In the May STEO, EIA estimate natural gas consumption for electricity generation this summer (May–September) just off last year’s record pace and averaging about 38 billion cubic feet per day (Bcf/d), just down from 39 Bcf/d recorded last year. The EIA increased natural gas consumption for electricity generation from last month by about 2% for 2023 and 3% for 2024 because of their methodology change which results in more CDDs, and in more U.S. electricity generation during the summer.
High natural gas-fired electric power generation this summer is driven by a decline in coal-fired electricity generation coupled with the sharp fall in natural gas prices. Additionally, more overall electricity generation due to warmer-than-normal temperatures in their earlier forecast.
US natural gas benchmark Henry Hub futures have remained under pressure as mild weather forecasts & the healthy storage buffer as we shift from winter heating season keeps pressure on prices.
Henry Hub Price Estimates
The EIA forecast that the Henry Hub natural gas spot price to average $2.35 per million British thermal units (MMBtu) in May and rise to around $3.00/MMBtu in July and August, when power demand peaks.
Energy Price Closes May 5, 2023
STEO Natural Gas Storage Highlights
- At the end of April, U.S. natural gas storage inventories totaled 2,114 billion cubic feet (Bcf), 19% more than the five-year (2018–2022) average. EIA forecast natural gas inventories will increase by 1,648 Bcf from the end of April to reach 3,762 Bcf at the end of October, 4% more than the five-year average.
- Storage injections from April through October in their forecast are less than the five-year average because of high demand for natural gas in the electric power sector.
- Above-average temperatures in the eastern and central United States this past winter and spring led to less natural gas storage withdrawals than average in those regions. In contrast, the western United States experienced colder-than-normal weather in winter and spring, which led to more natural gas storage withdrawals than average.
- Natural gas storage inventories in the East, Midwest, and South Central storage regions were well above the five-year average at the end of April. Natural gas withdrawals were particularly low in the South Central storage region, leaving inventories at a surplus of almost 30% at the end of April. For all three regions, EIA forecast natural gas storage inventories to remain above the five-year average through then end of the injection season, ending October at a combined 120 Bcf (4%) above the five-year average.
- Natural gas storage inventories in the Pacific and Mountain storage regions declined by more than is typical over the past winter, causing the deficit to the five-year average to reach more than 40% at the end of March. Colder-than-normal winter and spring weather, along with limited availability of hydropower for electricity generation in the Pacific region, reduced storage inventories.
- However, injections in these two regions in April were more than the five-year average, and EIA forecast inventories will increase by almost 300 Bcf from the end of April through the end of October, placing inventories at 2% more than the five-year average at the end of the injection season.
- he large increase in storage in these regions reflects inventory management by storage operators as they try to build inventories to have sufficient storage to meet winter requirements. Their expectation of high hydropower generation in the west also reduces demand for natural gas in the power sector, which could also support natural gas storage injections.
Factors Affecting Natural Gas Inventories at the end of October
- Temperatures throughout the summer. A warmer summer than we forecast would result in more demand for cooling, leading to more natural gas consumption in the electric power sector and less natural gas in storage, putting upward pressure on natural gas prices.
- A cooler summer than we forecast would reduce consumption, increase storage, and put downward pressure on prices.
- Exports, similar situations like Freeport last year that would effect export demand
- Oil prices can affect drilling in a low price environment with liquids.
- Recessions will affect demand, and vice versa a pick up in industrial demand would have a reverse affect
From The TradersCommunity Desk