For natural gas report week October 22, 2020, the EIA reported a net increase in storage of 49 Bcf. The build was in line with forecasts of injections ranging from 44 Bcf to 68 Bcf, averaging 50 Bcf. Last year for the same week there was an injection of 92 Bcf and the five-year average is 75 Bcf.

Working gas in storage was 3,926 Bcf as of Friday, October 16, 2020 per EIA estimates. Inventory was 345 Bcf (9.6%) higher than last year for the same week and 327 Bcf (9.1%) more than the five-year average of 3,599 Bcf.

Natural Gas Report – October 22, 2020

Natural Gas Fundamentals

Overall supply averaged 92.0 Bcf/d last week as production increased by 3.1%. Meanwhile, imports from Canada decreased by 12.9%.

The average rate of injections into storage is 1% 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 8.2 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,050 Bcf in storage, which is 327 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 8.3% from the prior report week, averaging 87.7 Bcf/d. Residential-commercial demand grew by a considerable 52.3% upon increased consumption for heating. Consumption for power generation fell by 4.1% Industrial demand increased by 3.9% while exports to Mexico fell by 1.0%.

LNG pipeline receipts are up by 1.2 Bcf/d. Fourteen LNG vessels with a combined carrying capacity of 51 Bcf departed the U.S. between October 15 and October 21, 2020.

The number of rigs in operation increased by six, up to 329 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs increased by one from last week, up to 74.

Natural Gas Prices

Overall spot price activity was mixed on cooler temperatures throughout the Midwest and seasonal temperatures covering the rest of the country. Of note, Henry Hub spot prices increased 83 cents from last Wednesday ($2.03/MMBtu to a high of $2.86/MMBtu on the 21^st). Additionally, Permian Basin Waha Hub prices averaged $0.89/MMBtu on Wednesday after hitting a low of -$0.32/MMBtu on Friday.

On Wednesday, November settled at $3.023/Dth, the first time the prompt month broke the $3-mark since January 2019. The backwardated market (Cal ‘21, $3.066/Dth; Cal ’22, $2.914/Dth; Cal ’23, $2.561/Dth; Cal ’24, $2.505/Dth at the time of this writing) suggests two sentiments that are both predictable given the time of year and consistent with activity throughout 2020.

Prices are tied to temperature and storage/production fundamentals. Even though we’re on track to end withdrawal season at a surplus to the five-year average, production has and will continued to remain well below 2019 totals until the middle of 2021. Declining production, even with normal winter temperatures, generally proves bullish the closer we are to winter. Confidence that production will rebound as expected is seen in Cal ’22 – Cal ’24 prices.

Residential-Commercial Winter Natural Gas Demand Outlook

It doesn’t seem possible that November is right around the corner – especially with regional temperatures in the 70s today. If you require convincing, a look at next week’s forecasts should do the trick.

With NOAA winter weather projections forecasting above-average temperatures for much of the southern U.S. and cooler weather for the North, the EIA estimates residential-commercial (rescom) natural gas consumption will exceed last year’s totals. This is due, in part, to expectations for a modest increase in heating degree days from 572 last year to 602 this year. Continued COVID-19 control efforts are also anticipated to drive rescom consumption. According to EIA winter natural gas demand forecasts, “Despite lower prices, EIA forecasts higher residential natural gas consumption will lead to an increase in household expenditures for homes that primarily heat with natural gas. EIA forecasts average household expenditures for these homes will rise to $572 this winter, an increase of $32 (5.9%) compared with last winter.”

For natural gas report week October 8, 2020, the EIA reported a net increase in storage of 75 Bcf. The build was in line with forecasts of injections ranging from 67 Bcf to 85 Bcf, averaging 71 Bcf. Last year for the same week there was an injection of 102 Bcf and the five-year average is 86 Bcf.

Working gas in storage was 3,831 Bcf as of Friday, October 2nd, 2020 per EIA estimates. Inventory was 444 Bcf (13.1%) higher than last year for the same week and 394 Bcf (11.5%) more than the five-year average of 3,437 Bcf.

Natural Gas Report – October 8, 2020

Natural Gas Fundamentals

Overall supply averaged 91.5 Bcf/d last week as production decreased by 0.02%. Meanwhile, imports from Canada increased by 14.8%.

The average rate of injections into storage is 5% 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 9.9 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,117 Bcf in storage, which is 394 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 6.9% from the prior report week, averaging 84.0 Bcf/d. Residential-commercial demand grew by a considerable 49.3% upon increased consumption for heating. Consumption for power generation fell by 2.1% Industrial demand increased by 2.0% while exports to Mexico fell by 6.7%.

LNG pipeline receipts are up by 0.8 Bcf/d. Fourteen LNG vessels with a combined carrying capacity of 52 Bcf departed the U.S. between October 1 and October 7, 2020.

The number of rigs in operation remained steady at 317 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs dropped by one from last week, down to 74.

Natural Gas Prices

Henry Hub spot prices increased 55 cents across the report week (from $1.48 MMBtu to $2.03 MMBtu). Prompt month and futures contracts also posted modest gains. Some price response is attributed to below average temperatures and the approach of Hurricane Delta’s landfall on Friday. As of Wednesday, 49% of the natural gas and 80% of the crude oil in the Gulf of Mexico has been shut-in. Additionally, several natural gas pipelines in the region declared force majeure according to Natural Gas Intelligence.

Looking forward, the EIA expects rising domestic winter demand, combined with reduced production, to cause Henry Hub spot prices to rise to a monthly average of $3.38/MMBtu in January 2021. EIA winter price forecasts suggest prices will remain above $3.00/MMBtu throughout 2021.

EIA Short Term Energy and Winter Fuels Outlook

• Based on NOAA winter forecasts alluding to colder winter temperatures, the EIA anticipates residential natural gas expenses will increase by 6% and electricity by 7%. This forecast is predicated on an estimated 5% increase in heating degree days and continued at-home COVID-mitigation efforts, specifically when it comes to remote working and schooling. The EIA did note the unprecedented uncertainty in their forecast due to the constant change in reopening plans.

• The EIA forecasts a record high as natural gas storage inventories will exceed 4.0 Tcf on October 31. Nonetheless, as production is expected to be lower than last winter, withdrawals will likely outpace the five-year average. Projections for the end of withdrawal season (March 2021) put storage at roughly 1.7 Tcf – 6% lower than the 2016–20 average.

• Consumption will average 83.7 Bcf/d through the end of 2020, down 1.8% from 2019. In 2021, EIA expects consumption will average 78.7 Bcf/d, down 5.9% from 2020. This is attributed to rising natural gas prices that will reduce demand for natural gas used in power generation.

• For the remainder of 2020, the EIA expects production will average 90.6 Bcf/d, down from an average of 93.1 Bcf/d in 2019. The EIA indicates the downward trend is expected continue through May 2021 as low crude oil prices will reduce associated natural gas output from oil-directed rigs. Monthly average production is projected to fall from a record 97.0 Bcf/d in December 2019 to 85.9 Bcf/d in May 2021 when higher natural gas and crude oil prices prompt increased production.

Read the rest of the EIA Winter Fuels Outlook

For natural gas report week October 1, 2020, the EIA reported a net increase in storage of 76 Bcf. The build was in line with forecasts of injections ranging from 71 Bcf to 86 Bcf, averaging 77 Bcf. Last year for the same week there was an injection of 109 Bcf and the five-year average is 78 Bcf.

Working gas in storage was 3,765 Bcf as of Friday, September 25th, 2020 per EIA estimates. Inventory was 471 Bcf (14.3%) higher than last year for the same week and 405 Bcf (12.1%) more than the five-year average of 3,351 Bcf.

Natural Gas Report – October 1, 2020

Natural Gas Fundamentals

Overall supply averaged 91.1 Bcf/d last week as production grew by 0.03%. Meanwhile, imports from Canada increased by 7.5%.

The average rate of injections into storage is 6% 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 10.3 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,128 Bcf in storage, which is 405 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 0.4% from the prior report week, averaging 79.3 Bcf/d. Consumption for power generation grew by 3.8% while residential-commercial demand fell by 7.5%.  Industrial demand and exports to Mexico fell by 0.5% and 1.5% respectively.

LNG pipeline receipts are up by 0.45 Bcf/d. Fourteen LNG vessels with a combined carrying capacity of 50 Bcf departed the U.S. between September 24 and September 30, 2020.

The number of rigs in operation increased by twenty, up to 317 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs increased by two from last week, up to 75.

Natural Gas Prices

November became the prompt month, closing the books on a volatile October. Marked by an 82-cent trading range amid COVID demand recovery, investor driven cuts to productions, and a stabilizing economy, analysts have turned their attention to the approach of winter heating season.

Although the last week brought cool temperatures to punctuate the end of summer, the NOAA 8-14 day forecast predicts above-average temperatures for the entire country. At the same time, well counts increased again this week, signaling an intention to ramp up production.

The warmer weather combined with increasing production will increase the likelihood that injection season will conclude at a healthy surplus to the five-year average. Will this subdue the price volatility experienced in October? As winter-weather forecasts and LNG export opportunities become more defined, market response will follow.

EIA Natural Gas Annual

This Wednesday the EIA released their natural gas annual for 2019. Some interesting highlights include:

– While all other demand sectors generally remained flat from 2018 to 2019, consumption for power generation increased 6.8%, averaging 31.0 Bcf/d. The trend marks the highest for any year since tracking began in 1997. In large part a measure of affordability, natural gas (38.4%) outpaced coal (23.5%) and nuclear (19.7%) in power generation share in 2019.

– For the fourth year in a row, the U.S. was a net exporter of natural gas, exporting 1,915 Bcf (5.2 Bcf/d) more than it imported for the year. U.S. natural gas imports decreased for the second consecutive year. In 2019, exports totaled 4,656 Bcf (12.8 Bcf/d), up 29.1% from 2018. The 2019 annual total was the highest on record, dating back to 1973.

Read the rest of the EIA Natural Gas Annual 2019.

For natural gas report week September 24, 2020, the EIA reported a net increase in storage of 66 Bcf. The build was in line with forecasts of injections ranging from 65 Bcf to 86 Bcf, averaging 75 Bcf. Last year for the same week there was an injection of 97 Bcf and the five-year average is 80 Bcf.

Working gas in storage was 3,680 Bcf as of Friday, September 18th, 2020 per EIA estimates. Inventory was 504 Bcf (15.9%) higher than last year for the same week and 407 Bcf (12.4%) more than the five-year average of 3,273 Bcf.

Natural Gas Report – September 24, 2020

Natural Gas Fundamentals

Overall supply averaged 90.5 Bcf/d last week as production declined by 0.09%. Meanwhile, imports from Canada fell by 10.0%.

The average rate of injections into storage is 6% 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 10.5 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,130 Bcf in storage, which is 407 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 1.0% from the prior report week, averaging 81.0 Bcf/d. Residential-commercial consumption grew by a whopping 27.9% in response to cooler temperatures while power generation demand fell by 6.7%.  Industrial demand and exports to Mexico grew by 2.3% and 3.9% respectively.

LNG pipeline receipts are down by 1.0 Bcf/d. Ten LNG vessels with a combined carrying capacity of 37 Bcf departed the U.S. between September 17 and September 23, 2020.

The number of rigs in operation increased by three, up to 297 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs increased by two from last week, up to 73.

Natural Gas Prices

Even as this week’s injection came in at the low end of expectations, it seems likely we’ll close injection season at a surplus to the five-year average. With substantial supply, the week’s volatility may seem somewhat curious.  Tropical storm and hurricane impact notwithstanding, there’s market uncertainty about both short- and long-term forecasts. With winter specifics yet undefined and no signal of early cold on the horizon, analysts have turned to restored LNG demand and low rig counts for a hint as to where prices may go. FX Empire affirmed LNG may indeed be a large factor in where prices go from here. “Looking ahead, improvements in LNG volumes will be the key to whether this market can sustain the rally since the forecasts don’t show weather to be a major factor over the near-term… Basically, it’s going to take sustained LNG export momentum and probably early winter-like temperatures to prevent storage surplus programs [sic] problems.”

For natural gas report week September 17, 2020, the EIA reported a net increase in storage of 89 Bcf. The build exceeded forecasts of injections ranging from 68 Bcf to 86 Bcf, averaging 80 Bcf. Last year for the same week there was an injection of 82 Bcf and the five-year average is 77 Bcf.

Working gas in storage was 3,614 Bcf as of Friday, September 11th, 2020 per EIA estimates. Inventory was 535 Bcf (17.4%) higher than last year for the same week and 421 Bcf (13.2%) more than the five-year average of 3,193 Bcf.

Natural Gas Fundamentals

Overall supply averaged 91.7 Bcf/d last week with production falling by 1.5%. Meanwhile, imports from Canada increased by 7.2%.

The average rate of injections into storage is 7% 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 10.6 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 fell by 3.0% from the prior report week, averaging 81.1 Bcf/d. Power generation and exports to Mexico declined by 6.3% and 5.7%, respectively.  Industrial demand grew by 0.4% and residential-commercial increased by 2.7%.

LNG pipeline receipts are up by 2.4 Bcf/d, averaging 7.0 Bcf/d. Eleven LNG vessels with a combined carrying capacity of 41 Bcf departed the U.S. between September 10 and September 16, 2020.

The number of rigs in operation grew by five, up to 294 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs decreased by one from last week, down to 71.

Natural Gas Prices

Although prices fell across the board, it was most pronounced in spot and prompt month prices as well as in the upcoming winter strip as cooler weather led to decreased demand.  

According to the EIA, temperatures averaged 65–70 degrees across most of the Lower 48 states, leading to lower consumption for power generation. Additionally, this week’s injection of 89 Bcf exceeded both last year’s injection and the five-year average as well as market expectations. The injection appears to have been the primary factor in the price drop, particularly for prompt month prices, as most of the decline occurred within the hour following the EIA’s publication of weekly storage numbers.

Can We Talk Risk?

That’s the thing about risk – if you knew what was going to happen, there wouldn’t be much risk involved, right? You’d know what was going to happen and plan accordingly.

But in a year that’s brought us a global pandemic, global lockdowns and natural gas demand destruction, negative oil prices, murder hornets, record breaking wildfires, and fire tornadoes, if one thing should be clear, it’s that not much is really all that certain. 

Energy prices aren’t immune to turbulent current events. Read on for more about how to understand price risk in light of such uncertainty. 

For natural gas report week September 10, 2020, the EIA reported a net increase in storage of 70 Bcf. The build was in line with forecasts of injections ranging from 59 Bcf to 83 Bcf, averaging 69 Bcf. Last year for the same week there was an injection of 80 Bcf and the five-year average is 68 Bcf.

Working gas in storage was 3,525 Bcf as of Friday, September 4th, 2020 per EIA estimates. Inventory was 528 Bcf (17.6%) higher than last year for the same week and 409 Bcf (13.1%) more than the five-year average of 3,116 Bcf.

Natural Gas Report – September 10, 2020

Natural Gas Fundamentals

Overall supply averaged 92.8 Bcf/d last week as production grew by 0.7%. Meanwhile, imports from Canada fell by 19.4%.

The average rate of injections into storage is 7% 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 10.6 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,132 Bcf in storage, which is 409 Bcf higher than the five-year average of 3,723 Bcf.

Total demand fell by 3.9% from the prior report week, averaging 81.1 Bcf/d. Power generation and residential-commercial consumption declined by 7.8% and 0.1%, respectively.  Industrial demand grew by 1.8% and exports to Mexico dropped by 1.8%.

LNG pipeline receipts are up by 1.8 Bcf/d. Six LNG vessels with a combined carrying capacity of 21 Bcf departed the U.S. between September 3 and September 9, 2020.

The number of rigs in operation grew by 21, up to 294 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs remained flat at 72.

Natural Gas Prices

Following the holiday weekend, prompt month prices dropped roughly 18 cents. Part market correction, part response to fundamentals, the 12-month and winter strips also posted losses week over week with the 2021 summer strip holding steady. With 7 weeks left of injection season and upcoming injections forecast in alignment with the five-year average, it looks like we’ll begin withdrawal season at a surplus to the five-year average. Yet prices remain unfavorably low for producers who have been forced to tighten up supply amid declining profitability. With domestic demand stabilizing and expectations for continued growth in LNG exports, there’s enough to justify some price support. However, with crude oil inventory excess, the EIA expects drilling activity will remain low through the first half of 2021 before increasing toward the end of year. The potential impact to associated natural gas production may have an amplifying effect on price support.

For natural gas report week September 3, 2020, the EIA reported a net increase in storage of 35 Bcf. The build was in line with forecasts of injections ranging from 28 Bcf to 43 Bcf, averaging 34 Bcf. Last year for the same week there was an injection of 77 Bcf and the five-year average is 66 Bcf.

Working gas in storage was 3,455 Bcf as of Friday, August 28th, 2020 per EIA estimates. Inventory was 538 Bcf (18.4%) higher than last year for the same week and 407 Bcf (13.4%) more than the five-year average of 3,048 Bcf.

Natural Gas Report – September 3, 2020

Natural Gas Fundamentals

Overall supply averaged 93.1 Bcf/d last week with production remaining steady. Meanwhile, imports from Canada fell by 14.1%.

The average rate of injections into storage is 7% 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 10.5 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,130 Bcf in storage, which is 407 Bcf higher than the five-year average of 3,723 Bcf.

Total demand fell by 5.4% from the prior report week, averaging 81.9 Bcf/d. Power generation and residential-commercial consumption declined by 7.8% and 5.4%, respectively.  Industrial demand fell by 0.5% and exports to Mexico dropped by 1.4%.

LNG pipeline receipts are down by 1.4 Bcf/d. Six LNG vessels with a combined carrying capacity of 21 Bcf departed the U.S. between August 27 and September 2, 2020.

The number of rigs in operation dropped two, down to 273 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs increased by three from last week, up to 72.

Natural Gas Prices

After showing some strength, natural gas prompt month prices waned. October prices dropped despite an injection that was half of last year for the same week and 31 Bcf below the five-year average. At the same time, the 12 month and seasonal strips all gained slightly more than 4 cents over the prior week. The mixed reaction may be the result of short-term demand setbacks following Hurricane Laura and 14-day forecasts for below-average temperatures for a large part of the country. Long term, expectations for demand restoration (specifically LNG exports), continued anemic production, and persisting low crude oil prices seem to be working together to give prices a boost, particularly throughout winter.

Energy and the 2020 Election

It’s hard to believe, but we have less than 60 days to go before the 2020 election. If you want to know where the candidates stand on energy policy, check out this guide from Ballotpedia.

If you have general questions about voting, here are a few more resources.

• To register to vote in Ohio, you may do so online at Ohio’s Online Voter Registration System. To vote in the November 3^rd, 2020 General Election, you must register no later than October 5h, 2020.
• Not sure if you’re registered in Ohio? Check your voter registration and find your polling precinct here.
• Want to request an absentee ballot in Ohio? The deadline is October 31, 2020. There is no online option for submitting this request. The Ohio Secretary of State request form must be printed and mailed.

• Online registration, polling place information, and voter registration status for individuals outside Ohio is available at gov.
• Research the candidates and issues on your ballot before you go to vote. Download your sample ballot early.  

For natural gas report week, August 27, 2020, the EIA reported a net increase in storage of 45 Bcf. The build was in line with forecasts of injections ranging from 37 Bcf to 58 Bcf, averaging 45 Bcf. Last year for the same week there was an injection of 60 Bcf and the five-year average is 49 Bcf.

Working gas in storage was 3,420 Bcf as of Friday, August 21st, 2020 per EIA estimates. Inventory was 580 Bcf (20.4%) higher than last year for the same week and 438 Bcf (14.7%) more than the five-year average of 2,982 Bcf.

Natural Gas Report – August 27, 2020

Natural Gas Fundamentals

Overall supply averaged 94.0 Bcf/d last week with production declining by 1.0%. Meanwhile, imports from Canada fell by 10.3%.

The average rate of injections into storage is 10% 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 10.4 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,161 Bcf in storage, which is 438 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 0.8% from the prior report week, averaging 87.9 Bcf/d. Power generation and residential-commercial consumption increased by 1.3% and 0.8%, respectively.  Industrial demand fell by 0.2% and exports to Mexico rose by 8.0%.

LNG pipeline receipts are down by 0.5 Bcf/d. Seven LNG vessels with a combined carrying capacity of 26 Bcf departed the U.S. between August 20 and August 26, 2020.

The number of rigs in operation dropped to 275 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs decreased by one from last week, down to 69.

Natural Gas Prices

Overall spot prices increased as above-average temperatures settled in across much of the country and hurricane Laura led to brief production interruptions. While the storm spared much of the Gulf’s energy infrastructure, over 60% of the region’s natural gas production was shut-in as evacuations reduced production by 2.7 Bcf/d. The brief interruption was partially offset as LNG demand dropped by 2.0 Bcf/d when LNG terminals were also taken offline.

Prompt month, 12-month, and seasonal strip prices continued their upward movement but appear limited to the near term as prices from Cal ’21 to Cal’ 23 drop off. However, it’s unclear if the backwardation is the result of anticipated supply issues or just typical late-season market sentiment, especially since storage is forecast to conclude injection season at a surplus to the five-year average.

PUCO Issues Winter Reconnect Order

As Ohio’s moratorium on utility shut-offs has expired, some are confronting service disconnections. The Public Utilities Commission of Ohio (PUCO) Winter Reconnect order may offer help.

According to a news release from PUCO, “The Public Utilities Commission of Ohio (PUCO) today issued its Winter Reconnect Order for the upcoming winter heating season. The Winter Reconnect Order helps Ohioans served by PUCO-regulated utilities reconnect or maintain electric and natural gas service during the winter heating season between Oct. 5, 2020 and April 15, 2021.”

You can read more about PUCO’s Winter Reconnect order here.

For natural gas report week, August 20, 2020, the EIA reported a net increase in storage of 43 Bcf. The build was in line with forecasts of injections ranging from 34 Bcf to 51 Bcf, averaging 43 Bcf. Last year for the same week there was an injection of 56 Bcf and the five-year average is 44 Bcf.

Working gas in storage was 3,375 Bcf as of Friday, August 14th, 2020 per EIA estimates. Inventory was 595 Bcf (21.4%) higher than last year for the same week and 442 Bcf (15.1%) more than the five-year average of 2,933 Bcf.

Natural Gas Report – August 20, 2020

Natural Gas Fundamentals

Overall supply averaged 94.5 Bcf/d last week with production declining by 0.1%. Meanwhile, imports from Canada fell by 1.2%.

The average rate of injections into storage is 11% 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 10.1 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,165 Bcf in storage, which is 442 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 1.5% from the prior report week, averaging 87.6 Bcf/d. Power generation and residential-commercial consumption increased by 1.8% and 1.4%, respectively.  Industrial demand grew by 1.0% and exports to Mexico rose by 0.6%.

LNG pipeline receipts are up by 0.3 Bcf/d. Eleven LNG vessels with a combined carrying capacity of 40 Bcf departed the U.S. between August 13 and August 19, 2020.

The number of rigs in operation remained steady at 280 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs increased by one from last week, up to 70.

Natural Gas Prices

Henry Hub spot prices as well as prompt month, 12-month strip, and seasonal strip prices generally increased across the report week. As producer profit margins have fallen amid low prices for both oil and natural gas, spending cuts have led to historic drops in drilling. While some of the price increases may be attributed to market correction, analysts suggest it’s also partially due to expectations of a winter supply/demand imbalance.

Production is certainly below the record pace experienced last year, but it’s important to note even at the current rate, storage is still on track to conclude injection season at a surplus to last year and the five-year average. With demand recovering from the epidemic’s impact, will production at current rates sustain winter demand? Time will tell.

For natural gas report week, August 13, 2020, the EIA reported a net increase in storage of 58 Bcf. The build was in line with forecasts of injections ranging from 42 Bcf to 65 Bcf, averaging 56 Bcf. Last year for the same week there was an injection of 51 Bcf and the five-year average is 44 Bcf.

Working gas in storage was 3,332 Bcf as of Friday, August 7th, 2020 per EIA estimates. Inventory was 608 Bcf (22.3%) higher than last year for the same week and 443 Bcf (15.3%) more than the five-year average of 2,889 Bcf.

Natural Gas Report – August 13, 2020

Natural Gas Fundamentals

Overall supply averaged 94.7 Bcf/d last week with production growing by 1.2%. Meanwhile, imports from Canada grew by 2.6%.

The average rate of injections into storage is 11% 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 9.8 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,166 Bcf in storage, which is 443 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 0.5% from the prior report week, averaging 86.2 Bcf/d. Power generation and residential-commercial consumption increased by 0.9% and 1.9%, respectively.  Industrial demand decreased by 0.7% and exports to Mexico fell by 1.7%.

LNG pipeline receipts are up 14% (by 0.6 Bcf/d). Eight LNG vessels with a combined carrying capacity of 29 Bcf departed the U.S. between August 6 and August 12, 2020.

The number of rigs in operation remained steady at 280 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs remained flat at 69 from last week.

EIA Crude Oil Forecasts

In the August 2020 Short Term Energy Outlook, the EIA forecasts high inventory levels with excess crude oil production will subdue short-term prices. However as low crude prices lead to decreased drilling and inventories decline amid stabilizing demand through 2021, prices are expected to eventually increase. In fact, EIA expects monthly Brent spot prices will average $43/b during the second half of 2020, rising to an average of $50/b in 2021. The low prices will reduce associated natural gas output from oil-directed rigs.

Given EIA estimates, the following fundamentals are at play in the crude oil market roller coaster:

Supply

• For the first half of 2020, supply grew at a rate of 6.4 mb/d.
• During the second half of 2020, inventory is projected to decline at a rate of 4.2 mb/d.
• In 2021, supply is expected to fall at a rate of 0.8 mb/d.

Production

Newly released EIA data indicates U.S. average monthly crude production for May 2020 was 1.2 mb/d below reported estimates in the July 2020 Short Term Energy Outlook, evidencing deeper production cuts than previously estimated.

• 2019 – crude production averaged 12.2 mb/d.
• 2020 – production is slated to average 11.3 mb/d.
• 2021 – production forecast is 11.1 mb/d.

Demand

COVID-19 travel restrictions and stay-at-home orders contributed to a 20% drop in crude consumption in the 2Q 2020 compared to the same period the year before. In 2Q 2019, U.S. consumption averaged 20.3 mb/d compared to 16.2 mb/d in 2Q 2020. The EIA anticipates overall crude demand will increase through the end of 2021.

• 2019 – crude demand averaged 20.4 mb/d
• 2020 – EIA estimates demand will average 18.4 mb/d.
• 2021 – EIA forecasts demand will average 20.0 mb/d.

EIA Natural Gas Forecasts

The EIA anticipates prices will increase through the end of 2021 with the sharpest increases expected for fall and winter 2020-2021 as the result of rising demand and declining production. According to EIA market analysis, prices will rise from an average of $2.11/Dth in September to $3.14/Dth in February. Additionally, Henry Hub spot prices will average $2.03/Dth in 2020 and $3.14/Dth in 2021

Supply

• In 2019, natural gas inventories concluded injection season at 3,724 Bcf.
• Current projections put storage at 4,166 Bcf at the close of 2020 injection season.

Production

It is important to note that market forecasts still predict low crude oil prices (as mentioned above) which will lead to reduced crude drilling. The decline in oil rig output will translate to lower associated natural gas production which represents up to 30% of natural gas supply, particularly in the Permian region.

• 2019 –  production averaged 92.2 Bcf/d.
• 2020 – production is expected to average 88.7 Bcf/d.
• 2021 – production is forecast to average 84.0 Bcf/d.

Production is anticipated to rise in 2Q 2021 in response to rebounding crude oil and natural gas prices.

Demand

• 2019 – overall consumption averaged 84.97 Bcf/d.
• 2020 – demand will drop 3% to an average of 82.4 Bcf/d.
• 2021 – consumption is projected to average 78.71 Bcf/d.

For natural gas report week, August 6, 2020, the EIA reported a net increase in storage of 33 Bcf. The build was in line with forecasts of injections ranging from 23 Bcf to 35 Bcf, averaging 30 Bcf. Last year for the same week there was an injection of 58 Bcf and the five-year average is 33 Bcf.

Working gas in storage was 3,274 Bcf as of Friday, July 31st, 2020 per EIA estimates. Inventory was reported at 601 Bcf (22.5%) higher than last year for the same week and 429 Bcf (15.1%) more than the five-year average of 2,845 Bcf.

Natural Gas Report – August 6, 2020

Natural Gas Fundamentals

Overall supply averaged 93.5 Bcf/d last week with production falling slightly by 0.7%. Meanwhile, imports from Canada grew by 10.0%.
The average rate of injections into storage is 10% 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 9.5 Bcf/d through the end of refill season (October 31st), withdrawal season would begin with 4,152 Bcf in storage, which is 429 Bcf higher than the five-year average of 3,723 Bcf.
Total demand fell by 6.2% from the prior report week, averaging 85.3 Bcf/d. Power generation and residential-commercial consumption declined by 9.3% and 8.8%, respectively. Industrial demand increased by 1.8% and exports to Mexico grew by 1.1%.
LNG pipeline receipts are up by 0.6 Bcf/d. Five LNG vessels with a combined carrying capacity of 18 Bcf departed the U.S. between July 30 and August 5, 2020.
The number of rigs in operation decreased by 3 to 280 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs are up by one to 69.

Natural Gas Prices

Spot prices were mixed, largely following the weather, up where temperatures were above normal and down in areas of cooler weather. Henry Hub spot prices were up 43.0 cents from a low of $1.75/Dth Wednesday, July 29th to a high of $2.18/Dth this past Wednesday.

Prompt month prices spiked 33.6 cents from the prior Thursday’s close on forecasts of above-average temperatures for key demand areas through the end of August. For most of the report week, prompt month, calendar and seasonal strips traded at highs last seen in February before falling from Wednesday to Thursday. Some analysts suggest the bullish price movement was the result of warm weather forecasts, predictions for restored LNG demand, and anemic production. Nonetheless, they caution, EIA estimates for end-of-season storage totals still at a healthy surplus to the five-year average may keep prices subdued until winter demand forecasts become more defined.

Natural Gas And Power Generation

Coal, natural gas, solar thermal energy and nuclear energy are all used to generate power for electricity generation. Natural gas used in electricity generation powers steam turbines. Heated water produces steam that turns a turbine to generate electricity. Most of the largest electric power plants in the United States have steam turbines.

With an increasing emphasis on emission reduction and given low natural gas prices, coal’s share of electricity generation is expected to decline from 24% in 2019 to 18% in 2020. While coal is expected to reclaim 3% of that share in 2021 as the result of higher natural gas prices, power generators have been making infrastructure changes leading to long-term deference to natural gas. “According to data from the U.S. Energy Information Administration (EIA), 121 U.S. coal-fired power plants were repurposed to burn other types of fuels between 2011 and 2019, 103 of which were converted to or replaced by natural gas-fired plants. At the end of 2010, 316.8 gigawatts (GW) of coal-fired capacity existed in the United States, but by the end of 2019, 49.2 GW of that amount was retired…”

As such, when July temperatures soared, so did demand for power used in cooling. This led to record setting demand for natural gas used in power generation. The EIA reported, “Natural gas consumed by electric power plants (power burn) set a record high of 46.7 billion cubic feet (Bcf) on Monday, July 27, according to S&P Global Platts estimates. On the same day, natural gas-fired capacity reached an all-time high dispatch level, reaching 315,989 megawatts (MW) in the late afternoon, according to EIA’s Hourly Electric Grid Monitor. Since July 1, 2020, U.S. power burn has exceeded the previous record of 45.4 Bcf/d―set on August 6, 2019―on six days: July 9, July 20–21, and July 27–29.”

For natural gas report week, July 30th, 2020, the EIA reported a net increase in storage of 26 Bcf. The build was in line with forecasts of injections ranging from 17 Bcf to 32 Bcf, averaging 24 Bcf. Last year for the same week there was an injection of 56 Bcf and the five-year average is 33 Bcf.

Working gas in storage was 3,241 Bcf as of Friday, July 24th, 2020 per EIA estimates. Inventory was reported at 626 Bcf (23.9%) higher than last year for the same week and 429 Bcf (15.3%) more than the five-year average of 2,812 Bcf.

Natural Gas Report – July 30, 2020

Natural Gas Fundamentals

Overall supply averaged 94.4 Bcf/d last week with production increasing slightly by 0.2%. Meanwhile, imports from Canada fell by 2.1%.

The average rate of injections into storage is 11% 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 9.2 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,152 Bcf in storage, which is 429 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 0.9% from the prior report week, averaging 85.7 Bcf/d. Consumption for power generation increased by 0.7%, hitting 43.6 Bcf/d on Monday.  Industrial and residential-commercial consumption increased by 1.3% and 0.6%, respectively. Exports to Mexico remained steady at 5.6 Bcf/d.

LNG pipeline receipts are down by 0.5 Bcf/d. Seven LNG vessels with a combined carrying capacity of 25 Bcf departed the U.S. between July 23 and July 29, 2020.

The number of rigs in operation decreased by 9 to 283 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs are down by three to 68 from last week which is 101 less than last year at this time.

COVID Energy Consumption Impacts

Amid the peak of COVID containment efforts, overall U.S. energy consumption fell to the lowest level since September 1989 according to the EIA. April 2020 consumption dropped 14% from April 2019, the largest year-over-year decrease in EIA’s monthly reporting history which began in 1973.

Stay-at-home orders likewise impacted consumption of petroleum products which declined from 20.1 million b/d to 14.7 million b/d, year-over-year.

While other energy sectors experienced declines in consumption, natural gas saw a 2% increase, driven by a 15% gain in residential use of natural gas. Due in part to cooler temperatures in April 2020 than April 2019, heating-related demand surged. Additionally, low prices made natural gas a cost-effective alternative to coal and nuclear for power generation.

Natural Gas Price Spike Looming?

The COVID-related decline in oil consumption occurred at a time when oil was already oversupplied. With available storage space short and little market for the excess supply, prices dropped from first quarter lows.

The EIA indicates that economic outlook doesn’t show signs of changing. “The $48 billion in write-downs in the first quarter of 2020 represented the largest decline in value recognized by these companies since at least 2015. These first-quarter adjustments, combined with crude oil prices that have remained much lower than 2019 levels during the second quarter of 2020, indicate that the net present value of proved reserves could continue to decline.”

Production Cuts

This has already led to well shut-ins and production cuts. While natural gas specific rigs are down almost 60% from last year, reduced associated gas production also represents a large portion of the loss.

The Journal of Petroleum Technology forecasts this is likely to persist through 2022. “Since the US produces about half of the associated gas worldwide, it will experience the greatest drop in correlation with the drop in oil production. Production may tumble 5.5% compared to 2019 levels—and may not recover to 2019 levels until 2023.”

A Bullish Winter?

Now, with production falling and demand slowly returning to last year’s levels, is a bullish price scenario on the horizon? One analyst expects prices to double.

As we predicted back in April emergence from shutdowns has gradually began to restore demand, specifically for industrial consumption, power generation, and LNG exports. At the same time, production cuts have led to substantially smaller injections. Across the last four weeks, injections have dropped sharply from 120 Bcf to just 26 Bcf.

While short-term prices have remained tied to weather, winter prices reflect a market sentiment that contracting supply will collide with winter demand. According to S&P, “Balance-2020 forwards prices at the Henry Hub are up sharply over the past month as rising gas demand and a recent contraction in supply bolster the outlook for winter gas prices.”

For natural gas report week, July 23, 2020, the EIA reported a net increase in storage of 37 Bcf. The build was in line with forecasts of injections ranging from 28 Bcf to 45 Bcf, averaging 36 Bcf. Last year for the same week there was an injection of 44 Bcf and the five-year average is 37 Bcf.

Working gas in storage was 3,215 Bcf as of Friday, July 17th, 2020 per EIA estimates. Inventory was reported at 656 Bcf (25.6%) higher than last year for the same week and 436 Bcf (15.7%) more than the five-year average of 2,779 Bcf.

Natural Gas Report – July 23, 2020

Natural Gas Fundamentals

Overall supply averaged 94.4 Bcf/d last week as production grew slightly by 0.9% while imports from Canada fell by 3.1%.

The average rate of injections into storage is 12% 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 4,159 Bcf in storage, which is 436 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 1.0% from the prior report week, averaging 85.5 Bcf/d. Consumption for power generation increased by 0.8% and residential-commercial consumption grew by 4.1%. Industrial demand was unchanged and exports to Mexico fell by 0.7%.

LNG pipeline receipts increased slightly from 3.3 Bcf/d to 3.7 Bcf/d. Seven LNG vessels with a combined carrying capacity of 25 Bcf departed the U.S. between July 16 and July 22, 2020. That’s up three vessels and 10 Bcf from last week.

The number of rigs in operation increased by 13 to 292 according to data from Enverus.

Ohio House Bill 6: In The Headlines Again

This week, Ohio Speaker of the House, Larry Householder and four other individuals were arrested on federal racketeering charges for their roles in Ohio’s largest bribery conspiracy. Householder has been accused of accepting more than $60 million in bribes in exchange for his work pushing through Ohio HB6.

The hotly contested legislation was at the center of an effort to put the matter up for referendum. Subsequent to passage by the Ohio legislature, groups opposed to HB6 began a petition campaign to collect the signatures necessary for inclusion on the November ballot. Their efforts were met with substantial counter-campaign efforts led by dark money groups.

FirstEnergy Corp, former parent company of the beneficiary of the ratepayer-financed bailout amounting to about $170 million a year has received subpoenas in conjunction with the ongoing bribery investigation. They have affirmed their intention to cooperate fully while maintaining, “At no time did our support for Ohio’s nuclear plants interfere with or supersede our ethical obligations to conduct our business properly,” according to CEO Charles Jones.

Meanwhile Ohio legislators are working on a measure to repeal HB6. Some Ohio lawmakers would like to see HB6 replaced with similar legislation while others are advocating for a full repeal.

We’ll continue to update you with developments on this story as the results are sure to impact Ohio ratepayers.

For natural gas report week, July 16, 2020, the EIA reported a net increase in storage of 45 Bcf. The build was in line with forecasts of injections ranging from 38 Bcf to 52 Bcf, averaging 48 Bcf. Last year for the same week there was an injection of 67 Bcf and the five-year average is 63 Bcf.

Working gas in storage was 3,178 Bcf as of Friday, July 10th, 2020 per EIA estimates. Inventory was reported at 663 Bcf (26.4%) higher than last year for the same week and 436 Bcf (15.9%) more than the five-year average of 2,742 Bcf.

Natural Gas Report – July 16, 2020

Natural Gas Fundamentals

Overall supply averaged 93.8 Bcf/d last week as imports from Canada increased by 11.3% while production fell by 0.7%.

The average rate of injections into storage is 12% 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 8.7 Bcf/d through the end of refill season (October 31^st), withdrawal season would begin with 4,159 Bcf in storage, which is 436 Bcf higher than the five-year average of 3,723 Bcf.

Total demand grew by 0.9% from the prior report week, averaging 84.4 Bcf/d. Consumption for power generation increased by 1.2%.  Exports to Mexico grew by 5.9% and industrial demand rose by 1.3% from last week. Residential-commercial consumption declined by 1.3%.

LNG pipeline receipts increased slightly from 3.1 Bcf/d to 3.3 Bcf/d. Four LNG vessels with a combined carrying capacity of 15 Bcf departed the U.S. between July 9 and July 15, 2020. That’s down three vessels and 10 Bcf from the end of June.

The number of rigs in operation increased by 3 to 279 according to data from Enverus. Baker Hughes rig data shows natural gas specific rigs are down by four to 71 from last week which is103 less than last year at this time.

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.’”