunk is due in 2022, at $25.7 billion.”

The Cost

Nonetheless, this week, reports of surging energy company bankruptcies claimed headlines. In 2Q 2020, eighteen energy companies filed for bankruptcy. That brings the total to 23 so far this year amounting to over $30 billion in debt, with roughly $11 billion of it secured. The list includes companies such as Chesapeake Energy Corporation, Whiting Petroleum Company, and Chisholm Oil and Gas Operating, LLC.  According to Dallas law firm Haynes and Boone, the bankruptcy trend is likely to continue for energy producers. “Until full economic activity returns and consumer confidence that the worst of the pandemic is behind us, demand levels will not pull up prices. It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy, even if oil prices recover over the next few months.”

For natural gas report week, June 25, 2020, the EIA reported a net increase in storage of 120 Bcf. The build exceeded forecasts of injections ranging from 99 Bcf to 116 Bcf, averaging 111 Bcf. Last year for the same week there was an injection of 103 Bcf and the five-year average is 73 Bcf.

Working gas in storage was 3,012 Bcf as of Friday, June 19th, 2020 per EIA estimates. Inventory was reported at 739 Bcf (32.5%) higher than last year for the same week and 466 Bcf (18.3%) more than the five-year average of 2,546 Bcf.

Natural Gas Report – June 25, 2020

1. Natural Gas Fundamentals

Overall supply averaged 92.6 Bcf/d last week as imports from Canada increased by 13.0% while production fell by 0.3%.

The average rate of injections into storage is 18% more than that of the five-year average for this point in the refill season. If the injection rate matched the five-year average of 8.8 Bcf/d through the end of refill season (October 31st), withdrawal season would begin with 4,189 Bcf in storage, which is 466 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 9.8% from the prior report week, averaging 80.7 Bcf/d. Consumption for power generation increased by 20.5%. Likewise, exports to Mexico grew 6.4%. Residential-commercial consumption dropped by 0.1% and industrial demand fell by 1.0% from last week. LNG exports decreased by one LNG vessel to seven with a combined carrying capacity of 25 Bcf.

The number of rigs in operation fell by 6 to 294 according to data from Enverus.

2. Natural Gas Prices; Cause & Effect

According to analysis from the EIA, low feedgas volumes delivered to LNG export terminals in have put downward pressure on natural gas prices. Also, COVID-related decreases in business and manufacturing activity have led to weaker demand. “Estimates from S&P Global Platts suggest that average industrial natural gas consumption in June 2020 has declined about 2.1 Bcf/d, or 9.6%, compared to June 2019.”

So far this summer, low prices have led to increased consumption for power generation because prices are more competitive than other fuel sources such as coal. June average daily power burn is up about 6% compared to last year, despite no demand growth for electricity.

Additionally, low prices have led to cuts in production. Further production declines are expected as a result of lags between price changes and production adjustments.

3. More Trouble for TETCO

On Tuesday, TETCO declared a force majeure on its entire 30-inch diameter pipeline spanning from Uniontown, Pennsylvania, to Kosciusko, Mississippi. The force majeure could reduce throughput capacity at Uniontown from 4.2 Bcf/d to 2.5 Bcf/d, according to estimates from Genscape.

For natural gas report week, June 18, 2020, the EIA reported a net increase in storage of 85 Bcf. The build was in line with forecasts of injections ranging from 76 Bcf to 89 Bcf, averaging 84 Bcf. Last year for the same week there was an injection of 111 Bcf and the five-year average is an injection of 87 Bcf.

Working gas in storage was 2,892 Bcf as of Friday, June 12th, 2020 per EIA estimates. Inventory was reported at 722 Bcf (33.3%) higher than last year for the same week and 419 Bcf (16.9%) more than the five-year average of 2,473 Bcf.

Natural Gas Report – June 18, 2020

1. Natural Gas Fundamentals

Overall supply averaged 93.9 Bcf/d last week as production grew by 0.5% while imports from Canada dropped by 5.5%.

The average rate of injections into storage is 14% more than that of the five-year average for this point in the refill season. If the injection rate matched the five-year average of 8.9 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,142 Bcf in storage, which is 419 Bcf higher than the five-year average of 3,723 Bcf.

Total demand fell by 7.1% from the prior report week, averaging 74.2 Bcf/d. Consumption for power generation declined by 15.6%.  Likewise, exports to Mexico decreased 4.7%. Residential-commercial consumption grew by 4.8% and industrial demand increased by 2.2% from last week. LNG exports increased by three LNG vessels to eight with a combined carrying capacity of 29 Bcf.

The number of rigs in operation remained steady at 300 according to data from Enverus.

2. Natural Gas Prices 

Across the report week, the Henry Hub spot price fell 22 cents before hitting a low of $1.38/MMBtu on Tuesday, the lowest price since December 1998, according to Natural Gas Intelligence. Elsewhere spot prices fell as prompt month, 12-month and seasonal prices also declined week-over-week. Despite the modest injection, weakened demand for power generation from mild temperatures and lower LNG demand dove prices lower. As COVID-19 cases appear to be on the rise in roughly a dozen states, related market uncertainty may be complicating price recovery. Additional production cuts may be necessary to restore profitability for producers.

3. Natural Gas and Oil Giant to File for Bankruptcy

According to an exclusive to Reuters, Chesapeake Energy Corporation is planning to file for bankruptcy. “The company is also in talks with creditors to “roll up” some of its existing debt and make it part of the bankruptcy loan, bringing the total debtor-in-possession financing closer to $2 billion, the sources added. The company is reeling under a mountain of debt totaling more than $9 billion.” Read the rest of the article here.

For natural gas report week, June 11, 2020, the EIA reported a net increase in storage of 93 Bcf. The build was in line with forecasts of injections ranging from 84 Bcf to 99 Bcf, averaging 93 Bcf. Last year for the same week there was an injection of 107 Bcf and the five-year average is an injection of 94 Bcf.

Working gas in storage was 2,807 Bcf as of Friday, June 5th, 2020 per EIA estimates. Inventory was reported at 748 Bcf (36.3%) higher than last year for the same week and 421 Bcf (17.6%) more than the five-year average of 2,386 Bcf.

Natural Gas Report – June 11, 2020

1. Natural Gas Fundamentals

Overall supply averaged 93.7 Bcf/d last week as production grew by 0.3% while imports from Canada dropped by 7.5%.

The average rate of injection into storage is 16% more than that of the five-year average for this point in the refill season. If the injection rate matched the five-year average of 9.0 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,144 Bcf in storage, which is 421 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew for a second consecutive week, increasing 3.1% from the prior report week, averaging 79.4 Bcf/d. Consumption for power generation grew by 8.7%.  Likewise, exports to Mexico increased by 8.2%. Residential-commercial consumption decreased by 6.4% and industrial demand fell by 1.2%. LNG exports fell by 50%, down five LNG vessels to five with a combined carrying capacity of 18 Bcf. According to the EIA, “This weekly export volume is the lowest since the week of June 8 – June 14, 2017.”

The number of rigs in operation declined for the 13th-straight week, falling below 300 for the first time. The Houston Chronicle reported, “At the worst of the 2014-16 oil bust – the previous lowest point on record — there were 404 rigs operating.” Baker Hughes data shows, as of June 2, natural gas rigs fell by 1 to 76 while oil-directed rigs dropped 16 to 206. The total rig count decreased by 17. It now stands at the lowest point on record at 284.

2. Natural Gas Prices 

Last week, “Energy producers shut down almost 35% of the US Gulf of Mexico’s crude oil production and more than 32% of natural gas supplies ahead of Tropical Storm Cristobal,” according to S&P Global Platts. “More than 635,000 b/d of crude and 878 MMcf/d of gas were shut in ahead of Cristobal’s move onshore.” Nonetheless, spot prices generally decreased across the report week. Prompt month/12-month strip prices saw minimal movement. The winter forward strip posted the largest gains, consistent with EIA expectations that prices will remain low through August before rising through the end of 2021. “EIA expects that natural gas price increases will be sharpest this fall and winter when they rise from an average of $2.06/MMBtu in September to $3.08/MMBtu in January.”

3. End-of-Season Record Storage

The EIA’s June Short Term Energy Outlook shows storage levels on March 31, 2020, were 19% higher than the five-year average and almost 74% more than the prior year.

The report forecasts dry production through October 31 will average 88.9 Bcf/d, 4% less than last year. Although lower than 2019 records, production remains high compared to historical numbers. Analysts expect production declines will result in smaller injections for the remainder of the refill season but finds they will still total 1% more than the five-year average. Even with average injections, the high starting storage level will likely lead to a record setting 4,089 Bcf start to withdrawal season. At that level, supplies would fill storage facilities to 96% of their demonstrated peak capacity of 4,261 Bcf.

Overall, consumption is expected to remain steady through the close of injection season. While industrial consumption is forecast to fall almost 12% from 2019, predictions indicate that will be offset by demand increases in other sectors.

For natural gas report week, June 4, 2020, the EIA reported a net increase in storage of 102 Bcf. The injection was in line with forecasts of injections ranging from 93 Bcf to 122 Bcf and averaging 109 Bcf. Last year for the same week there was an injection of 118 Bcf and the five-year average is an injection of 103 Bcf.

Working gas in storage was 2,714 Bcf as of Friday, May 29th, 2020 per EIA estimates. Inventory was reported at 762 Bcf (39.0%) higher than last year for the same week and 422 Bcf (18.4%) more than the five-year average of 2,292 Bcf.

Natural Gas Report – June 4, 2020

1. Natural Gas Fundamentals

Overall supply averaged 93.9 Bcf/d last week as production grew by 0.5% and imports from Canada increased by 4.7%.

The average rate of injections into storage is 19% more than that of the five-year average for this point in refill season. If the injection rate matched the five-year average of 9.2 Bcf/d through the end of refill season (October 31st), withdrawal season would begin with 4,145 Bcf in storage, which is 422 Bcf higher than the five-year average of 3,723 Bcf.

Total demand increased 3.9% from the prior report week, averaging 79.0 Bcf/d. Residential-commercial consumption decreased by 5.9% and industrial demand fell by 0.3% from last week. Consumption for power generation grew by 10.1%. Exports to Mexico increased by 4.8%. LNG exports decreased, down two LNG vessels to ten with a combined carrying capacity of 36 Bcf.

According to data from Enverus, the total daily rig count fell by 17 from last week, down 5.0% to 322.

2. Natural Gas Prices 

Spot prices rose across the report week amid unseasonably warm temperatures throughout much of the country. Prompt month and strip prices posted minimal week-over-week change with the largest movement occurring in the winter strips which increased by only 2.6 cents.

Of note, nuclear outages nearly doubled last year’s (10.3 GW capacity compared to 5.5 GW in 2019). A large part of the lost capacity is due to the 100% loss from Monroe’s Fermi plant. In early May, an outbreak of COVID-19 cases prompted a safety stand down that led to the delay of planned maintenance and refueling. According to a representative from Local 687, by mid-May more than 10% of the plant’s 2,000+ workforce had confirmed cases.

DTE Energy implemented changes to assure the health of employees and safeguard continued operations which allowed some work to resume quickly. Nonetheless, the outage is still expected to last 83 days from start to finish. According to S&P, “The average duration of refueling outages at US nuclear units in 2019 was 36.2 days.”

Ultimately, the nuclear shortfall led to an increased demand for natural gas used for power generation which likely helped prices.

Finally, Tropical Storm Cristobal has spawned warnings for the U.S. Gulf Coast for Sunday through Monday. Even as the track has become more defined, the storm’s strength at landfall remains an unknown. Should the storm gather steam, it may put additional upward pressure on prices.

3. LNG, The Jones Act, and Puerto Rico –

Hurricane Maria exposed the vulnerabilities of Puerto Rico’s power grid. It was 11 months before power was fully restored to the island. Even still, the integrity of their power supply remains in question. The aid they received from FEMA went to repairs and left the system still in need of major upgrades. With the Puerto Rico Electric Power Authority (PREPA) confronting economic instability and completion of a grid overhaul years away, leadership has established ambitious goals to transition to 100% renewable by 2050.

In the interim, natural gas will play a key part in Puerto Rico’s energy mix. According to the EIA, “For fiscal year 2019, petroleum fueled 40% of Puerto Rico’s total electricity generation and natural gas accounted for 39%. Coal continued to fuel 18% of generation, while renewables supplied 2.3%.” With a substantial U.S. LNG surplus, you might be surprised to find Puerto Rico’s LNG “is imported mostly from Trinidad and Tobago.”

Why? The Jones Act.

According to the New York Times, The Merchant Marine Act of 1920, known as the Jones Act, requires goods shipped between points in the United States to be carried by vessels built, owned and (mostly) operated by Americans. The acts opponents maintain it results in higher costs passed along to consumers. In 2017 President Trump temporarily waived the act for Puerto Rico as a part of post-hurricane relief efforts.

This week, Utah Senator Mike Lee picked up the torch of late Arizona Senator John McCain who was an outspoken critic of the act. “It’s not because of a shortage of LNG in the United States, but rather because there are only so many Jones Act-compliant vessels capable of handling LNG shipments along coastlines — and not one of them happens to be US-flagged, US-crewed or US-built. So, we don’t just empower bad regimes, but also impoverish American citizens,” Lee stated.

U.S. oil and gas exporters are looking to policy shifts to help the struggling industries compete with foreign countries who can afford to ship at a lower cost. To this end, repeal of the Jones Act has started to pick up support.

For natural gas report week, May 28, 2020, the EIA reported a net increase in storage of 109 Bcf. The injection was in line with forecasts of injections ranging from 97 Bcf to 130 Bcf and averaging 106 Bcf. Last year for the same week there was an injection of 110 Bcf and the five-year average is an injection of 93 Bcf.

Working gas in storage was 2,612 Bcf as of Friday, May 22nd, 2020 per EIA estimates. Inventory was reported at 778 Bcf (42.4%) higher than last year for the same week and 423 Bcf (19.3%) more than the five-year average of 2,189 Bcf.

Natural Gas Report – May 28, 2020

1. Natural Gas Fundamentals

Overall supply averaged 93.5 Bcf/d last week as production dropped by 0.8% and imports from Canada increased by 0.2%. According to the EIA, “ Service on the TETCO system in northeastern Kentucky was partially restored on Wednesday following a recent explosion on one of the three lines between Owingsville, Kentucky, and Wheelersburg, Ohio. The affected lines are part of TETCO’s north-to-south capacity that flows natural gas out of the Northeast and down to the Gulf Coast. About 0.3 Bcf/d of capacity was restored, compared to about 1.3 Bcf/d available capacity prior to the explosion.”

Total demand was unchanged from the prior report week, averaging 60.4 Bcf/d. Residential-commercial consumption decreased by 15.6% and industrial demand fell by 1.3% from last week. Consumption for power generation grew by 8.3%.  Exports to Mexico decreased by 1.3%. LNG exports increased, up two LNG vessels to twelve with a combined carrying capacity of 43 Bcf.

According to data from Enverus, the daily rig count fell by 17 from last week, down 5.0% to 322.

2. Natural Gas Prices 

Price movement was mixed throughout the report week as most of the country faced above-average temperatures. From New York to Vermont, temperatures soared above 95 degrees. In the West, several cities were under excessive heat warnings with temperatures as much as ten degrees above normal. In those areas, spot price increases ranged from 16 cents to 45 cents. While warm weather during injection season is typically also bullish for prompt month and strip prices, COVID-19 related demand subdued that response.

As states emerge from COVID-19 related activity restrictions and demand begins to normalize, hot temperatures driving up consumption for power generation may begin to have more of an impact. Unseasonably warm temperatures forecast for June combined with falling production could give prices a boost. However, after months of declining associated gas production, this week’s upward movement in oil prices may begin to change that if the trend persists.

3. Renewable Consumption Surpasses Coal 

The pandemic’s impact on the energy industry has led to decreased energy demand and shifts in consumption patterns. It’s also had a profound impact on the sources used to produce energy as renewables have outpaced coal for power generation for the first time in over 100 years. According to an article by the Wall Street Journal, “The coronavirus pandemic led many power producers to cut back on coal production in response to drops in electricity demand, showing coal’s struggle to compete with other electricity sources.

Ben Nelson, lead coal analyst for Moody’s Investors Service, said he expects the economic effects of the pandemic will do permanent damage to U.S. coal production, which has been declining for years. ‘The longer this whole pandemic lasts, the worse it is for the coal industry,’ he said. ‘It encourages utilities to shut down more coal plants, and that takes out demand permanently.’”

For natural gas report week, May 21, 2020, the EIA reported a net increase in storage of 81 Bcf. The injection was in line with forecasts of injections ranging from 73 Bcf to 91 Bcf and averaging 83 Bcf. Last year for the same week there was an injection of 101 Bcf and the five-year average is an injection of 87 Bcf.

Working gas in storage was 2,503 Bcf as of Friday, May 15th, 2020 per EIA estimates. Inventory was reported at 779 Bcf (45.2%) higher than last year for the same week and 407 Bcf (19.4%) more than the five-year average of 2,096 Bcf.

Natural Gas Report – May 21, 2020

1. Natural Gas Fundamentals

Overall supply averaged 94.2 Bcf/d last week as production dropped by 2.1% and imports from Canada increased by 1.0%. According to the EIA, “ EQT Corporation, the largest natural gas producer in the United States, announced on Tuesday it started reducing production in Pennsylvania and Ohio on May 16 as a result of lower demand and prices.”

Total demand fell by 10.0% from the prior report week. Residential-commercial consumption decreased by 40.8% as home-heating use normalized when temperatures moderated following unseasonably cold weather the prior week. Industrial demand decreased 3.8% from last week while consumption for power generation grew by 11.3%. Exports to Mexico increased by 2.5%. For the second week in a row, LNG exports decreased, down one LNG vessel to ten with a combined carrying capacity of 37 Bcf.

According to data from Enverus, the daily rig count fell by 27 from last week, down 7.0% to 339.

2. Utility Prices On The Rise? 

With declining consumption and many customers unable to pay utility bills, power companies are looking for ways to appease investors’ interest in protecting profits while avoiding rate increases for consumers. Developing a precise plan has proven difficult, though, with the “return to normal” still unclear.

According to E&E News, industry executives recently shared their plans for securing profitability. Some organizations are slashing spending on travel and hiring in addition to cutting capital investments. Others have signaled they may turn to state regulatory agencies for permission to pursue future rate increases to cover bad debt.

“FirstEnergy Corp. CEO Chuck Jones told analysts last month that his company, which has electric utilities serving about 6 million customers from Ohio to the Jersey Shore, is designed to weather the downturn in the economy.

Almost two-thirds of base electric distribution revenue comes from residential sales, which are up as consumers stay home from work and school, Jones said. And 20% of electric sales come from Ohio, where electric rates are decoupled from kilowatt-hour sales volumes.

‘Our rate structures provide a measure of stability, even in tumultuous times,’ he said.”

3. Natural Gas Dinosaur Retires

After more than 35 years at work, natural gas pipeline dinosaur, SEL 810A retired from the industry to play the classic video game, Lunar Lander.

According to the manufacturer’s 1967 brochure, “the SEL 810A Computer and its enviable field reputation for reliability and performance, has made it the first choice of a large and rapidly growing list of customers with requirements running the full gambit of industrial and scientific real-time applications.”

According to a Hackaday story from this week, “The computer was actually very advanced for its day, providing an all IC-based 16-bit computer.” If you’re looking for a bit of gaming or computing nostalgia, the story also includes a video of somecomputerguy (YouTube) firing it up and running the game. It’s worth the six minutes.

For natural gas report week, May 14, 2020, the EIA reported a net increase in storage of 103 Bcf. The injection was in line with forecasts of injections ranging from 93 Bcf to 115 Bcf. Last year for the same week there was an injection of 100 Bcf and the five-year average is an injection of 85 Bcf.

Working gas in storage was 2,422 Bcf as of Friday, May 8th, 2020 per EIA estimates. Inventory was reported at 799 Bcf (49.2%) higher than last year for the same week and 413 Bcf (20.6%) more than the five-year average of 2,009 Bcf.

Natural Gas Report – May 14, 2020

Natural Gas Fundamentals

Overall supply averaged 96.0 Bcf/d last week as imports from Canada increased by 17.3% and production increased by 0.2%.

Total demand increased by 9.3% from the prior report week. Notably, residential-commercial consumption increased by 34.1% as heating-related consumption rose. Industrial demand increased 3.0% from last week and exports to Mexico increased by 3.8%. Natural gas used for power generation fell by 1.2%.  LNG exports decreased from last week, down 4 LNG vessels to 11 with a combined carrying capacity of 40 Bcf

According to data from Enverus, the daily rig count fell by 17 from last week, down 4.0% to 366.

Enbridge Pipeline Update

Flow from the Appalachia Basin remains restricted following the May 4th Enbridge-TETCO pipeline explosion. While 0.9 Bcf/d of the line’s 1.3 Bcf/d capacity has been rerouted, the line won’t return to service for the next two to three weeks.

According to an Enbridge critical notice posted May 8^th, “TE is in the process of evaluating options to restore partial capacity. TE will address all of the site-specific concerns identified by the National Transportation Board (so NTSB) and the Pipeline & Hazardous Materials Safety Administration (PHMSA) and will be undertaking rigorous inspections on all of the lines in the area. At this time, TE anticipates it will continue to restrict to zero, for a minimum of, an additional two to three weeks from today. These pipelines will not be returned to service until we satisfy regulatory requirements and it is safe to do so. Furthermore, NTSB has assumed control of the incident site. The NTSB and PHMSA are investigating the incident and Texas Eastern is supporting that investigation.”

Extensive Reach

The TETCO pipeline is over 9,000 miles long and runs from the United States-Mexico border to New York City. It supplies natural gas to electric generation facilities in high-demand markets in the northeastern United States. The Appalachia Region system is composed of thee lines – Line 10, Line 15, and Line 25. Last week’s explosion occurred on Line 10 of its 30-inch pipeline system just north of the Owingsville, Kentucky Compressor Station.

Other Recent TETCO Issues in the Region

A rupture on a segment of Line 10 in Berne, Ohio in January 2019 returned to full service after ten weeks.

In August 2019, an explosion on Line 15 occurred in Danville, Kentucky which is just upstream from last week’s location. Following the August explosion, PHMSA issued a ‘corrective action order’ that required TETCO to “keep Line 15, where the explosion occurred, and Lines 10 and 25 (located next to Line 15), offline…indefinitely.” Line 25 returned to service almost a month after the Line 15 explosion and Line 15 is still out of service, nearly a year later. Genscape expects that “…Line 15 and possibly Line 25 will be excavated and checked for external damage. Internal damage will be checked with in-line tools prior to returning to service.”

For natural gas report week, May 7, 2020, the EIA reported, the EIA reported a net increase in storage of 109 Bcf, in line with forecasts of injections ranging from 90 Bcf to 112 Bcf and averaging 106 Bcf. Last year for the same week there was an injection of 96 Bcf and the five-year average is an injection of 74 Bcf.

Working gas in storage was 2,319 Bcf as of Friday, May 1st, 2020 per EIA estimates. Inventory was reported at 796 Bcf (52.3%) higher than last year for the same week and 395 Bcf (20.5%) more than the five-year average of 1,924 Bcf.

Natural Gas Report – May 7, 2020

Natural Gas Fundamentals

Overall supply averaged 95.4 Bcf/d last week as imports from Canada decreased by 4.6% and production declined by 1.3%. The decline is largely due to a supply drop in the Appalachia Basin following Tuesday’s Enbridge pipeline explosion on its TETCO system Tuesday. The event reportedly impacts more than 1.3 Bcf north-to-south capacity. Production fell immediately following the explosion but began to recover by the following day as transport was rerouted. This follows an NGPL force majeure at the Sabine Pass liquefaction facility in Louisiana the prior week.

Total demand fell by 15.3% from the prior report week. Notably, residential-commercial consumption declined by 38.2%, dropping from 20.9 Bcf/d to 13.0 Bcf/d week-over-week. Industrial demand fell 11.8% from last week and exports to Mexico decreased by 5.3%. Natural gas used for power generation increased by 0.5%.  LNG exports increased from last week, up 4 LNG vessels to 15 with a combined carrying capacity of 54 Bcf.

According to data from Enverus, the daily rig count fell by 32 from last week, down 7.0% to 383.

Natural Gas Prices 

Following Tuesday’s pipeline explosion, prompt month prices traded up to $2.134/Dth as calendar and seasonal strips generally rose in the days leading up to the release of the EIA storage report. However, demand decimation contributed to the season’s first triple digit injection and the supply-demand imbalance led to lower prices in all but the diminishing summer strip.

The future of oil prices will ultimately have substantial impact of the direction of natural gas prices. The brief price rally came to an end, even after the week’s build came in at 4.6 mb – substantially below analysts’ expectations of 8.99 mb. According to Fox Business, “Demand for crude oil has fallen by 30 million barrels per day as “stay-at-home” orders from governments all over the world have brought non-essential travel to a crawl. At the same time, the world’s largest oil producers have begun cutting production by 20 million barrels per day on May 1.”

Cuts in oil production translate to less associated natural gas production. As most states unwind their stay-at-home orders and people return to work, demand will begin to normalize which will provide a clearer price picture. Should oil prices remain low, it’s likely natural gas prices will begin to rise.  

For natural gas report week, April 30, 2020, the EIA reported a net increase in storage of 70 Bcf, in line with forecasts of injections ranging from 64 Bcf to 82 Bcf and averaging 71 Bcf. Last year for the same week there was an injection of 114 Bcf and the five-year average is an injection of 74 Bcf.

Working gas in storage was 2,210 Bcf as of Friday, April 24th, 2020 per EIA estimates. Inventory was reported at 783 Bcf (54.9%) higher than last year for the same week and 360 Bcf (19.5%) more than the five-year average of 1,850 Bcf.

Natural Gas Report – April 30, 2020

1. Natural Gas Fundamentals

Overall supply averaged 96.6 Bcf/d last week as production declined by 0.5% and average net imports from Canada decreased by 12%. Total demand fell by 3.8% from the prior report week with both industrial consumption and power generation down 1.1% and 1.9%, respectively. Residential-commercial consumption also declined by 8.5%, averaging 20.1 Bcf/d. Exports to Mexico increased by 2.7% while LNG exports decreased from last week, down 2 LNG vessels to 11 with a combined carrying capacity of 39 Bcf. The daily rig count fell by 38 from last week, down 11.0% to 415. Natural gas specific rigs fell to 85 on April 21, the lowest number since August 2016.

2. COVID-19 Energy Demand Impact

While nationwide stay-at-home orders reduced energy consumption drastically, the impact on natural gas demand was not as pronounced as the effect on electricity consumption. When compared to the same week last year, overall natural gas demand is up nearly 3%, averaging 82.5 Bcf/d, largely due to LNG exports which are up more than 54%. U.S. consumption is down less than 0.5% from the same week last year with use for power generation down 0.5 Bcf/d and industrial demand reduced by 2.0 Bcf/d. Residential-commercial consumption is up by 2.1 Bcf/d from the same week last year, in part, from increased heating demand with 52 more heating degree days over last year at this time.

Last week, the PUCO reported Ohio weather-normalized electricity consumption is 11% below the 5-year average. Elsewhere, “Full lockdowns have pushed down electricity demand by 20% or more, with lesser impacts from partial lockdowns. Electricity demand is set to decline by 5% in 2020, the largest drop since the Great Depression in the 1930s,” according to a new report by the IEA.

3. Drilling Activity

Well closures prompted by historically low oil prices mean less associated gas production. Some analysts believe the reduction may reach as much as 40%. The Wall Street Journal reported, “When crude prices dipped below $0, natural gas prices had their best day in more than a year, popping 9.75% on the prospect that many money-losing wells will be capped. Hedge funds and other speculators last week were net long—with more wagers on rising gas prices than bets counting on decline—for the first time since last May, according to Commodity Futures Trading Commission data.”

“Natural gas futures for June delivery closed up 4.3% to $1.949 per million British thermal units Thursday. On Friday it climbed to $2.016 in early trading before falling back. That’s still too low for many gas wells to be profitable. But it’s up 30% from the 25-year-low of $1.552 on April 2 and the trend is higher heading into summer, when there’s demand to power air conditioners, and more so in winter, when a lot of gas is burned for heat. Futures for July delivery reached $2.25 Friday. December gas nosed above $3.”

For natural gas report week, April 23, 2020, the EIA reported a net increase in storage of 43 Bcf, in line with forecasts of injections ranging from 11 Bcf to 51 Bcf and averaging 45 Bcf. Last year for the same week there was an injection of 92 Bcf and the five-year average is an injection of 49 Bcf.

Working gas in storage was 2,140 Bcf as of Friday, April 17th, 2020 per EIA estimates. Inventory was reported at 827 Bcf (63.0%) higher than last year for the same week and 364 Bcf (20.5%) more than the five-year average of 1,776 Bcf.

Natural Gas Report – April 23, 2020

1. Natural Gas Fundamentals

Overall supply averaged 97.6 Bcf/d last week as production remained unchanged at 92.5 Bcf/d. Average net imports from Canada decreased by 6%. Total demand fell by 3% from the prior report week with both industrial consumption and power generation down 3% and 6%, respectively. Residential-commercial remained steady, averaging 22.1 Bcf/d.

Exports to Mexico increased by 3% while LNG exports decreased from last week, down 4 LNG vessels to 13 with a combined carrying capacity of 48 Bcf. Of note, China received its first U.S. LNG shipment in more than a year after tariff exemptions made the shipment more cost effective. At the same time, overall demand is down roughly 7% from last year. LNG exports have likewise dropped, with more than a dozen shipments canceled so far this year and another two-dozen expected by June.

2. Natural Gas Prices 

With production steady and storage at a sizable surplus to the five-year average and given evaporating demand in the wake of COVID-19, anticipation of continued low prices would have been reasonable. Yet this week, spot prices rose in most locations. Likewise, prompt month as well as the 12-month, winter, and summer strips were each up more than 12.0 cents from last week.

Current prices for the upcoming winter increase from $2.342 in October 2020 to $3.012 in January 2021. The shift reflects market sentiment that the supply/demand balance will tighten leading up to and through winter. Those expectations are rooted in declines in drilling activity that’s been prompted by low prices.

3. Natural Gas Drilling Activity

According to Enverus, the daily rig count declined 11% from the prior week, down to 453. As of this week, that’s a 40% decline from last month and a 55% drop, year-over-year. The EIA expects this will result in almost a 5.0 Bcf/d drop in 2020 production levels from 2019 before picking up pace again in the second half of 2021.

The Houston Chronicle reported, “For the first time in more than a decade, U.S. natural gas is set to be the world’s most expensive as Covid-19 lockdowns wallop demand in other regions. Gas futures in the U.S. have rallied about 10% this month as traders bet that a historic crash in oil prices will drive American shale companies to halt more drilling and curb output of gas, which is extracted as a byproduct. In Europe and Asia, meanwhile, prices are sliding to fresh lows due to a supply glut and languishing consumption amid the pandemic.”

As we reported last week, current indicators are signaling a spike in natural gas prices for the start of winter. Given the economic strain introduced by COVID-19, it may be time to reassess your risk tolerance and make a plan in advance of seasonal volatility. We’re here to help.

For natural gas report week, April 16, 2020, the EIA reported a net increase in storage of 73 Bcf, in line with forecasts of injections ranging from 39 Bcf to 78 Bcf. Last year for the same week there was an injection of 73 Bcf and the five-year average is an injection of 27 Bcf.

Working gas in storage was 2,097 Bcf as of Friday, April 10th, 2020 per EIA estimates. Inventory was reported at 876 Bcf (71.7%) higher than last year for the same week and 370 Bcf (21.4%) more than the five-year average of 1,727 Bcf.

Natural Gas Report – April 16, 2020

1. Natural Gas Fundamentals

Overall supply averaged 98.3 Bcf/d last week as production remained unchanged and average net imports from Canada increased by 18%. Total demand increased by 3% from the prior report week with residential-commercial up by 9% due to cooler temperatures. Consumption for power generation and industrial demand remained the same as the prior week, averaging 25.9 Bcf/d and 20.8 Bcf/d, respectively. Exports to Mexico fell by 8% while LNG exports increased from last week, up to 17 LNG vessels with a combined carrying capacity of 61 Bcf.

2. Natural Gas Prices 

Analysts are suggesting that the convergence of factors may yield a spike in natural gas prices. Low crude oil prices have prompted production cuts which will mean lower associated natural gas production. Additional cuts to natural gas production throughout the summer, as forecast by the EIA, may collide with post-virus demand stabilization in approach of winter resulting in higher prices.

3. A Look Back at Natural Gas Withdrawal Season

According to the EIA, withdrawal season concluded with 2008 Bcf in storage – 19% above than the five-year average. The EIA attributes the higher inventory level to strong production coupled with weak heating demand. While increases in both LNG exports and power burn exceeded the declines in heating related demand, the growth was insufficient to offset record-setting production rates.

Looking forward, the EIA expects production will decline throughout this summer while exports are forecast to grow, resulting in smaller injections. At present, production is 3.0 Bcf/d higher than last year at this time. Early estimates for end-of-season storage totals average 3,904 Bcf which is 185 Bcf above the five-year average and 252 Bcf above last year.

For natural gas report week, April 8, 2020, the EIA reported a net increase in storage of 38 Bcf, exceeding forecasts of injections ranging from 15 Bcf to 33 Bcf. Last year for the same week there was an injection of 25 Bcf and the five-year average is an injection of 6 Bcf.

Working gas in storage was 2,024 Bcf as of Friday, April 3rd, 2020 per EIA estimates. Inventory was reported at 876 Bcf (76.3%) higher than last year for the same week and 324 Bcf (19.1%) more than the five-year average of 1,700 Bcf.

Natural Gas Report – April 8, 2020

1. Natural Gas Fundamentals

Prompt month prices fell in response to this week’s bearish EIA storage report which came in well above last year’s injection and the five-year average. The drop follows a week of gains prompted by possible production cuts. Even though production fell by 1.5 Bcf/d by midweek, it’s still up more than 2.5 Bcf/d over last year. Demand remained steady from last week. The slight increase in power burn was offset by a drop in residential-commercial consumption due to warmer weather across the report week. That trend is expected to reverse as below-normal temperatures are expected for the next two weeks. Declining production and lower temperatures will likely yield bullish storage numbers through the end of April. That may give prompt month prices some support.

2. Higher Natural Gas Prices On The Horizon?

A recent report by Forbes indicates higher natural gas prices are likely by the end of 2020. “American producers’ response to low crude prices, including shutting in uneconomic wells and slashing drilling capital budgets by 30 percent and even 50 percent, will have a dramatic effect on domestic natural gas output as well as oil. Roughly 40 percent of U.S. gas production is so-called ‘associated gas,’ a byproduct of drilling for oil.” With expectations for natural gas production cuts by as much as 6 Bcf/d, gas markets could “go from being long during the summer months to being very short by the winter of 2020-2021.” Analysts suggest natural gas
prices could double by winter. This would stabilize America’s oil and gas industry which supports 4.5 million jobs for independent producers alone.

The currently backwardated market hints at the credibility of this forecast with 2021 calendar strips outpricing 2023. With a tentative ceasefire called in the Saudi-Russia oil war, the reduction of 20 million barrels of oil per day will alleviate immediate storage concerns. Nonetheless, the drop is unlikely to provide significant help for a heavily oversupplied market amid obliterated demand. To this end, production cuts are expected to continue.

3. Drastic Declines in Electricity Demand a Harbinger of Recession?

The New York Times examined the correlation between declines in electricity consumption and economic downturn. They asserted, “New data on electricity use in the past three weeks suggest a sharp decline in U.S. economic activity on par with that of the Great Recession. It may already be the deepest downturn since the Great Depression; it is certainly the fastest.” While the comparison is, in part, informed by history, recent history hasn’t experienced anything like the current pandemic. You can read the entire article here.

Independent of precise economic impact, declining demand for electricity may mean more trouble for an
oversupplied natural gas market. Outpacing coal and nuclear, a significant amount of natural gas is absorbed for electricity generation.

For natural gas report week, April 2, 2020, the EIA reported a net decrease in storage of 19 Bcf, in line with projections ranging from a withdrawal of 10 Bcf to a draw of 35 Bcf. Last year for the same week there was a injection of 6 Bcf and the five-year average is a withdrawal of 19 Bcf.

Working gas in storage was 1,986 Bcf as of Friday, March 27th, 2020 per EIA estimates. Inventory was reported at 863 Bcf (76.8%) higher than last year for the same week and 292 Bcf (17.2%) more than the five year average of 1,694 Bcf.

Natural Gas Report – April 2, 2020

1. Natural Gas Fundamentals

Overall supply averaged 97.5 Bcf/d last week as production remained unchanged and average net imports from Canada decreased by 14% due to declining imports into upstate New York. Total demand fell by 7% from the prior report week with power-generation and industrial consumption both down by 7% and 4%, respectively. Residential/commercial consumption dropped by 10% while exports to Mexico fell by 2%. LNG exports increased from last week, down to 19 (+4) LNG vessels with a combined carrying capacity of 70 Bcf (+15 Bcf). The rig count continued to drop week-over-week down from 739 to 652.

2. Natural Gas Prices 

Generally prices, from prompt month trading to spot prices, fell across the report week although not dramatically. While still assessing the impact of orders that have nearly 94% of Americans at home and an oil trade dispute between Russian and Saudi Arabia, the lack of immediate clarity leaves little clear direction for market expectations. Even as COVID-19 financial implications threaten market stability, oil prices grew this week in response to President Trump’s Twitter announcement of a possible cooperative effort between Russia and Saudi Arabia to scale back oil production. The suggestion offered some hope of stability for oil and gas prices.

3. COVID-19 Resources

This week Ohio extended the Stay at Home order which will now remain in place through Friday, May 1 or until lifted or otherwise amended. We will continue to comply with this order while continuing to deliver full account support remotely.

Those in need of economic support during this time can find help through a variety of resources found on the Ohio Department of Health website here.

The Small Business Association has also developed guidance on the financial resources available to businesses. That can be found here.

Finally, there are several new scams targeting individuals and businesses alike. Please protect yourself and your business – familiarize yourself with common scams and report suspicious activity to the Ohio Attorney General. You can find that information here. As always, we are here to help.

Please contact us at (866) 646-7322 with your questions or concerns.

For natural gas report week, March 26, 2020, the EIA reported a net decrease in storage of 29 Bcf, in line with projections ranging from a withdrawal of 14 Bcf to a draw of 36 Bcf. Last year for the same week there was a withdrawal of 39 Bcf and the five-year average is a withdrawal of 40 Bcf.

Working gas in storage was 2,005 Bcf as of Friday, March 20th, 2020 per EIA estimates. Inventory was reported at 888 Bcf (79.5%) higher than last year for the same week and 292 Bcf (17.0%) more than the five-year average of 1,713 Bcf.

Natural Gas Report – March 26, 2020

1. Natural Gas Fundamentals

Overall supply averaged 98.9 Bcf/d last week as production remained unchanged and average net imports from Canada increased by 6%.

Total demand fell by 1% from the prior report week with power-generation and industrial consumption both down by 2%. Residential/commercial consumption remained the same as the prior week while exports to Mexico grew by 1%. LNG exports decreased from last week, down to 15 LNG vessels with a combined carrying capacity of 55 Bcf.

With five days left in withdrawal season, the average rate of withdrawal is 13% less than the five-year average. If the rate of withdrawal from storage matched the five-year average of 1.4 Bcf/d from now until March 31, storage inventory would be 1,989 Bcf which is 292 Bcf higher than the five-year average of 1,697 Bcf.

2. Natural Gas Prices 

With jobless claims in excess of 3.3 million and 160 million people – almost half of the U.S. population – under orders to stay at home, schools have transitioned to online learning and many businesses have temporarily closed. According to Forbes, “Gasoline demand is set to plunge 50%, while jet fuel consumption has all but evaporated, with 87% fewer flyers taking to the air than a year ago.” In addition to billions in capital budget cuts, producers are cutting drilling rigs. That means less associated natural gas.

The changes brought about by COVID-19 also mean industrial and commercial natural gas demand will drop substantially. With short term temperature forecasts predicting mild temperatures, it’s unlikely to be cold enough to spark residential heating demand and not hot enough to prompt growth in power burn consumption. How the exact impact on demand will unfold has yet to be seen. Next week will begin to offer a clearer understanding.

Supply fundamentals aren’t immediately clear either, but last week’s decline in rig counts from 802 to 739 indicates producers aren’t wasting any time in cutting rigs.

So while the market almost seems to be holding it’s breath waiting for clarity, significant cuts in demand will push prices lower short-term, but could mean price inflation as the world attempts to return to normal in the wake of COVID-19.

3. AES COVID-19 Operational Update

This week Ohio announced implementation of a Stay at Home order which will remain in place through Monday, April 6 or until lifted or otherwise amended. In compliance with this mandate and to continue prioritizing the health of our employees, customers, and communities we have transitioned operations consistent with the contingency plan we informed you about last week. During this time, we will continue to deliver full account support remotely. This change has proceeded with imperceptible impact to our customers and supplier network.

As always, we are here to help. Please call us at (866) 646-7322 with your questions or concerns

For natural gas report week, March 19, 2020, the EIA reported a net decrease in storage of 9 Bcf, in line with projections ranging from a withdrawal of 14 Bcf to an injection of 7 Bcf. Last year for the same week there was a withdrawal of 91 Bcf and the five-year average is a withdrawal of 63 Bcf.

Working gas in storage was 2,034 Bcf as of Friday, March 13th, 2020 per EIA estimates. Inventory was reported at 878 Bcf (76.0%) higher than last year for the same week and 281 Bcf (16.0%) more than the five-year average of 1,753 Bcf.

Natural Gas Report – March 19, 2020

1. Natural Gas Fundamentals

Overall supply averaged 99.0 Bcf/d last week with production up 1% and average net imports from Canada
increased by 12%. Total demand increased by 3% from the prior report week with power-generation and industrial consumption up by 8% and 1%, respectively. Residential/commercial consumption fell by 1% while exports to Mexico grew by 1%. LNG exports increased over last week, up to 16 LNG vessels with a combined carrying capacity of 59 Bcf.

With one week left in withdrawal season, the average rate of withdrawal is 13% less than the five-year average. If the rate of withdrawal from storage matched the five-year average of 3.1 Bcf/d from now until March 31, storage inventory would be 1,978 Bcf which is 281 Bcf higher than the five-year average of 1,697 Bcf.

2. Natural Gas Prices 

Prompt month prices fell nearly 20.0 cents from last week while calendar strips hit new lows. Crude oil ended the week “down 10.7% at $22.53 a barrel. It closed the week with a massive 29% slide, its biggest one-week percentage decline since January 1991. Brent, the global gauge of prices, dropped 20% for the week to $26.98 a barrel,” according to a report by the Wall Street Journal. When the federal government’s announcement of their intention to purchase oil for the Strategic Petroleum Reserve failed to reverse the slide, reports surfaced claiming the U.S may attempt to intervene in the Saudi-Russia oil war. With oversupply impacting crude oil prices, analysts expect decreased oil production may eventually lead to cuts in natural gas supply.

However, as heating season wanes and the impact of COVID-19 closures on declining commercial and industrial demand begin to take shape, the market could see further price declines despite associated natural gas supply concerns.

As producers haven’t yet signaled cuts to production and the full impact to demand is uncertain, the market direction is ultimately another unknown. We will continue to monitor fundamentals and communicate possible impacts to prices.

3. AES Operational Note

As our businesses confront evolving community health needs and navigate the resulting impacts to the way we conduct business, we are working to ensure the health of our employees and our customers. To this end, in-person business meetings have been replaced with web conferencing and phone meetings. At the same time, we understand the impact uncertainty has on business and want you to know we are here to answer any questions you have about the market or your specific energy program.

We invite you to reach out with your questions and concerns

For natural gas report week, March 12, 2020, the EIA reported a net decrease in storage of 48 Bcf, in line with projections ranging from a withdrawal of 45 Bcf to a draw of 66 Bcf. Last year for the same week there was a withdrawal of 164 Bcf and the five-year average is a withdrawal of 99 Bcf.

Working gas in storage was 2,043 Bcf as of Friday, March 6th, 2020 per EIA estimates. Inventory was reported at 796 Bcf (63.8%) higher than last year for the same week and 227 Bcf (12.5%) more than the five-year average of 1,816 Bcf.

Natural Gas Report – March 12, 2020

1. Fundamentals

Overall supply averaged 98.1 Bcf/d last week, down 1.3 Bcf/d from the prior week. Production remained
unchanged while average net imports from Canada fell by 20%. Total demand dropped by 10% from the prior report week. Residential/commercial consumption and power-generation down by 20% and 6%, respectively. Industrial consumption fell by 2% while exports to Mexico were unchanged. LNG exports decreased over last week, down to 14 LNG vessels with a combined carrying capacity of 51 Bcf.

So far this withdrawal season, the average rate of withdrawal is 10% less than the five-year average. If the rate of withdrawal from storage matched the five-year average of 4.7 Bcf/d from now until March 31, storage inventory would be 1,924 Bcf which is 227 Bcf higher than the five-year average of 1,697 Bcf.

2. Important Trends 

While the coronavirus simultaneously drove both volatile market response and frenzied news cycles across the last week, Russia’s refusal of OPEC proposed crude oil production cuts caused a chain reaction of events that added to the ongoing economic strain. Following collapse of negotiations, Saudi Arabia stated their intention to cut oil prices and escalate production. Russia then responded with similar intentions. Then global oil prices fell to their lowest level since February 2016, at the fastest rate in three decades.

That may seem like a great thing for consumers, but it’s not for U.S. oil producers who help make America one of the world’s largest producers of oil. With other major oil producers following the Saudi example and coronavirus-related consumption declines exacting their own toll (compounded by waves of activity and travel cancellations), prices have continued to falter.

Prices remain well below breakeven for producers. With little end in sight for oversupply and subdued demand, it’s likely producers will increasingly turn to production cuts as a follow up to capital spending reductions. Such financial measures have already been taken by Occidental Petroleum and Marathon Oil. Since it’s unlikely producers will shut existing wells, production cuts won’t be realized until the end of 2020 and into 2021.

When it comes to natural gas this matters because a portion of natural gas production is associated gas, or gas that comes from oil wells. Fewer wells will mean lower associated gas production which in turn means lower supply. So for now, production remains steady, but tightening natural gas supply toward the end of 2020 may give prices a boost.

For natural gas report week, March 5, 2020, the EIA reported a net decrease in storage of 109 Bcf, in line with projections ranging from a withdrawal of 96 Bcf to a draw of 117 Bcf. Last year for the same week there was a withdrawal of 152 Bcf and the five-year average is a withdrawal of 106 Bcf.

Working gas in storage was 2,091 Bcf as of Friday, February 28th, 2020 per EIA estimates. Inventory was reported at 680 Bcf (48.2%) higher than last year for the same week and 176 Bcf (9.2%) more than the five-year average of 1,915 Bcf.

Natural Gas Report – March 5, 2020

1. Fundamentals

Overall supply averaged 99.4 Bcf/d last week with production unchanged and average net
imports from Canada down by 11%. Total demand dropped by 8% from the prior report week with residential/commercial consumption and power generation down by 14% and 4%, respectively. Industrial consumption fell by 2% while exports to Mexico grew by 3%. LNG exports decreased over last week, down to 15 LNG vessels with a combined carrying capacity of 53 Bcf. So far this withdrawal season, the average rate of withdrawal is 8% less than the five-year average. If the rate of withdrawal from storage matched the five-year average of 6.8 Bcf/d from now until March 31, storage inventory would be 1,873 Bcf which is 176 Bcf higher than the five-year average of 1,697 Bcf.

2. Important Ohio Energy News 

According to a new report by Energy News Network, the effort to pass Ohio HB6 and subsequently prevent the legislation from reaching Ohio voters for consideration was orchestrated by dark money groups. Those groups made over $1 million in campaign contributions to push HB6 through the Ohio General Assembly. Following passage of HB6, they also dumped millions into “misleading ads, alleged harassment of signature collectors, buyouts of petition workers, and even alleged assault,” all aimed at preventing Ohioans from voting on the legislation.

The coordinated effort leaves Ohio ratepayers responsible for paying nearly $1 billion to bail out two of the
bankrupt generator’s nuclear power plants with additional funds set aside for two of their coal plants.

The exact same set of players are also involved in additional legislation before Ohio lawmakers. Consumer groups have argued against HB247, arguing it would strangle the competitive market in Ohio, meaning higher rates for consumers.

Utilities could also charge ratepayers for infrastructure improvements in the name of economic development,
whether or not it would be useful. The legislation would allow utilities to spend “unlimited amounts of money on risky projects with little or no oversight, and no recourse.”

For natural gas report week, February 27, 2020, the EIA reported a net decrease in storage of 143 Bcf, in line with projections ranging from a withdrawal of 140 Bcf to a draw of 167 Bcf. Last year for the same week there was a withdrawal of 167 Bcf and the five-year average is a withdrawal of 122 Bcf.

Working gas in storage was 2,200 Bcf as of Friday, February 21st, 2020 per EIA estimates. Inventory was reported at 637 Bcf (40.8%) higher than last year for the same week and 179 Bcf (8.9%) more than the five-year average of 2,021 Bcf.

Natural Gas Report – February 27, 2020

1. Fundamentals

Overall supply averaged 100.0 Bcf/d last week with production unchanged and average net imports from Canada down by 7%. Despite week-over-week numbers showing production has been consistently flat, it’s up 5.1 Bcf/day over last year has and averaged 91.5 Bcf/d so far this month. Total demand dropped by 4% from the prior report week with residential/commercial consumption and power-generation down by 8% and 3%, respectively. Industrial consumption grew by 2% while exports to Mexico remained the same at 5.4 Bcf/d week-over-week.

So far this withdrawal season, the average rate of withdrawal is 9% less than the five-year average. If the rate of withdrawal from storage matched the five-year average of 8.3 Bcf/d from now until March 31, storage inventory would be 1,876 Bcf which is 179 Bcf higher than the five-year average of 1,697 Bcf.

2. Important Trends 

More than 83,000 cases of coronavirus have been confirmed in more than 50 countries as global disruption to businesses and economies has impacted American markets throughout the last week.

Natural gas markets have not been immune to the impact as China National Offshore Oil Corp. (CNOOC), China’s largest LNG importer suspended contracts with suppliers and made a legal move to nullify other contractual obligations, leaving many shipping vessels afloat while they search for other buyers.

Chevron sent home 300 workers in London over coronavirus fears when an employee returned to work following a trip to Italy and began feeling ill. Other companies have also furloughed employees which may disrupt natural gas supply and demand.

Amid declining demand, oil prices are notably lower at $45 a barrel. The NYT reports that’s the break-even price for many producers who don’t yet have immediate plans to curtail drilling, a move that would translate to reduced associated natural gas production.

3. Prices

As the trading calendar flips to April 2020, the first month of the diminishing summer strip, there’s an awareness that the time for winter’s last hurrah for this withdrawal season is at hand. This was reaffirmed by forecasts predicting temperatures in excess of the ten-year norm for the majority of the country.

Haven’t cleared the driveway from this week’s snow? Not to worry, cities from Chicago to Baltimore will see temperatures in the 50s and 60s next week. While that might help clear your walkway, it’s certainly no help when it comes to natural gas prices which fell uniformly across the report week. Spot, prompt month, calendar, and seasonal strip prices all declined across the report week. By current circumstances, voluntary production declines are more likely to help prices than other fundamentals.

For natural gas report week, February 20, 2020, the EIA reported a net decrease in storage of 151 Bcf, in line with projections ranging from a withdrawal of 128 Bcf to a draw of 158 Bcf. Last year for the same week there was a withdrawal of 163 Bcf and the five-year average is a withdrawal of 136 Bcf.

Working gas in storage was 2,343 Bcf as of Friday, February 14th, 2020 per EIA estimates. Inventory was reported at 613 Bcf (35.4%) higher than last year for the same week and 200 Bcf (9.3%) more than the five-year average of 2,143 Bcf.

Natural Gas Report – February 20, 2020

1. Fundamentals

Overall supply averaged 100.4 Bcf/d last week with production remaining steady and average net imports from Canada increasing by 7%. Total demand increased by 5% from the prior report week with residential/commercial consumption up 7%, industrial up by 1% and exports to Mexico up by 3% while power-generation fell by 1%.

Overall prices rose in response to chilly (normal) winter temperatures.

So far this withdrawal season, the average rate of withdrawal is 11% less than the five-year average. If the rate of withdrawal from storage matched the five-year average of 9.7 Bcf/d from now until March 31, storage inventory would be 1,897 Bcf which is 200 Bcf higher than the five-year average of 1,697 Bcf.

2. Important Trends 

Last week we examined global LNG oversupply conditions and the extent to which watching LNG
contracts may serve as an indicator of declining export market opportunities. As of last week, conditions appeared optimistic as the issue hadn’t led to contract cancellations or requested re-negotiations for most exporters. This week, that changed as a Spanish utility was among the first to reportedly retreat from a prior LNG commitment.

The cancellation supports claims made at last week’s 19th annual S&P Global Platts LNG Conference. “LNG producers were encouraged…to shut in some supply amid the global glut that is helping drive down prices in Asia, or push more volumes to markets beyond Europe, perhaps Latin America. The takeaway…was that something has to give, and soon, to allow for more liquefaction projects to be built in time to fill a projected supply shortage around the middle of the decade.”

While Europe represented a promising LNG market, current excess supply means shippers will need to find new takers for LNG exports. Brazil may be one Latin American opportunity, but it’s unlikely they can absorb enough LNG to reverse current oversupply conditions.

3. Why It Matters

Absent shutting off supply to tighten up the supply-demand imbalance, current conditions will continue to exert downward pressure on prices. With prices so low, developers have struggled to secure enough long-term contracts to finance construction of new terminals previously scheduled to start around the middle of the decade. In the interim, some have delayed investment decisions. As the LNG market rights itself, this could eventually lead to an inability to meet increasing LNG demand as lags in supply infrastructure development hamper suppliers from keeping pace. For now, shortterm gains through shut-ins may produce a more stable market later in the 2020s.