How Will Winter Weather and Curbed Production Affect End-of-Season Storage Levels?
3 min readDuring Constellation’s January 2021 Energy Market Intel Webinar, the Commodities Management Group (CMG) reviewed the winter forecast, the Biden administration’s potential impacts to energy markets, the U.S. economy, and general energy market fundamentals.
Weather Update
Constellation Chief Meteorologist Dave Ryan opened the webinar with a look at the near- and longer-term weather outlook, a key driver of natural gas and power prices. He noted that the La Niña pattern remains at a moderate level and is working to keep warmer Pacific air flowing easterly across much of the U.S. However, the weather pattern has been variable in that some amounts of colder air have been able to move south but not in a manner to create a “deep and sustained freeze.” The February forecast currently calls for “normal” winter temperatures through much of the east and a warmer-than-normal southern tier.
Policy & Economic Update
David Gilbert, Constellation Vice President of Federal Government Affairs, discussed the Biden administration energy and environmental policy priorities. The Biden energy plan calls for $2 trillion of investment in modern infrastructure, auto innovation, and carbon-free power generation with a target goal of 2035, and a further goal of zero emissions from all sources by 2050. Gilbert also highlighted some of the executive orders that President Biden signed immediately including rejoining The Paris Accord, cancelling the Keystone XL Pipeline, closing federal lands to new fossil fuel development, and 100% electric vehicle procurement for federal agencies, among others.
In addition to the new administration, vaccine distribution is also top of mind. Constellation chief economist, Ed Fortunato provided an outline of the number of COVID-19 vaccines delivered-to-date by state. As of the date of this post, according to the Centers for Disease Control, more than 21 million people have received at least one dose of a COVID-19 vaccination, and the Biden Administration has a stated goal of delivering 100 million doses during its first 100 days. The rapid distribution of the vaccine, and the increase in confidence it would provide, is key to improving the U.S. economy in 2021, Fortunato said.
Gas Production & Storage Update
The CMG team discussed natural gas production, the outlook for storage, liquefied natural gas (LNG) exports and the most recent energy market pricing action as well as the general natural gas supply/demand forecast for 2021. Natural gas production is currently at 90 Bcf per day, below the same time last year, but higher-than-expected just a few months ago. The Energy Information Administration (EIA) is forecasting a 2 Bcf-per-day decline to production in the first half of this year and a modest recovery in production in the second half of the year. If this were to occur, natural gas production in 2021 will have declined from the previous two years’ output.
The EIA storage forecast is calling for an end-of-season inventory near 1.7 trillion cubic feet (Tcf), an amount that would be less than the five-year-average. The CMG team expressed some doubt about the EIA storage forecast, noting that winter weather that is expected may not support lower-than average storage inventories by the end of March.
Exports of LNG have recently been at record levels driven by cold winter weather in Europe and Asia and very high prices in those markets. The EIA forecasts LNG exports in 2021 to increase 30% over last year, and if this were to occur, exports could play a role in tipping the natural gas supply/demand balance in favor of the demand side in 2021 that could lead to further increased prices.
We invite you to join us for our next Energy Market Intel Webinar where Constellation energy experts offer detailed updates related to the energy market, economy and weather, and much more each month. Register by visiting www.constellation.com/marketintelwebinar.