US gas supply crunch could ease by ’23 – trade group
HOUSTON (ICIS)–Tightening US natural gas supply that has not kept up pace with rising demand has been a driving factor for the Henry Hub futures benchmark, although increased supply is expected to re-balance the US market into 2023, according to an American Gas Association (AGA) market webinar.
An unseasonably colder spring in the US near the end of the winter heating-season dropped already-low gas storage inventories even lower beyond historical averages, said Richard Meyer, vice president of energy markets, analysis and standards at the AGA.
This caused the Henry Hub futures benchmark to rally to record highs at times to levels not seen since 2008, prior to the advent of robust shale production in the lower 48 states.
The Henry Hub futures front-month price closed at $8.10/MMBtu on 19 May, more than three times higher in value than one year ago, when the Henry Hub price was $2.52/MMBtu.
An early colder April, which boosted power generation for heating, then switched into a sooner-than-expected summer cooling outlook by May, as parts of the US in the south and southeast experienced above-normal temperatures.
This was reflected in the AGA’s breakdown for demand figures for March and April.
In April, residential and commercial, which largely represents consumers heating their homes with gas, made up 64% of the incremental demand uptick of the US, according to the AGA.
In May, it was electric power generation that took up the largest share, at 71%, of the demand increase to reflect the hotter-than-normal temperatures and increased cooling demand.
This year, the number of cooling degree days, an indicator of how much demand would be required for warmer weather, reflected temperatures that were 67% warmer than normal compared with the 30-year average, according to Meyer, and this was nearly double in the east and south-central regions.
At the same time of rising natural gas prices, domestic coal prices in the US have also soared.
“Natural gas will remain the most important fuel for generating electricity and serve to balancing power demand,” he said.
In addition, utilisation rates for US LNG plants, five in the US Gulf Coast and two on the US East Coast, have remained at high levels due to the elevated spot LNG prices into Europe and Asia since summer of 2021, which is expected to continue given Russia’s supply uncertainty into Europe.
US natural gas production, which is forecast to reach about 95 billion cubic feet (bcf)/day by the end of 2022, meanwhile has incrementally increased but not enough to match a growing pace in demand.
“While supply has grown, it has lagged compared to demand,” Meyer said.
Meyer also noted that while the number of US oil and gas rigs has risen in recent months, the uptick has not been as pronounced as in previous years, as operators and work crews have not been able to return to production activity as quickly.
The prolonged lag has reflected many factors, including investor discipline, producer hedging strategies, bottlenecks in supply chains in receiving materials and labour shortages.
Some constraints on takeaway capacity, particularly in regions such as northeast US, has also limited production.
Meyer cited the delays currently stalling EQT’s Midstream Valley Pipeline (MVP) in West Virginia, which has been hampered by regulatory and legal opposition.
The 303-mile (488-km) pipeline, nearly completed, would connect West Virginia to southern Virginia to bring Marcellus gas to key mid-Atlantic markets.
However, that pipeline project now may come online in late 2023.
While production is expected to grow and catch up with demand by 2023, Meyer cautioned some risks in the outlook, including weather-driven demand.
A much hotter summer would lead to a greater storage deficit, further rallying Henry Hub higher.
In contrast, a milder summer would allow for more injections to take place ahead of the peak winter demand period.
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