Natural Gas Weekly: January 10, 2024
Infrastructure – While LNG exports boom on the Gulf Coast, New England consumers are at risk of losing a key source of peaking supply if the Everett LNG import facility is shut.
Owner Constellation Energy (CEG) plans to shutter the Everett LNG terminal in mid-2024 after losing its main customer, the nearby Mystic power plant in Boston, MA. The Mystic plant is set to retire in May 2024 as part of a state target in Massachusetts to transition off fossil fuels. Constellation is seeking new customers to take capacity at Everett, but could close the terminal this year if those efforts don’t bear fruit.
East Daley Analytics expects a shutdown at Everett to drive more volatility in regional natural gas prices, especially during periods of high demand in the winter and summer. In addition to supplying the Mystic plant, Everett plays a key role in meeting regional demand peaks during the winter, as well as supplying gas-fired power plants across New England.
More recently, Everett has seen imports and utilization drop with the rise in global LNG prices. Lower imports at Everett have translated to more volatility in citygate prices in Massachusetts. In 2022, peak monthly prices nearly doubled from peak levels prior to 2021, according to EIA data (see figure)
Despite the higher LNG prices, Everett remains active, and in the past few weeks the terminal received two LNG cargoes. Without the optionality for importing volumes, the region will need to rely more heavily on fuel oil for power and heating.
Storage – Traders and analysts expect the Energy Information Administration (EIA) to post a -114 Bcf withdrawal from working gas storage inventories for the week ending January 4. The 5-year average withdrawal for the same week is -97 Bcf, so the surplus to the 5-year average would contract from 399 Bcf to 382 Bcf with an in-line EIA report.
While the current storage surplus is extremely high, the market is wary of withdrawals to come over the next several weeks from a bullish weather pattern. Bitterly cold temperatures are in the forecast later this week across most of the Lower 48, with below-normal temperatures expected to linger through the week ending January 25. The bullish turn in forecasts has led to a run-up in February prompt Henry Hub prices.
East Daley estimates over 725 Bcf could be withdrawn from storage through the January 25 week to meet heating demand, which would reduce inventories to around 2,750 Bcf and take a sizable bite out of the storage surplus. A withdrawal of this size would narrow the surplus to 167 Bcf over the 5-year seasonal average. In the latest Macro Supply and Demand Forecast, East Daley expects storage to exit March ’24 at ~1,949 Bcf.
Rigs –
US rigs decreased by 2 W-o-W to bring the total count to 594. The Eagle Ford is up 3 rigs, the Powder River is up 1 rig, and the Marcellus NE PA and Marcellus + Utica each gained a 1 rig. Ther Permian is down 4 rigs and the Uinta is down 1 rig.
On the midstream side, Enterprise Products (EPD) gained 4 rigs total on its Permian and Eagle Ford systems. MPLX LP (MPLX) is up 2 rigs with additions on its Anadarko, Bakken and Marcellus+ Utica systems. Kinder Morgan (KMI) lost 5 rigs on its Permian, Bakken, ArkLaTex and Uinta systems. Energy Transfer (ET) is down 2 rigs on its Permian systems.