International Demand

Strong natural gas production should help balance market against cold winter and LNG demand, says AGA

Heating demand could turn out to be stronger this winter than last winter, given the National Weather Service (NWS) forecast for colder temperatures in northern markets. But robust production levels this fall should help balance prices and meet domestic market needs and increased international demand for LNG.

That assessment is consistent with the American Gas Association’s (AGA) winter outlook, given to reporters at a Monday press briefing. The AGM noted that production hit record highs in early October, following strong summer demand that pushed natural gas futures and spot prices to highs of nearly 14 years around $9.00/MMBtu. Production topped 102 billion cubic feet and hit an all-time high this month, according to Bloomberg data, and has consistently hovered around 100 billion cubic feet per day this fall.

Growers responded to high summer prices and that, combined with weaker fall demand, brought supply closer to consumption, said Brendan O’Brien, AGA’s senior manager. Prices have fallen significantly over the past few weeks and hovered around the $6.00 level in trading on Monday.

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With warmer weather and strong production, the market has bolstered natural gas storage inventories in recent weeks, alleviating widespread concerns over the summer about precariously low supplies.

The U.S. Energy Information Administration (EIA) recently reported an injection of 125 billion cubic feet of natural gas into storage for the week ended October 7. (minus 6.4%) below the five-year average. The deficit relative to historical norms had remained above 10% before a recent series of large injections.

Looking ahead, analysts see the potential for another triple-digit build with Thursday’s print. Early estimates submitted to Reuters for the week ended Oct. 14 averaged 104 billion cubic feet. That compares to an injection of 91 billion cubic feet in the comparable week in 2021 and a five-year average of 73 billion cubic feet.

“Current inventories are accelerating” and “we are seeing rapid refills,” said Richard Meyer, vice president of energy markets, analytics and standards at AGA.

Winter Wildcard

Still, Nymex futures prices this month are more than 10% above year-ago levels, and a cold winter could renew upward pressure on prices in the months ahead. The NWS expects overall winter temperatures for 2022-2023 to be about in line with the 30-year average, but colder than last winter. This, combined with the undercurrent of strong domestic demand for much of this year as well as strong calls for U.S. exports, could leave the 49% of U.S. households that depend on natural gas to heat their homes paying. higher bills.

For those households, AGA analysts said natural gas’s share of total utility costs this winter could rise to 48% from 37% a year earlier. Yet, they added, natural gas should still be the cheapest home heating source — with prices lower than electricity, propane and fuel oil.

The EIA’s latest winter fuels outlook, included in its updated short-term energy outlook this month, predicts a 28% per year increase in the price of natural gas for consumers this winter if temperatures during the season are around average. The projected cost increases for natural gas are the largest of the home heating sources examined in the EIA’s modeling.

The agency, however, said U.S. households that use natural gas to heat their homes could see prices soar 51% above year-ago levels from October to March in a scenario where temperatures are 10% colder than baseline expectations.

Last week, the US Department of Labor highlighted the outsized impact of natural gas price hikes on headline consumer inflation.

Federal analysts said that, in part, prices were propelled higher by fallout from Russia’s war in Ukraine. The European Union (EU) has strongly opposed the war, imposing several rounds of economic sanctions against the Kremlin. Russia has responded by cutting off most of its gas supplies to the EU this year. This marked a major change given that EU countries in previous years relied on Russia for around a third of their natural gas needs. Now EU countries are demanding that US liquefied natural gas fill the void, adding to the backdrop of US demand.

The federal consumer price index rose 8.2% in September from a year earlier – holding near a 40-year high – and energy prices which jumped 19 .8% last month continued to make headlines. The Labor Department’s natural gas index climbed 33.1% in September from a year earlier, reflecting high futures prices over the summer.

Despite inflationary pressures, recent modest price easing and a strong consumer-driven U.S. economy provide households with a solid base to absorb near-term costs, said Jose Rasco of HSBC Holding plc, Global Private Banking and Wealth Chief Investment. Officer, Americas.

“The U.S. economy remains more resilient than most other developed markets, as household and corporate sector balance sheets have been exceptionally strong ‘over the past year’ and cash levels remain elevated,” said rasco.