Forecasts for ‘padded’ US inventories spotlight bearish pressures on 2023 fuel strip

US demand progress forecast trending decrease

LNG worth swoon reduces US fuel assist

The primary weeks of 2023 have prompted a bleaker near-term worth outlook for US pure fuel, with warmer-than-expected climate, resilient fuel manufacturing and forecasts for faltering world LNG demand all hinting at an oversupplied market within the first half of the 12 months, S&P International Commodity Insights analysts mentioned in a webinar Jan. 18.

A heat begin to 2023 in a couple of areas within the US has lower into home demand for fuel at a time when chilly climate often prompts a surge in heating-linked residential-commercial demand. Whereas S&P International Commodity Insights analysts beforehand forecast whole US fuel demand to rise by 2.2 Bcf/d within the first quarter of 2023 versus the identical quarter final 12 months, when demand averaged round 117 Bcf/d, the latest climate patterns could lead on forecasts decrease.

“We may take that whole demand determine of two.2 Bcf/d and assume it is nearer to the 1.9 Bcf/d ballpark assuming that res-comm will probably be weaker and contemplating the latest climate forecasts,” S&P International North American fuel analyst Felix Clevenger mentioned.

US res-comm demand has averaged simply 38.7 Bcf/d in January month thus far, a greater than 11% decline from the identical month in 2022, based on S&P International information.

Contemplating latest manufacturing energy — S&P International information reveals US dry fuel manufacturing has averaged 97.9 Bcf/d in January month thus far, up 3% over the identical month final 12 months and a possible report excessive for the month — market fundamentals are prone to produce “padded” US fuel inventories by the top of this winter.

“With anyplace from 2.5-3 Bcf/d of additional provide relative to final 12 months this quarter, we count on balances to turn out to be padded by this spring,” Clevenger mentioned.

Expectations that many of the US — aside from the storm-plagued West — will proceed to face heat climate and fuel oversupply have led main information forecasters to mood worth forecasts in latest days.

The US Vitality Data Administration mentioned in its newest Brief-Time period Vitality Outlook issued Jan. 10 that it now expects that money costs at Henry Hub will common $4.90/MMBtu in 2023, greater than $1.50/MMBtu decrease than the 2022 common and greater than 50 cents decrease than the forecast it supplied only a month prior in its December STEO. Including to the downcast temper, US financial institution Wells Fargo mentioned in a Jan. 4 analysis observe that US fuel provide progress will probably “alternate between an excessive amount of/too little by mid-decade,” including it expects home fuel costs “to stay below stress a minimum of till mid-decade.”

Merchants in US fuel futures markets have in latest weeks moved in live performance with these bitter outlooks: the February Henry Hub contract fell 29 cents in Jan. 18 buying and selling, to $3.31/MMBtu, the bottom worth recorded for the contract since August of 2021 and a roughly 25% decline from the place the contract opened January, based on information from CME Group.

LNG issue

Swirling dynamics within the world LNG market additionally point out that some incremental US fuel could also be extra prone to find yourself in storage than on a liquefied fuel tanker this 12 months.

S&P International analysts now count on the TTF and JKM indices — monitoring European and Asia-Pacific LNG markets, respectively — to fall “into the mid-teens” this summer season earlier than rising again above $20/MMBtu within the fourth quarter, per S&P International’s International LNG analyst, Ross Wyeno.

“LNG because the marginal gasoline supply into Europe has largely tracked decrease with weaker European fundamentals,” Wyeno mentioned on the webinar. “Weaker demand, larger storages and better pipeline imports from Russia have led to a scenario the place not solely have we seen JKM costs collapse roughly in step with TTF, however we have additionally seen that that differential between the JKM and TTF has additionally tightened up significantly.”

S&P International’s newest JKM worth forecast, printed Jan. 12, tasks a $26.77/MMBtu worth for ex-ship LNG deliveries into ports in Japan and South Korea in February, marking a roughly 20% decline versus forecasts issued in mid-December; spot markets have proven a good steeper downward curve in latest days, as S&P International-assessed JKM cargo costs closed Jan. 17 round $18/MMBtu, down almost 75% from a late-August 2022 peak above $70/MMBtu, based on Wyeno.

Atlantic Basin exercise has additionally not too long ago trended in a bearish path: US FOB Gulf Coast LNG cargo values dropped to an 11-week low round $14.75/MMBtu on Jan. 17, as provides continued to outpace demand within the Atlantic.

And as world markets proceed to keep watch over the standing of the Freeport LNG terminal — particularly contemplating information that the ability not too long ago started receiving small quantities of feedgas once more — some market watchers are unconvinced that the terminal and its regular 2 Bcf/d in feedgas demand will reenter the world anytime quickly. US enterprise intelligence supplier Rystad Vitality mentioned in a Jan. 18 analysis observe that it doesn’t count on Freeport to restart till “March on the earliest.”

“Some marginal quantities of feedgas had been nominated to the ability this week … however we’ve got our doubts that this could possibly be indicators of life for the plant,” Rystad’s Emily McClain mentioned within the observe. “If the plant outage is prolonged to mid-year, the market may face an oversupply scenario as early as 4Q, with storage inventories properly above the 5-year most vary.

“On this case, we may witness costs falling into the sub-$3.00/MMBtu vary, triggering doable shut-ins in predominantly dry fuel basins and forcing upstream operators to reevaluate spending and exercise plans for 2023.”