This week we review the latest Short Term Energy Outlook (STEO) issued by the EIA. There is lots of good data in the STEO report and most importantly it gives us an indication of what others in the market are seeing.
In today’s piece, we will mainly drill into the month over month changes in the report, and the change from their pre-COVID forecast – March 2020.
The EIA increased their outlook for prices through the winter. The winter strip is expected to $3.37, with Jan averaging $3.53. The winter strip is $0.26 higher from last month’s forecast. At this current price level, the winter strip is $1.17 higher than last winter.
The EIA significantly jumped their production estimate for the rest of 2020, and 2021. This seems to be a combination of a higher price forecast this winter, and better well recoveries from newly drilled wells and available DUCs.
From Sept through Dec of this year, the EIA estimates production will continue to slowly decline and average 87.4 Bcf/d. Production bottoms out in Feb 2021, after which it levels out and then increases in the back half of 2021. The average 2021 production level is 86.6 Bcf, or 3.3 Bcf/d lower than the current estimated 2020 production level. This estimated level is 2.6 Bcf/d higher than the August forecast.
With higher prices in the forecast, the EIA has reduced its power burn expectation. The $0.26 higher winter strip forecast has reduced burns by 1.4 Bcf/d. Next summer power burn expectations are also lower due to prices expected to be $1.15 higher for the summer strip, and a more normal summer weather pattern. Average Summer 21 power burns are 29.3 Bcf/d, or 4.5 Bcf/d lower YoY.
Industrial natural gas usage took a big hit in 2020 with COVID related lockdowns. The EIA data show the Summer 2020 industrial load to be 1.2 Bcf/d lower than Summer 2019. The overall industrial usage does not return to their pre-COVID (March 2020) case in their forecast period. For 2021, industrial usage is only slightly higher than the 2020 levels.
EIA shows massive recovery in LNG exports starting in Oct. They have increased their rest of year forecast considerably with more information around fewer cargo cancellations and widening global spreads. From Sept through Dec, they have increased their LNG export by 2.0 Bcf and increased their 2021 export level by 1.5 Bcf/d to 8.7 Bcf/d. It should be noted that this is only exports and does not include the feedgas that is used onsite.
Fundamentals for week ending Sept 4: Our early view for the upcoming storage report is a +71 Bcf injection for the lower 48. This would take storage levels to 3596 Bcf. The industry estimates for this report range between 68-86 according to The Desk.
US natural gas dry production was higher week on week with domestic production averaging 88.3 Bcf/d for the week. The increase is a result of GoM production returning, as well as Midcon production rising by 0.7 Bcf/d. Total natural gas demand was lower than the previous week. Power burns were lower by 2.1 Bcf/d week-on-week, but this was slightly offset by rising ResComm demand due cooler weather in some parts of the counts (Rockies, Midwest).
Canadian imports were once again lower last week averaging 3.8 Bcf/d. Mexican exports averaged of 6.4 Bcf/d.
Deliveries to LNG facilities averaged 5.2 Bcf/d, up 2.1 Bcf/d week on week. Sabine restarted operations with the first LNG tanker arriving on Thursday after Laura. Today Sabine noms show 3.5 Bcf/d hitting the facility, which is the highest since Apr 25th. Cameron is still offline.
Expiration and rolls: UNG ETF roll starts on Sept 12th and ends on Sept 17th.
October futures expire on September 28th, and September options expire on September 25th
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ION-Energy-Weekend-Report-Sep-13-2020.pdf