The natural gas update (2-10-23)
NYMEX
NYMEX is about the same as it was this time last week, but compared to this time last year, NYMEX is approximately $1.75 cheaper. We could be taking advantage of this by buying NYMEX now and waiting/hoping/praying for West basis to weaken in a few weeks.
Basis
West basis is getting better but we still have a way to go to get back into the historical range. Three weeks from now could be the time.
Rig Count
Last week’s oil & gas rig count put us 146 active rigs ahead of the rig count for this week in 2022. This week’s rig count was unavailable at the time of the THE Natural Gas Update going out.
Production
With NYMEX prices dropping 46% already this year, there is fear that production could slow to prevent further downward runs in price. For now, we continue to chase 100Bcf/D production.
Demand
Reuters is reporting that demand for natural gas is expected to fall to 87Bcf/D in 2023, and 86Bcf/D in 2024. 2022 set the record with a drop down to 88Bcf/D.
Crude
Daily production for 2023 is expected to increase by nearly 600,000 barrels. Even though production is set to increase, it’s still a slowdown in terms of volume growth. Rising costs, shrinking reserves, pressure to pull back spending are the driving factors in limiting production.
Nuclear
Despite some opposition, many people in positions of authority are finding ways to redefine nuclear energy to fit their renewables initiative. Even universities that previously protested against nuclear power are now embracing it and saying "forget what we protested about in the past, nuclear power is awesome! We love it!" This is more proof that reality and fact eventually beat theory and unrealistic dreams.
Renewables
This sector is expected to increase its contribution from 21% to 24% in 2023 and up to 26% in 2024. This is great for the residential market but it's important to have perspective and recognize that solar and wind energy cannot yet heat a foundry.
Items of Interest
In the West this week, PG&E CG prices fell by as much as $11, and SoCal CG fell by as much as $13. Once we get past this cold spell, we could see basis prices fall further. Line 2000, which was shut down after a 2021 explosion, will open back up next week and add 600,000 MMBtu/D of westbound natural gas to the El Paso and SoCal pipelines. It is expected to reach full capacity by 3-15-23. After that date, we will be in the center of the spring shoulder season.
The Bottom Line
Once we are in the spring shoulder season, temperatures should be back to normal in the West, heating and cooling degree days should no longer be a factor, and pipeline capacity should be close to full capacity. The next 4-6 weeks could be the best time to execute fixed prices, so be ready.
Natural Gas Pricing
First of the Month Pricing Average for 2022
PG&E CG = $8.30
SoCal CG = $8.38
12-Month Fixed Prices
12-month fixed prices are beating the 2022 averages by more than $2.00
Storage Report
The latest natural gas storage report shows a withdrawal of 217Bcf, which is above the estimate of 197Bcf. We are now 233Bcf higher than this time last year and 117Bcf above the 5-year average of 2,420Bcf. At 2,366Bcf, total working gas is within the 5-year historical range. The storage level by the start of injection season (March '23) is projected to be down from 1.9Tcf to 1.85Bcf, and is expected to build up to 4.25Tcf by the end of the injection season.
Weather
This forecast could slow the anticipated downturn of West region basis prices, which could be a good thing as it gives everyone time to get everything lined up and ready.
Disclaimer: The opinions expressed herein are those of Sean Dookie and do not reflect the opinions of RFP ES. This material should not be construed as the solicitation of an offer to sell or the solicitation of an offer to buy the products noted in any jurisdiction where such an offer or solicitation would be legal. These materials have been created for a select group of individuals and are intended to be presented with the proper context and guidance. All reference points are believed to be reliable but are not guaranteed as to accuracy. Nor do they purport to be complete - updated information is coming in constantly, and market adjustments take place. No responsibility is assumed with respect to any such statement, or with respect to any expression of opinion contained herein.
Sean Dookie sdookie@rfpes.com rfpes.com @RFPEnergySolutions LinkedIn: Sean Dookie