The U.S. Energy Information Administration reported last week that natural gas in storage increased to 46 Bcf. There was an injection for the same week last year of 45 Bcf while the five-year average injection is 42 Bcf. Total U.S. natural gas in storage stood at 2,822 Bcf last week, 16.2% less than last year and 5.8% lower than the five-year average for this time of year.
EIA forecast a glance:
The United States could find itself with less than average inventories of natural gas for the upcoming heating season, according to the Energy Information Administration’s (EIA) August 2021 Short-Term Energy Outlook. The EIA predicts that November 1 natural gas inventories will realize at 3,592 Bcf, about 160 Bcf below the five-year average. The below-average forecast is attributed to hefty withdrawals during the 2020-2021 winter heating season and below-average injections this summer as producers slashed capex in response to low prices and sluggish demand last year. The EIA also suggests that the supplies will be depleted by the growing LNG export market, as well as high natural gas burn in recent months, to meet the cooling demand of a blistering hot summer.
Gas production and exports:
On the production side, national dry natural gas production between January and July has remained relatively steady year-over-year, averaging 91.5 Bcf per day which is 0.4 Bcf/d below the same period in 2020. These average production levels were maintained despite February’s winter weather event, which caused a production slump of 6.5 Bcf per day. At the same time, liquefied natural gas (LNG) exports reached new heights this year, with the EIA projecting daily exports to average 9.5 Bcf/d this year. Export levels have materially increased from previous year’s 6.5 Bcf/d, thanks to industrial recoveries from the pandemic and subsequent growing demand for gas. Pipeline exports of natural gas have also increased, averaging 8.5 Bcf/d so far compared with 7.9 Bcf/d in 2020. The EIA projects that pipeline exports will average 8.8 Bcf/d across the entire year of 2021.
Markets:
Natural gas markets have shot up in recent months as traders have reacted to the various fundamental factors described above. The 2022 annual strip for NYMEX gas settled at $3.51/Dth yesterday, 3.5% higher than its 30-day old mark of $3.39/Dth and 25% higher than its 90-day old mark of $2.79/Dth.
National electric demand:
Thematically in line with this year’s record hot summer, the EIA confirmed that electricity demand in the Lower 48 reached a new measured high of 720 GWh on August 12, surpassing the old record of 718GWh established on July 20, 2017.
In the summer, electricity demand tends to peak later in the day as a result of increased use of air conditioners, dehumidifiers, fans and other cooling equipment. Historically, the afternoon coincidence of both residential and commercial cooling demand has resulted in late afternoon peaks. The higher prevalence of Americans working from home could in theory result in an early peak but this hasn’t yet materialized in recent data. With most of the US recording a daily high of 90 F or higher on August 12, the nation’s collective demand peaked between 4pm-5pm.
EIA`s Hourly Electric Grid Monitor:
The EIA’s "Hourly Electric Grid Monitor" contains hourly operating data about the high-voltage bulk electric power grid for 64 balancing authorities that operate it in the Lower 48. It began publishing this aggregate data in 2015. Demand for electricity is one of the most important metrics that balancing authorities consider when managing their grid systems as grid operators must have enough electricity generating capacity to meet peak demand. With a monthly record high in August 2007 and an annual record high in 2018 despite the recent high demand, the EIA does not expect the U.S. to exceed those monthly or annual records for net electricity generation at any point in 2021 or 2022.
The severe drought that has gripped much of the western half of the United States this year is likely to continue at least through late fall, according to scientists at the National Oceanic and Atmospheric Administration. An Aug 19th NOAA updated forecast predicts that above-average temperatures are likely across much of the West for September through November. NOAA does state that there is potential for a partial drought recovery in the Pacific Northwest.
It is more bad news for a large region of the country that is already shouldering the burden of a historic extended drought. Not only does the drought impact drinking water supply, increase wildfire risk and negatively affect the agriculture industry, it impacts the hydropower resources that the region has historically relied on. In some cases, hydroelectric resources have had to shut down due to low reservoir levels, as seen with Northern California’s Hyatt hydroelectric plant. Across the region, total net generation has dropped 29% in July compared to the previous year. The West’s drought and its associated impact on hydro generation is one of a number of factors that have driven forward power pricing in the region upwards.
Taking the place of the lacking hydropower this summer is primarily natural gas, which as discussed earlier in this blog, is a resource with other fundamental factors already driving up the price.
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