Guest “Thank you Joe!” By David Middleton
JULY 22, 2021
U.S. summer natural gas prices are the highest since 2014
In June, the US natural gas spot price at the Henry Hub averaged $ 3.26 per million British thermal units (MMBtu), the highest price in a summer month (April – September) since 2014. Prices in July have risen and are lower than in June averaged 3.67 USD / MMBtu through the first two weeks of July. Spot prices for July 14 exceeded $ 3.00 / MMBtu in each of the 175+ price centers tracked by Natural Gas Intelligence. These hubs include supply hubs that have traditionally traded at notable discounts on the Henry Hub, such as the Eastern Gas South Hub (formerly known as Dominion South), which is located near manufacturing activities in the Appalachia Basin, and the Waha Hub, which is located near the production activities in the Permian Basin.
Tighter supply and demand balances for natural gas in the USA contributed to the price increases in recent months. This summer, more natural gas exports – both by pipeline and as liquefied natural gas – reduced the supply for domestic consumption. The warm weather this summer has also increased natural gas consumption for electricity. June 2021 was the hottest June on record for the United States, according to the National Oceanic and Atmospheric Administration (NOAA). In particular, drought conditions in the western United States have contributed to increased natural gas-fired generation to offset decreased hydropower generation. According to our Hourly Electric Grid Monitor, natural gas production in the Northwest averaged 240 gigawatt hours (GWh) in June 2021, a 50% increase over the previous year. During the same period, electricity generation from hydropower fell by 20% to 410 GWh.
In the US, less natural gas than average was fed into main storage this summer, which is pushing prices up further. According to our latest Weekly Natural Gas Storage Report, the feed-in season (April 1 through October 31) started with 1,784 billion cubic feet (Bcf) of operational natural gas in storage, just 24 Bcf less than the five-year average. US natural gas inventories are now 2,629 Bcf, 189 Bcf below the five-year average and 543 Bcf below last year’s supplies.
According to our most recent near-term energy outlook, we expect the tight US natural gas market balances to persist through the remainder of 2021. We forecast that the Henry Hub spot price will average over $ 3.00 / MMBtu by March 2022 and an average of $ 2.96 / MMBtu in the second half of 2022.
Main contributor: Stephen York
Source: Diagram created by the US Energy Information Administration (EIA) based on data from Natural Gas Intelligence
Note: Waha and Henry Hub prices from February 11-18, 2021 exceeded the release range. During that cold spell in Texas, Waha prices hit a high of $ 206.19 / MMBtu on February 16 and Henry Hub prices hit a high of $ 23.86 / MMBtu on February 17.
Natural gas prices are even booming in the Permian Basin (Waha Hub), where gas prices struggle to stay above $ 0 / mmBtu in the summer.
Despite the Shamdemic locks and the Younger Dryas winter storm, US LNG exports continue to grow …
US LNG Exports (Million Cubic Feet / Month) MSRP.
In other good news …
SHORT-TERM ENERGY OUTLOOK
Release DATE: July 7, 2021
One of the biggest shifts in fuels for power generation in recent years has been the reduced use of coal and the increased use of natural gas. Coal-based power generation in the United States has declined almost every year for the past decade. US coal production in 2020 was 62% below its 2007 peak. Natural gas production, on the other hand, grew 86% between 2007 and 2020.
Both regulatory and economic factors are driving this trend of declining coal consumption and increasing natural gas consumption. One of the main drivers was the persistently low natural gas prices, which last year reached their lowest level in decades. In 2020, the price of natural gas supplied to power generators averaged $ 2.39 / MMBtu. However, natural gas prices have risen in recent months as the economy begins to recover from the effects of the pandemic, but U.S. natural gas production is growing more slowly. In April 2021, the most recent available history, the price of natural gas supplied to power generators averaged $ 3.04 / MMBtu. The expected natural gas costs remain relatively high due to the forecast and the delivered prices averaged $ 3.44 / MMBtu in 2H21.
These expected changes in the cost of fuels used to generate electricity are likely to reverse, at least temporarily, some of the recent trends in the use of coal and natural gas to generate electricity. We forecast that the share of natural gas firing of total US production will decrease from 39% in 2020 to 36% in 2021 and 2022, which is roughly the same as natural gas in 2019. The expected increase in natural gas costs will make coal more economical for electricity generation. The forecast share of generation from coal-fired power plants will increase from 20% in the previous year to 24% in 2021 and 22% in 2022.