EIA Reports Summer Natural Gas Storage Drawdown

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EIA Reports Summer Natural Gas Storage Drawdown Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--Summer in the U.S. historically has been a time of rising natural gas storage, in preparation for large drawdowns during the winter heating season. That's because more heating is done by natural gas than by heat pumps that rely solely on electricity. But as natural gas has begun replacing coal on the electric grid, use of the former has increased in the summer, especially on hot days.

For the week ending August 9, the U.S. Energy Information Administration (EIA) reported a drawdown of 6 billion cubic feet (Bcf). The last summer reduction was reported by the EIA for the week ending July 29, 2016, also of 6 billion Bcf.

Even with that reduction, the EIA estimates that overall storage that week was 3,264 Bcf, which is 209 Bcf higher than the same period in 2023 and 375 Bcf above the five-year historical range.

"In 2024, injections have been smaller compared to both 2023 and the 5-year average," said Industrial Info's Maria Sanchez. "This reduction in oversupply suggests that prices are likely to rise as demand increases, particularly with new LNG supplies and during the winter heating season."

In a recent IIR post, Sanchez reported a notable drop in output: "Natural gas production has fallen below 99 Bcf/d, marking a decline of 3.5 Bcf/d over the past three days. The Appalachian Basin has seen the largest reduction, down 1.6 Bcf/d, followed by Texas with a drop of 0.55 Bcf/d. Louisiana and Oklahoma have also reported decreases of 0.19 Bcf/d and 0.14 Bcf/d, respectively, since August 5."

At least two natural gas producers have cut production due to low prices. LP Gas Magazine notes that prices are at 30-year lows, when adjusted for inflation. Chesapeake Energy and EQT are among those reducing output.

Natural gas production slowdowns generally are only possible in gas-only regions like the Marcellus and Utica. In the Permian Basin, where gas production is at historic highs, it is a byproduct of crude, meaning both would have to be reduced to cut natural gas.

These reductions have raised prices a bit, with the EIA reporting Henry Hub spot prices rising by 18 cents from 1.99 per MMBtu on August 7 to $2.17 on August 14.

Summer Natural Gas Demand
As stated, the U.S. power market is pivoting away from coal--moving primarily toward renewables like wind and solar. But the intermittency of both requires backup from more reliable baseline sources, and natural gas is increasingly filling that role because it burns cleaner than coal.

The EIA explains it this way: "Since 2014, the share of U.S. electricity generation from natural gas in the summer has increased almost every year except 2021, increasing from 29% in 2014 to 46% in 2023."

For summer 2024, the agency in May had forecast a slight decline to 44% due to an increase in renewable sources, which have risen steadily since 2018.

But the other side of the equation is demand, which is a direct result of weather. Moderating temperatures as summer winds down should reduce demand, per Industrial Info's Sanchez, so a return to positive injection rates is likely to follow.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).