THE NATURAL GAS UPDATE for 3-3-23

Fixed Prices in the West Jump Up as Much as $1.00 From Last Week

THE driving FACTORS

**NYMEX **– Prices are down roughly $1.75 from a year ago but up $0.65 from one week ago. Have we scraped the bottom of the NYMEX market? Absolutely not. Right now, we’re dealing with colder than normal weather forecasts, scheduled pipeline maintenance, Freeport LNG coming back online, and a slight pullback in production. All these driving factors are giving support to the current rally.

BASIS – We’re still seeing elevated basis prices here in the West and will continue to see higher than normal basis prices for the next week or so, or until pipeline capacity comes back to full capacity and that is “scheduled” to be back up by end of next week. The extended colder than normal forecast is also helping to keep basis prices higher but to a lesser degree. Lack of storage (you’ll read about that below) is a major concern and a majorly bullish factor for Basis pricing here in the Golden State.

RIG COUNT – This week’s count shows natural gas rigs rose by 3 rigs while oil rigs fell by 8 rigs.

PRODUCTION – We may be producing more natural gas day to day compared to years gone by but that new gas isn’t ending up at your burner tip too often. We added five new interstate pipelines projects in 2022, increasing daily availability by nearly 900,000MMBtu. That’s the smallest capacity amount since records started being kept in 1995. And none of that 900,000MMBtu/D is heading remotely west. It’s not interstate pipelines being built but rather intrastate pipes in Texas and Louisiana that are heading straight to the LNG terminals.

DEMAND – We’re using more energy than ever before. We’re also exporting more energy than ever before and importing less than when we peaked in 2007/2008. For primary consumption, the Residential and Commercial sectors have remained relatively flat year over year for the past 50 years. The big jump is in power generation (doubling in the same timeframe), then transportation (almost doubling), and then a slight increase in the Industrial sector. We’re using more and will continue to use more while supply will continue to meet demand whenever anything out of the norm takes place.

CRUDE – Domestic drilling for this black gold is on the decline thanks to a downturn in price since mid-2022. The current decline in production is expected to continue for the remainder of 2023 and possibly into 2024. The rub on this is – when prices increase, the lag time of increasing production keeps prices elevated longer than expected, and the same happens when prices fall, that same lag time is seen when it comes to lessening production. What does this mean for you? It means you should have some borrowed time when it comes to making oil related decisions.

NUCLEAR – More nuclear and more hydrogen here in the US will help ease the continued energy crisis that we’ve been driven into by poor infrastructural planning and special interest groups.

RENEWABLES – Hydro levels in the West could be strong this spring and summer. Hydro may put forth a worthwhile contribution towards power generation this year. We just received record setting snow levels for this time of year here in California with elevated precipitation forecasts still looming. Let’s see if the powers that be can do something with it…

**ITEMS OF INTEREST **– I’ll say it – one major item of interest is that of PG&E, SoCal Edison, SoCalGas, DWP, SDG&E, and all the little municipalities in between. These utility companies seem incapable of smart energy management. Their lack of intelligent planning, a proactive approach, and an ability to stick to scheduled maintenance is largely responsible for the highest energy prices in the US on average. And from what I can see, it’s the people at the top making the poor decisions. If they truly do care, they’re very good at hiding their feelings.

THE BOTTOM LINE – We’re in a bad situation here in the West, especially California. Until things change drastically in the West (more pipeline optionality, more production, more storage, more power generation options), we will continue to feel the pain of heightened natural gas market volatility. Will there be market downturns for us to have strong hedging opportunities? Absolutely. And when those opportunities appear, be ready to jump all over them because they won’t last long, and they won’t advise us of when the next opportunity will be. The proof of this is still fresh to those who stayed on Index over the past few months.

NATURAL GAS PRICING

First of the Month Pricing Average for 2022

PG&E CG = $8.30 SoCal CG = $8.38

12 MONTH FIXED PRICES ARE BEATING THE ABOVE 2022 FIRST OF THE MONTH INDEX AVERAGES

Indicative Fixed Prices as of 3/3/2023

Start Date Term PG&E CG SoCal CG

April ’23 1 mo. $7.27 $5.82

April ’23 3 mo. $7.04 $5.72

April ’23 6 mo. $7.49 $7.06

April ’23 12 mo. $7.90 $7.91

April ’23 24 mo. $7.12 $7.38

23/24 Winter Strip $8.54 $9.39

All Fixed Prices are up from last week’s natgas update.

STORAGE REPORT

In a recent EIA report, Pacific storage levels fell by 14Bcf for the week. That puts Pacific levels 39% below last year this time and 42% below the 5-year average. This type of regional storage report will keep Basis in the West elevated. The remainder of the US is in good shape regarding storage and that may help to limit bull runs this summer.

The forecast for the latest storage withdrawal was 78Bcf. The actual number comes in at 81Bcf. We're now 451Bcf higher than this time last year and 342Bcf above the 5-year average of 1,772Bcf.

At 2,114Bcf, total working gas is within the 5-year historical range. NYMEX pricing reacted with a $0.05 average drop for the balance of 2023.

WEATHER

Below normal temps for most of the US for the short term coupled with elevated precipitation gives support to bulls. This could the Spring Shoulder Season bear market that we are anticipating in the next few weeks. The Seasonal Temperature Outlooks (March ‘23 – May ’23 and June ’23 – Aug ’23) also support bulls over bears……

**Sean Dookie - *sdookie@rfpes.com* – ****rfpes.com - @RFPEnergySolutions, - follow on LinkedIn, Sean Dookie**

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.