Viewpoint: US gas prices may recover slowly in 2020

  • Market: Natural gas
  • 30/12/19

Natural gas producers in the key US Appalachia production region are cutting back on drilling plans in response to market weakness, but those cuts are likely to have only a muted effect on US prices next year.

Appalachia, home to the Marcellus and Utica shales, is the largest gas producing region in the US by volume, meaning output there can have a meaningful effect on prices nationwide. Appalachia output topped 33.5 Bcf/d (949mn m³/d) in October, more than double the production from the Permian region in Texas, according to the most recent data from the US Energy Information Administration (EIA).

Large independent gas producers, such as Range Resources, have announced plans to curb production growth in 2020 in recent earnings calls. But other producers, like EQT and Cabot Oil & Gas, two of the biggest gas producers in the Marcellus, are planning to keep output unchanged year over year.

The EIA still expects 2020 US output to top this year's levels, and forecasts that Henry Hub spot prices will keep falling.

A glut of natural gas from Appalachia spurred by production efficiency gains contributed to lower prices in 2019, with Henry Hub spot prices averaging $2.52/mmBtu so far this year, compared with an average of $3.12/mmBtu in 2018.

Overall US dry-gas production in 2019 is expected to average about 92.1 Bcf/d, 10pc higher than a year earlier, according to EIA estimates, while production in 2020 is expected even higher.

Producers make drilling plans months in advance, so responses to low prices are delayed. Tapered production growth is unlikely to lead to a quick rise in US gas prices, said RBC Capital Markets analyst Scott Hanold.

Instead, RBC forecasts that prices will recover gradually in the next few years. Prices at the US benchmark are forecast to average $2.45/mmBtu in 2020, down by about 5pc from the 2019 average, the EIA said in its December Short-Term Energy Outlook. That forecast was revised down by 3¢/mmBtu from the November outlook.

High prices this winter could delay tapered production decisions by companies that have not yet pared growth outlooks. But those that have already planned for measured output next year likely will not "flex back to growth" on weather-related price spikes, Hanold said.

Price spikes this winter are likely to be muted by unusually high inventory levels. A wave of cold weather in November 2019 led to a surge in futures prices early in the month, but that increase was short-lived as inventories were close to the five-year average. That's a contrast to November 2018 where high heating demand led to a more sustained price spike as stocks were well-below the five-year mark.

Natural gas infrastructure company Williams, which gathers and processes about 25pc of the gas production from the Marcellus, said in its most recent earnings call that production gains in 2019 would not last into 2020.

Williams' gathered volumes in Appalachia will grow by 3.5pc in 2020, down from its previous outlook for 5.5pc growth. In contrast, third quarter 2019 volumes rose to 8.7 Bcf/d, a year-over-year increase of 17pc.

Measured output growth will keep Nymex prices at what Hanold described as a "sustainable level" between $2.50/mmBtu and $2.75/mmBtu.

By McRae Peavy


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
30/05/24

Enagas LNG bunkering sales at record high in 2023

Enagas LNG bunkering sales at record high in 2023

London, 30 May (Argus) — Spanish system operator Enagas' supplies of LNG as a marine bunkering fuel from its terminals in Spain and LNG bunkering vessels (LNGBVs) rose to a record high last year, as more capacity and stronger demand boosted throughput. Enagas supplied about 1.4TWh of LNG as a bunkering fuel in 2023, much more than the 400GWh supplied in 2022 and 300GWh in 2021, according to the firm. Enagas has expanded its LNG bunkering capacity in recent years, while the cost of LNG as a marine fuel has held much lower than competing alternatives such as marine gas oil (MGO) over the past year, supporting demand for LNG bunkering operations. The firm fully owns three LNG import terminals in Spain that offer LNG bunkering services — the Barcelona, Huelva and the Cartagena facilities. Barcelona offers pipe-to-ship (PTS) and ship-to-ship (STS) services, Huelva offers STS services and will soon offer PTS services, while Cartagena offers PTS operations, while Enagas plans to add STS services at the port too, the firm said. Enagas subsidiary Scale Gas co-owns two LNGBVs — the 5,000m³ Haugesund Knutsen in Barcelona with Norwegian firm Knutsen, and the 12,000m³ Levante LNG in Huelva, alongside UK supplier Peninsula. Most of the LNG bunkering operations in Spain are carried out in Barcelona, where bunkering volumes similarly rose to an all-time high last year, according to the port authority. The increase to 143,000 m³ of LNG as a bunker fuel across 199 deliveries last year, more than double the previous record posted in 2021 of 65,051m³, was linked largely to the commissioning of the Haugesund Knutsen in 2023. Enagas partially owns other assets that can offer truck-to-ship operations at the El Musel import terminal and the Sagunto and Bilbao LNG terminals. Bilbao can also provide PTS operations. Spain eyes growth Spain aims to build on its presence in the LNG bunkering market, with several planned LNG bunkering projects adding to its already-large LNG import and storage capacity. Utility Endesa recently advanced plans that were initially announced in 2021 to build a small LNG terminal with 5,000m³ of LNG storage capacity in the Spanish exclave of Melilla in north Africa. Endesa earlier this month requested permits for the project from the local government. Endesa also has plans for an LNG bunkering project in the port of Algeciras, with an LNG plant comprising four tanks with a combined capacity of 4,000m³. The firm had intended to start offering services earlier this year, but this appears to have been delayed. Scale Gas also aims to launch an LNGBV in the Canary Islands that it is building at present and aims to start operating in 2026. This LNGBV will also offer bio-LNG bunkering operations. By Ellie Holbrook Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Find out more
News

Germany to stop gas storage levy on transit from 2025


30/05/24
News
30/05/24

Germany to stop gas storage levy on transit from 2025

London, 30 May (Argus) — The German government has agreed to stop charging its gas storage levy on natural gas exiting the German grid at border interconnection points from 2025, permanent secretary in the German economy and climate ministry Sven Giegold said this morning. The government intends to submit a law to parliament to change its gas storage levy so that it is no longer charged on gas transiting the country, in order to support stronger integration between European energy markets, Giegold said ahead of an energy council meeting in Brussels this morning. It had "never been Germany's intention to inhibit the integration between markets with this levy" or to disturb countries' efforts to gain independence from Russia, he said. Germany continued to support European gas supply diversification, for example through expanding its LNG import infrastructure, also in the interest of its neighbours, Giegold said. The German government had introduced the levy to recoup the cost of purchasing 50TWh of gas on the spot market without hedging it forward in summer 2022 to fill storage sites ahead of the winter. But falling prices meant that market area manager THE could only recover about a third of the amount spent through gas sales , leaving a loss of about €6.3bn ($6.8bn) to be levied on all gas exiting the German grid. The gas storage neutrality charge will continue to exist for domestic consumers as the "public good will continue to require financing", but Giegold said he did not want to pre-empt the legislative process with any details of future levy-setting methodologies. The recently-announced hike of the levy to €2.50/MWh for the second half of this year remains a legal requirement under the law currently in force. A change from the start of 2025 is an exceptionally quick turnaround in democratic legislation, Giegold said. Germany's central and eastern European neighbours — especially Austria, the Czech Republic, Hungary and Slovakia — had previously pointed out large negative impacts of the levy for their diversification efforts away from Russian gas, and had asked the commission to act against the levy . Energy commissioner Kadri Simson, who had previously criticised the levy for "putting energy solidarity at risk", said this morning that she had sent several letters to German economy and climate minister Robert Habeck on the matter and expected Germany to abolish the levy on transit flows. By Till Stehr Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Jera sells partial stake in Freeport LNG to Japex


30/05/24
News
30/05/24

Jera sells partial stake in Freeport LNG to Japex

Osaka, 30 May (Argus) — Japan's largest LNG importer Jera has decided to sell part of its stake in the operator of the 15mn t/yr Freeport LNG export project in the US' Texas to Japanese upstream developer Japex. Jera has agreed with Japex to sell 15pc of its 100pc owned subsidiary Gulf Coast LNG, which holds a 25.7pc stake in Freeport LNG Development, for around $380mn. The deal will reduce Jera's ownership of the Freeport operator to 21.9pc. The transaction is scheduled to be completed on 10 June. Jera will continue maintaining a liquefaction agreement in the Freeport LNG project. The company separately has a 25pc stake in Freeport's first liquefaction train and receives around 2.32mn t/yr of LNG under a 20-year contract. The sale is aimed at optimising Jera's asset portfolio, although it is unclear how the profits will be used. The company is planning to spend ¥5 trillion ($32bn) to drive decarbonisation of its business over the April 2024-March 2036 fiscal years, focusing on LNG, renewables and hydrogen and ammonia. Jera plans to maintain its LNG handling volumes at no less than 35mn t/yr until 2035-36, as it sees LNG will play a key role to adjust for imbalances in electricity supplies in Japan and help reduce dependence on coal- and oil-fired power producers in Asian countries. It has also secured funding for the Scarborough gas project offshore northwest Western Australia, a joint venture project by Jera and Australian independent Woodside Energy. State-owned Japan Bank for International Co-operation (JBIC) has agreed with Woodside Finance, a subsidiary of Woodside Energy, to finance up to $1bn for the Scarborough development, according to JBIC on 30 May. The lending will be co-financed by private financial institutions, taking the total funding to $1.45bn. Scarborough aims to produce 8mn t/yr of LNG from 2026 at Woodside's 4.9mn t/yr Pluto LNG, where it is building a second 5mn t/yr production train. Jera with its 15.1pc stake in Scarborough is planning to offtake as much as 1.2mn t/yr of LNG. JBIC separately agreed with Jera in March to finance up to $831mn for buying the Scarborough stake. By Motoko Hasegawa, Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Japan’s JMU delivers LNG-fuelled bulk carrier


30/05/24
News
30/05/24

Japan’s JMU delivers LNG-fuelled bulk carrier

Tokyo, 30 May (Argus) — Japanese shipbuilder Japan Marine United (JMU) delivered an LNG-fuelled Capesize bulk carrier on 30 May to domestic shipping firm Kawasaki Kisen Kaisha (Kline). JMU completed construction of the 210,870dwt Cape Hayate at its Tsu shipyard in west Japan's Mie prefecture. Kline will charter the vessel for Japanese steel mill JFE Steel. This will be the first LNG-fuelled bulk carrier for Kline to charter. The ship is equipped with a dual-fuel engine, which can burn boil-off gas in its cargo tank and conventional marine fuel. It also plans to introduce in the future an automated kite system assisting propulsion power of the vessel by using wind force. The vessel can use LNG to reduce carbon dioxide emissions by 25-30pc compared with ships using conventional marine fuel, sulphur oxide emissions by 100pc and nitrogen oxide emissions by 75pc. JMU also built for JFE Steel another LNG-fuelled 210,000dwt Capesize bulker the SG Ocean . It has been chartered by domestic shipping company Nippon Yusen Kaisha. JMU is promoting the development of LNG-fuelled ships, while planning to introduce ammonia and hydrogen as alternative marine fuels. JFE Steel is also aiming to transition its fleet to LNG-fuelled vessels, planning to introduce ammonia and carbon recycled methane-fuelled bulk carriers to achieve decarbonisation of its operations. By Nanami Oki Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Japan’s Takahama reactors win nod to extend lifespan


30/05/24
News
30/05/24

Japan’s Takahama reactors win nod to extend lifespan

Osaka, 30 May (Argus) — Japanese utility Kansai Electric Power has secured approval to continue operating the 870MW No.3 and No.4 reactors at its Takahama nuclear power plant past their 40-year lifespan. Japan's Nuclear Regulation Authority (NRA) on 29 May granted approval for the Takahama reactors in Fukui prefecture to extend their operational lifespan by 20 years to 60 years. This comes 13 months after Kansai filed an application in April 2023. The Takahama No.3 and No.4 reactors started operating in 1985, meaning they would reach their 40th year of operation in 2025. Japan's nuclear guidelines in principle limit a reactor's service lifespan to 40 years. But the rules allow nuclear operators to extend the lifespan by up to 20 years just once with permission from the NRA. Last year's update to the nuclear rules , which will take effect in June 2025, will also allow nuclear operators to use reactors beyond the maximum 60 years by excluding the time spent on stricter safety scrutiny following Japan's 2011 Fukushima nuclear disaster. This is subject to approval from the trade and industry minister. Tokyo is gearing up efforts to restore more nuclear capacity at existing reactors to enhance the country's energy security and reduce greenhouse gas (GHG) emissions. Under the current basic energy policy, Japan aims to cut GHG emissions by 46pc by the April 2030-March 2031 fiscal year against the 2013-14 level. This goal assumes nuclear will make up 20-22pc of the power mix, up from 9pc in 2023-24, requiring the restart of many more reactors. Japan currently has 33 nuclear reactors, with 12 operational that comprise 11.6GW of power generation capacity. To achieve the 2030-31 nuclear goal, Japan needs to increase operational capacity to 21-23GW, based on Tokyo's power generation target of 934TWh in 2030-31. This suggests Japan would have to restart all five reactors, which a combined capacity of 5.5GW, that have already passed the NRA's safety scrutiny and many of the reactors that are currently under the NRA's investigation, whose capacity totals 7.9GW, over the remaining six years. The government started discussions to review the energy policy on 15 May, aiming to revise it by the end of this fiscal year. It is still unclear what year it is targeting and what ratio will be set for nuclear and other power sources in the new policy. But the deliberation would form a key part of efforts to update the GHG emissions reduction goal, ahead of a submission of the country's new nationally determined contribution in 2025, with a timeframe for implementation until 2035. By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more