LNG Exports, Low Gas Storage and Flat Production Poised to Support Gas Pricing Action
During Constellation’s May 2021 Market Intel Webinar, our team of experts gave attendees a look at the summer forecast, an economic update with a focus on the potential for inflation and a review of the key fundamental market drivers in natural gas and electric power on the threshold of the third quarter of 2021.
Weather Update
After a colder-than-normal April, the first half of May continued the cold pattern and helped to keep natural gas storage injections on the low side, according to Dave Ryan, Constellation’s meteorologist. The weather pattern has taken a shift to warmer temperatures in the second half of May throughout the eastern half of the country with temperatures moving into the 80s and 90s in the Midwest kicking off the first real air-conditioning loads in that market. The summer outlook is still warmer-than-normal, however, a “monsoon-like” rainfall in parts of Texas last week worked to lessen the drought conditions somewhat in the northern and eastern parts of the state. Severe drought throughout the Southwest U.S. persists, however, likely plays a role in warming up the eastern half of the country through the summer. The forecast remains constructive for natural gas and power demand.
Economic Update
The top story in the economy over the past several weeks is “inflation.” Commodity prices from lumber to corn to wheat and throughout the metals complex are driving concerns about whether persistent inflation, and hence, the need for raising interest rates in the nearer term, is on the table. Constellation’s Chief Economist Ed Fortunato looked at some inflation indicators and noted that as the U.S. fully opens the economy, there will be several supply chain disruptions that are inflationary, but he explained that this is expected to be a shorter-term event. As the economy ramps up, various suppliers should respond bringing more supplies of goods and services to markets, said Fortunato. The Commodities Management Group (CMG) team had some discussion surrounding the relative duration of potential inflation and whether it is temporary or potentially more long-lived.
Storage and Production Update
The team reviewed natural gas fundamentals, including storage, production, exports, and pricing action. Some highlights include:
- Natural gas storage is currently 3% below the five-year average. The Energy Information Administration (EIA) has adjusted its end-of-season gas storage inventory downward to 3.6 trillion cubic feet (Tcf), a number that is supportive and constructive of the natural gas market in the second half of 2021, all other things being equal.
- Natural gas production continues to be somewhat flat at 91.5 billion cubic feet (Bcf) per day despite much improved crude oil and gas liquids pricing.
- Exports of liquefied natural gas (LNG) and pipeline exports to Mexico are poised for what could be a record first half of 2021 and are doing much to lend a supportive and constructive element to natural gas and power markets. Asian and European LNG indices are conducive for continued strength in U.S. LNG exports and are expected to play a major role in the U.S. natural gas supply/demand balance for the rest of 2021.
Though the pricing action for natural gas and power in the prompt and nearer months is elevated, the deferred contracts for 2022, 2023 and beyond are still mostly within 10% to 15% of historic contract lows.
We invite you to join us for our next Energy Market Intel Webinar where Constellation energy experts continue to offer detailed and timely updates related to the energy market, economy and weather, and much more each month. Register by visiting www.constellation.com/marketintelwebinar. Additionally, it’s not too late to start planting your tomatoes. Continue to share your tomato growing photos to CMG@Constellation.com for a chance to be featured.