Given the recent media focus on AI and the surge of data center construction, it comes as no surprise that the electric utility industry’s capital investment has risen to record highs. What isn’t as widely publicized is the enormous strain this historic expansion has placed on utility balance sheets.
Which is true, A or B? (A) Data center demand to power AI applications is the most transformative force to hit energy markets in years, or (B) This is one of the most overhyped, inflated narratives ever. We hear a constant stream of announcements, promotions and proclamations from developers, tech giants, utilities and politicians, many predicting a revolutionary surge in electricity and gas demand that will change everything. At the same time, others warn of a speculative bubble destined to pop. As we discuss in today’s RBN blog, sorting out which side is closer to reality is one of the most important questions facing U.S. energy markets.
The U.S. Gulf Coast is poised to experience another big wave of new LNG export capacity, and this time it will be joined by new capacity coming online in both Mexico and Canada. The more than 13 Bcf/d of incremental natural gas demand from North American LNG projects starting up over the next five years will have significant effects on U.S. and Canadian gas producers, gas flows and (quite likely) gas prices, which have been deeply depressed for more than a year now. In today’s RBN blog, we provide updates on the 10 LNG export projects in very advanced stages of development in the U.S., Mexico and Canada, detail the expected ramp-up in LNG-related gas demand and discuss the potential impact of rising LNG exports on gas prices.
Every gas storage injection season gives us a chance to size up how supply and demand components might influence how much gas can be stuffed away in underground reservoirs prior to the next heating season. For the Canadian storage injection season that is just getting underway, a number of factors have shifted that balance, resulting in a slowing rate of gas storage builds this year. A slower build, and subsequently lower storage levels by the end of the injection season than last year, seems likely to provide solid support for Canadian gas prices. Today, we review the latest developments and outlook for gas fundamentals in Canada.
The February 2021 polar vortex will be one for the natural gas record books in the U.S. and Canada — and the month isn’t even over yet! Though no stranger to frigid weather, Canada’s natural gas market has felt the impacts of this month’s extreme cold on both sides of the border. Its own prices, demand, and storage withdrawals have reached multi-year or all-time records as gas buyers have jockeyed for molecules from anywhere they can get them. Gas exports to the U.S. have reached highs not seen for more than a decade, adding emphasis to what has been an emerging turnaround story for Canadian gas into the U.S. market. To top things off, the latest gas market records might be a preview of what is to come in the next few years as Canada’s structural demand for natural gas continues to increase, regardless of how cold it is. Today, we describe all the latest Canadian gas market action and what might be in store for next winter.
Canadian natural gas storage levels finished the most recent injection season at a record high. With what has been a fairly mild start to the heating season so far in North America, you might be tempted to think that Canadian storage levels would have been slow to draw down. On the contrary: so far, gas is being withdrawn from storage more quickly than might be expected from the winter weather alone, partly because of structural developments that have been emerging in the Canadian market. And these changes will help to draw storage levels down closer to historical averages by the end of the current heating season in March 2021. Today, we consider these structural changes and what the current heating season might have in store for the Canadian gas market.
Significantly reduced demand for crude oil by refineries is spurring production cuts in Alberta’s oil sands, and that could lead to a major decline in demand for Western Canadian natural gas. The oil sands are the single largest consumer of natural gas in Canada, accounting for more than half of the gas used in Alberta year-round and up to 37% of the gas used nationwide. With that kind of clout, anything that affects gas consumption in the oil sands is bound to have an outsized impact on the Alberta and overall Canadian natural gas markets. Today, we conclude our series on the effects of COVID-related disruptions on the Canadian natural gas market.
The forward curve for natural gas supports 2019 production growth that is likely to far outpace expected gains in gas demand. This impending supply/demand imbalance suggests that gas prices will be pressured lower. Lower gas prices will boost demand, but there are real limits to how much demand can rise in the short term. What will really be needed to balance the market is for producers in at least a few plays — the Marcellus and Utica among them — to rethink and rework their 2019 production plans. Which raises the questions, how much will production growth need to be cut, and where will the bulk of the pruning occur? Today, we continue our review of key themes and findings in East Daley Capital’s newly updated “Dirty Little Secrets” report on the midstream sector.
The latest weather forecasts for the second half of December have taken the edge off the U.S. natural gas market and reduced the chance of a true doomsday storage scenario. But U.S. gas storage inventories nonetheless remain at historically low levels, and long-term weather forecasts are notoriously fickle. So this winter could still see a resurgence in volatility before the market finds a balance. And while Henry Hub prices went on a wild ride earlier this month before settling back in below $4/MMBtu, for most of December thus far, Eastern gas prices have traded at levels that make LNG exports from there uneconomic. In today’s blog, we continue our review of the winter U.S. gas market with a closer look at how Cove Point Liquefaction (CPL) might respond to high prices.
Reliably low Henry Hub natural gas prices are a primary, long-term driver of U.S. LNG exports. But prices were up as much as 40% during November and, with gas inventories unusually low, Henry prices could spike considerably higher if winter weather continues to come in colder than normal. Which raises the question, how high would gas prices need to go before U.S. liquefaction becomes the lever that balances the U.S. gas market? The short answer is, it depends on where the LNG is headed — and lately, a lot more is bound for Europe. Today, we continue our review of the current gas market with an analysis of LNG variable costs and UK National Balancing Point prices, and how they will help determine LNG export volumes if U.S. gas prices spike.
