In the News (EIA):
Freeze-offs contribute to lower natural gas production, higher natural gas prices:
In the wake of record-low temperatures affecting most of the country, dry natural gas production in the United States fell by 21.0 billion cubic feet per day (Bcf/d), declining from 90.7 Bcf/d on February 8 to about 69.7 Bcf/d on February 17, according to data from IHS Markit. The decline in natural gas production is primarily because of freeze-offs, which occur when water and other liquids found in produced raw natural gas freeze at the wellhead and/or potentially in natural gas gathering lines near production activities, resulting in flow blockage. A large portion of the decrease in natural gas production was from declines in Texas, which fell over 10 Bcf/d during the February 8–17 period. Unlike natural gas production infrastructure in northern areas of the country where below-freezing temperatures are more common and infrastructure is generally winterized, wellheads, gathering lines, and even processing facilities in Texas are more susceptible to freeze-offs during periods of extremely cold weather. Unusually strong winter season heating and power demand for natural gas, combined with the sudden decrease in natural gas production, led to large price increases at many natural gas hubs this week. The price of natural gas at the Waha Hub, near natural gas production activities in the Permian Basin, rose to over $206 per million British thermal units (MMBtu) on February 16, according to Natural Gas Intelligence (NGI), the highest reported price at the Waha Hub since at least 1995. The price at the Chicago Citygate also reached an all-time high of nearly $130/MMBtu on February 12. Prices at the Oneok Gas Transmission (OGT) pipeline in Oklahoma averaged $1,192/MMBtu on February 17, the highest in the country according to NGI. The cascading effects of the supply/demand imbalance resulted in upward price pressures in some demand markets less affected by the recent cold weather. For example, the price at SoCal Citygate, in Southern California, which receives a significant amount of natural gas from the Permian Basin production region, reached a record high $144/MMBtu despite temperatures in Los Angeles being near normal over the past several days. In Texas, the cold temperatures have had a significant impact on the electric grid, including the loss of available generating capacity. The loss of generating capacity led the Electric Reliability Council of Texas (ERCOT) to enter emergency conditions and initiate rotating blackouts to shed 10,500 MW of load, the equivalent of nearly two million homes. As of February 18 morning, nearly 40,000 MW of generation remains off the system: 23,500 MW is thermal and 16,500 MW is wind and solar, according to ERCOT.
In response to record-breaking low temperatures across most of the Lower 48 states, and production losses as far south as the Gulf Coast, natural gas spot prices rose at most locations this report week (Wednesday, February 10 to Wednesday, February 17). The Henry Hub spot price rose from $3.68 per million British thermal units (MMBtu) last Wednesday to $23.61/MMBtu yesterday, the highest nominal price going back to at least 1993. In real terms (adjusted for inflation), yesterday’s price is the highest price since February 2003. At the New York Mercantile Exchange (Nymex), the price of the March 2021 contract increased 31¢, from $2.911/MMBtu last Wednesday to $3.219/MMBtu yesterday. The price of the 12-month strip averaging March 2021 through February 2022 futures contracts climbed 12¢/MMBtu to $3.158/MMBtu. The net withdrawals from working gas totaled 237 billion cubic feet (Bcf) for the week ending February 12. Working natural gas stocks totaled 2,281 Bcf, which is 4% lower than the year-ago level and 3% more than the five-year (2016–2021) average for this week. The natural gas plant liquids composite price at Mont Belvieu, Texas, rose by 25¢/MMBtu, averaging $7.66/MMBtu for the week ending February 17. The prices of natural gasoline and isobutane rose by 2% and 1%, respectively. The price of normal butane remained flat week over week. The average weekly ethane price rose 6% on the back of rising natural gas prices, while the propane price rose 4% on growing heating demand. The propane price at Mont Belvieu is now highest since October 2018. According to Baker Hughes, for the week ending Tuesday, February 9, the natural gas rig count decreased by 2 to 90. The number of oil-directed rigs rose by 7 to 306. The total rig count increased by 5, and it now stands at 397.
Prices in some regions of the country set records amid record-low temperatures and supply disruptions. This report week (Wednesday, February 10 to Wednesday, February 17), the Henry Hub spot price rose $19.93 from $3.68/MMBtu last Wednesday to $23.61/MMBtu yesterday, the highest inflation-adjusted price since February 2003. Temperatures across the Lower 48 states were much colder than normal, especially in the middle of the country and in Texas, where snow and ice resulted in blackouts to about 4.5 million customers. Midwestern prices rise to record-setting levels. At the Chicago Citygate, prices rose to $129.52/MMBtu on Friday, the highest price on record going back to 1993. Week on week, the Chicago Citygate price increased $14.83 from $3.99/MMBtu last Wednesday to $18.82/MMBtu yesterday. OGT, the ONEOK Gas Transportation delivery point for Oklahoma, increased $1,184.26/MMBtu from $8.60/MMBtu last Wednesday to $1,192.86/MMBtu yesterday, the highest price on record by far for any major hub going back to 1993. Natural gas prices throughout Texas reached record highs, with significantly higher prices than in neighboring Louisiana. The price at the Waha Hub in West Texas, which is located near Permian Basin production activities, averaged $4.54/MMBtu last Wednesday, 86¢/MMBtu above the Henry Hub price. Yesterday, the price at the Waha Hub averaged $64.22/MMBtu, $40.61/MMBtu above the Henry Hub price. Producers throughout the region are reporting well freeze-offs, affecting natural gas and crude oil production at the wellhead. The ability of pipelines and processing infrastructure to deliver natural gas to consumers is further impaired by rolling electricity outages and exposure of un-winterized equipment to record-setting low temperatures. Prices at major Texas hubs set all-time records on Tuesday (going back to 1993) with the Katy Hub at $352.64/MMBtu and Houston Ship Channel at $400/MMBtu, before falling yesterday to still record-setting levels of $216.54/MMBtu and $358.77/MMBtu, respectively. Prices at both hubs were approximately $4.50/MMBtu last Wednesday. Prices in neighboring Louisiana rose, but by less than prices in Texas. The South Louisiana regional average price increased $12.34/MMBtu, from $3.62/MMBtu last Wednesday to $15.96/MMBtu yesterday, the highest price on record. California prices are mixed, reflecting differing sources of supply. The price at SoCal Citygate in Southern California, which sources much of its natural gas from western Texas, increased $21.96 from $4.97/MMBtu last Wednesday to $26.93/MMBtu yesterday, after reaching an all-time high of $144.00/MMBtu on Friday. The price at PG&E Citygate in Northern California, which draws on natural gas supplies from the Rockies and Western Canada, remained relatively steady, rising $2.79, from $4.11/MMBtu last Wednesday to $6.90/MMBtu yesterday, after reaching a weekly high of $8.87/MMBtu on Tuesday. Northeast price increases relatively muted, reflecting near-normal winter temperatures in the region and proximity to the Appalachian production region. At the Algonquin Citygate, which serves Boston-area consumers, the price went down 96¢ from $11.56/MMBtu last Wednesday to $10.60/MMBtu yesterday, after reaching a weekly high of $12.78/MMBtu last Thursday. At the Transcontinental Pipeline Zone 6 trading point for New York City, the price increased $8.81 from $4.69/MMBtu last Wednesday to $13.50/MMBtu yesterday. The Tennessee Zone 4 Marcellus spot price increased $1.92 from $3.21/MMBtu last Wednesday to $5.13/MMBtu yesterday, after reaching a weekly high of $5.97/MMBtu on Tuesday. The price at Dominion South in southwest Pennsylvania rose $2.60 from $3.32/MMBtu last Wednesday to $5.92/MMBtu yesterday, almost $2.00/MMBtu below the weekly high of $7.87/MMBtu reported for Tuesday. Supply falls and production declines, while imports rise to multi-year highs. According to data from IHS Markit, the average total supply of natural gas fell by 9.5% compared with the previous report week. Dry natural gas production decreased to 79.5 Bcf/d, 12.0% lower than in the previous report week and 15% below the same week last year as a result of lower production, mainly in the Permian Basin. Deliveries of re-gasified natural gas from liquefied natural gas (LNG) import terminals, primarily at Everett, Massachusetts, and Elba Island, Georgia, averaged 0.45 Bcf/d for the report week, 118% more than last week and 131% more than the same week last year. Average net imports from Canada increased by 23.7% from last week, reaching an estimated 8.48 Bcf/d yesterday, the highest level since January 8, 2010, according to IHS Markit. Average weekly demand rose to second-highest on record in response to high space heating and power generation consumption. According to data from IHS Markit, total U.S. consumption of natural gas rose by 12.0% compared with the previous report week to 128.9 Bcf/d, 2 Bcf/d below the weekly record set the week of December 28, 2017. Natural gas consumed for power generation climbed by 17.4% week over week. Industrial sector consumption increased by 6.1% week over week. In the residential and commercial sectors, consumption increased by 12.1%. Natural gas exports to Mexico decreased 14.1%, contributing to widespread power outages in northern Mexico that affected up to 4.7 million customers. Natural gas deliveries to U.S. liquefied natural gas (LNG) export facilities (LNG pipeline receipts) averaged 6.2 Bcf/d, or 4.78 Bcf/d lower than last week because of reductions in natural gas pipeline deliveries to LNG terminals. U.S. LNG exports decrease week over week. Eleven LNG vessels (three each from Sabine Pass and Cameron, two each from Corpus Christi and Freeport, and one from Cove Point) with a combined LNG-carrying capacity of 40 Bcf departed the United States between February 11 and February 17, 2021, according to shipping data provided by Bloomberg Finance, L.P. During the report week, U.S. LNG exports were affected by fog and extreme winter weather conditions that caused suspension of piloting services for several days at ports that serve LNG exports facilities, including Sabine Pass, Lake Charles port (location of Cameron LNG), and Corpus Christi.
The net withdrawals from storage totaled 237 Bcf for the week ending February 12, compared with the five-year (2016–2021) average net withdrawals of 142 Bcf and last year’s net withdrawals of 141 Bcf during the same week. Working natural gas stocks totaled 2,281 Bcf, which is 57 Bcf more than the five-year average and 105 Bcf lower than last year at this time. According to The Desk survey of natural gas analysts, estimates of the weekly net change to working natural gas stocks ranged from net withdrawals of 224 Bcf to 288 Bcf, with a median estimate of 255 Bcf. The average rate of withdrawals from storage is 9% higher than the five-year average so far in the withdrawal season (November through March). If the rate of withdrawals from storage matched the five-year average of 8.9 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,863 Bcf on March 31, which is 57 Bcf higher than the five-year average of 1,806 Bcf for that time of year.