THE Natural Gas Update
THE NATURAL GAS UPDATE for 4-14-23
West Region Basis starting to come down, one penny at a time….
THE DRIVING FACTORS
**NYMEX **– NYMEX started this week up as much as $0.20 on the prompt month ($2.22 per MMBtu). This Friday morning it’s been as low as $1.94 and as high as $2.08. Allow me to stress this point – a bull run is inevitable. Summer weather, increased LNG exports, and leveling off production will all push prices higher, and when it happens, it will happen with little to no warning. I’ll leave you with this to think about - NYMEX prices are down $5.00 per MMBtu from 1 year ago.
BASIS – California still has the highest price per delivered MMBtu in the US and we shouldn’t be shocked by this being so dependent on interstate supply. However, Basis prices in the West region are starting to come down. SoCal CG fell by about $0.70 from a week ago while PG&E CG fell over $1.50 in the past week. We still have a long way to go to get back to the historical range, and the downward movement should continue. The main reason it fell is due to Residential and Commercial demand falling by 34% from the previous week. Take note – if Basis can fall that much when demand drops, imagine what it will do when demand increases by 30%….
Weather in the West is returning to normal ranges, maintenance on the pipes is supposed to be finishing up this month, barring any surprises/prolonged maintenance. Storage injections are now being made with the support of the CPUC, but those injections need to be maximized for us to see basis prices return to more historical ranges and more importantly, keep us from experiencing violent upward spikes as some end users experienced this past winter.
RIG COUNT – Last week’s Rig Count came in at 590 active rigs. That’s down 4 rigs from the previous week, and up from 533.00 from 1 year ago. This is a change of -0.34% from last week and a 10.69% increase from one year ago. Rig counts have decreased 7 out of the last 10 weeks.
PRODUCTION – This week’s daily production average comes in at 100.7Bcf, just above last week’s 100.6Bcf daily average. That’s a 4.6Bcf increase from a year ago. And as we remove nuclear, coal, export LNG, we’re going to need a lot more than 100Bcf/D to level off the high demand months prices.
DEMAND – It’s been a very soft week for demand with daily demand averaging 69.6Bcf. Compare this to 73.8Bcf/D the previous week and 72.2Bcf/D from the previous year.
CRUDE – OPEC continues to play their games and crude continues to increase in price. We’ve seen it run as high as $87 per barrel since the announcement to voluntarily cut supply was announced on April 2, 2023. The cuts begin in May ’23. So far today we’ve seen it hit $83/barrel. However, $83 a barrel is still approximately $20 cheaper when compared to this time last year.
NUCLEAR – It seems the good people of the G7 (except for Germany, of course) are now pushing for more nuclear since it’s becoming glaringly clear that wind and solar won’t get us anywhere near where we want to be when it comes to getting off fossil fuel. I guess the “Eyes Wide Shut” approach to energy management isn’t working. As most of the world chose to close nuclear plants after the Fukushima disaster, we have only ended up using that dastardly energy source we call fossil fuel even more than before, especially here in the US, as well as in Germany. 20% of our energy source in the US is nuclear compared to 70% of that in France. Both countries realize the need for more nuclear energy if we are to have affordable and reliable alternative energy to fossil fuel.
RENEWABLES – The EIA claims the US power grid will almost double in capacity between now and 2050 with most of the newly built capacity coming from renewable energy. "Economic growth, paired with rising electrification in end-use sectors, results in stable growth in US electric power demand through 2050.” The EIA concluded. So, we’re going off hope, seemingly skewed analysis, and theory? Okay…
I**TEMS OF INTEREST **– The Big 3 LDCs here in the Golden State, PG&E, SCE, and SDG&E, are proposing a 33% CUT in electricity rates for the residential sector, followed by a set monthly price reflective of household income. How will LDCs determine household incomes? Before we praise this rate reduction please notice it is a rate reduction so we can expect transmission rates to increase. Also – no mention of any rate reductions for the C&I sector. Want to guess who may be carrying the 33% decrease loss on their power rates? If you use power in California, you would be well advised to seek out Direct Access options with third party providers. RFP ES can help you with this. The CPUC will make their decision in July 2024. or more information, here’s a link to it, California electricity bills could see huge change under PG&E proposal (sfchronicle.com). And for some good comic relief, you may want to read the Comments section – every now and then some people like to pull their heads out of the sand and spew stupidity.
THE BOTTOM LINE – We are at a very place right now to lock in NYMEX for the balance of 2023, 2024, and some are even going out through 2025. We’re doing 100% loads, partial loads with tiers in place. Then we wait for Basis to fall. Right now, if you’re willing to put in a little extra work, your work should bring in substantial savings, and savings help increase profits.
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 3/24/2023
Start Date Term PG&E CG SoCal CG
May ’23 1 mo. $5.55 $5.00
May ’23 3 mo. $6.04 $6.20
May ’23 6 mo. $6.53 $6.79
May ’23 12 mo. $6.98 $7.57
May ’23 24 mo. $6.67 $7.35
Summer Strip $5.77 $6.13
23/24 Winter Strip $7.38 $8.88
The Pacific region storage levels were at 73Bcf, as of 4-10-23, with no change from the prior week. The Pacific region storage levels are 96Bcf below the five-year average and 42Bcf below the low end of the five-year range. The most recent forecast for storage was an injection of 28Bcf. The actual number comes in at 25Bcf. We're now 460Bcf higher than this time last year and 295Bcf above the 5-year average of 1,560Bcf. At 1,855Bcf, total working gas is within the 5-year historical range.
Below normal temps for the Pacific NW along with above normal precipitation could bring one last batch of hydro for the West region. The rest of the US should enjoy early summer like temperatures without pushing up the cooling demand days. Nice and bearish forecast.
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.