(AGENPARL) – ROME mar 13 giugno 2023
This post by Bryon Klostermann, Senior Energy Supply Advisor, will be featured in our June 2023 Monthly Monitor, which includes articles and analysis for the natural gas, electric, crude oil, and sustainability markets. To sign up for the Monthly Monitor distribution list, click here.
U.S. natural gas futures surged to above $2.65/MMBtu on May 19 – the highest in two months – driven by reduced supply and stronger demand. Gas exports from Canada – a major supplier to the U.S. – dropped to a near 25-month low as wildfires in Alberta caused the shutdown of oil and gas production and affected pipeline flows over the past several weeks.
At the same time, meteorologists forecast warmer-than-normal temperatures in the U.S. in the upcoming period, which is expected to increase demand for cooling. In addition, U.S. utilities added 99 billion cubic feet of gas into storage during the week ending May 12, 2023 – below market expectations at a 108/bcf increase. However, gas flows to major U.S. LNG export plants have decreased from record levels seen in April due to maintenance work at several facilities (Trading Economics).
Natural Gas Consumption for Electric Power
U.S. natural gas consumption for electricity generation during the summer of 2023 (May–September) will average 38 billion cubic feet (Bcf/d), according to forecasting from the Energy Information Administration (EIA) – the second highest on record behind the 39 Bcf/d recorded last year. U.S. natural gas consumption for electricity generation typically peaks in the summer months, as warmer temperatures lead to more air conditioning use.
High natural gas-fired electric power generation this summer is driven by a decline in coal-fired electricity generation, relatively low natural gas prices, and more overall electricity generation due to warmer-than-normal temperatures in our forecast. More electricity generation from renewable sources in 2023 compared with 2022 is one of the primary reasons the EIA does not expect natural gas consumption to reach a new record in 2023.
In the summer of 2024, natural gas consumed for electricity generation is projected to decline by 2% and average about 37 Bcf/d, driven down by more renewable electricity generation sources coming online throughout 2023 and 2024 (EIA, May 2023).
The Atlantic hurricane season, which officially began on June 1 and runs through November, has also been a key weather-related factor for natural gas, as it can impact its offshore production.
In April, hurricane researchers at Colorado State University (CSU) predicted a slightly below-average 2023 Atlantic hurricane season. CSU predict 13 named storms, with six of those expected to become hurricanes, and two to reach hurricane strength with sustained winds of 111 miles per hour or greater. The National Oceanic and Atmospheric Administration (NOAA) released its 2023 Atlantic Hurricane Season Outlook on May 25, which predicts near-normal hurricane activity in the Atlantic this year.
“Trying to anticipate the number or location of storms is as much of a gamble as looking beyond the 10-day temperature forecast any other time of the year,” said Tyler Richey, co-editor of Sevens Report. “There’s a bit of a hurricane premium built into the market in the early summer, with most of the bids flowing into contracts expiring late in the year.”
As more than a third of total U.S. natural gas production occurs in Texas and Louisiana, a significant hurricane projected to make landfall in the region would be a “major bullish catalyst” for the natural gas market, according to Richey.
According to Grant Duncan of Brandes Investment Partners, onshore production in the Gulf of Mexico region is “less susceptible” to sustained impacts from hurricane damage. He believes any impact from shut-ins from a hurricane would likely be “small and dissipate quickly.”
There is also the added complexity of demand destruction from a hurricane as industry operations – such as refining and liquefied natural gas – are impacted and their consumption of natural gas is impaired (Market Watch, May 2023).