American Oil and Gas Reporter - December 2020 - 36

SpecialReport: Natural Gas White Papers
With a 33% increase in production since 2013, the shale revolution has ushered in a remarkable era, with ongoing improvements and efficiencies that keep supply flowing. It has benefited
customers with stable low prices, and shrunk carbon emissions
to 15-year lows, thanks in large part to natural gas displacing
coal in the power generation sector. Natural gas producers are
working to do even more to support a clean energy future that is
affordable for all.
But with the winter of 2020-21 now underway, the market
again finds itself in a very different place than at the start of the
prior winter. Looking at market fundamentals, the good news
for gas producers is that key supply and demand variables-
weather included-indicate upward pressure on the natural gas
market this winter as compared with last winter, when Henry
Hub prices averaged a lackluster $2.08/MMBtu. Total natural
gas demand this heating season should recover to within 1
Bcf/d of last winter's average daily consumption. The good
news for consumers is that, according to NGSA's Winter Outlook,
supply is expected to ably satisfy demand and natural gas will
remain affordable and reliable.
Historically, the weather has been the biggest wild card in
projecting how supply and demand may balance during the
course of a November-to-March heating season. This winter
started with one of the warmest Novembers on record, but the
coldest potential months with peak demand are still ahead and
the long-range forecasts call for colder temperatures than last
year. However, this winter is especially unpredictable with the
effects of the COVID-19 pandemic.
NGSA bases its analysis on publicly reported data in five
key areas:
· Economic indicators;
· Weather;
· Demand;
TABLE 1
Summary of Winter Supply and Demand Forecast
Bcf/d
SUPPLY
Dry production
Net Canadian imports
LNG imports
Total supply

Winter 20-21

Winter 19-20

Difference

86.0
5.0
0.3
91.4

94.2
4.6
0.2
98.9

(-8.2)
0.4
0.2
(-7.6)

DEMAND
Power burn
Industrial
Residential/commercial
Mexican exports
LNG exports
Other
Total demand

26.6
24.7
36.9
5.5
9.3
6.7
109.7

28.9
24.6
36.2
5.1
8.5
7.3
110.6

(-2.3)
0.1
0.7
0.3
0.9
(-0.6)
(-0.9)

STORAGE
Implied daily withdrawal
Implied total withdrawal

18.3
2,746

11.6
1,757

6.7
989

WEATHER
Base case HDDs

3,433

3,294

139

· Natural gas production; and
· Storage.
Although each of these potential " pressure points " is identified
separately, all of them are interrelated. Any significant deviation
of a single pressure point is likely to affect the other assumptions
in the equation. As winter began, highly encouraging announcements of multiple successful COVID vaccines hit the news. At
the same time, however, COVID infection rates were increasing
across much of the country and Europe, which reinforced the
risk to near-term economic growth and energy demand.
Flexible And Adaptable
Factoring in all five potential pressure points, and considering
the extraordinary circumstances that affect everyone's lives
both in and outside the natural gas industry, the picture that
emerges from the NGSA's study of winter 2020-21 is one of a
flexible and adaptable market that is able to respond to variations
in weather and changing demand drivers with ample supply
and sufficient storage.
Table 1 summarizes the winter's supply, demand and storage
forecasts. Notwithstanding the unseasonably warm weather in
November, which had the effect of reducing December-February
natural gas futures strip prices to below $3.00/MMBtu by the
third week of November, the expected upward pressure on
prices comes from the combination of weather-which is forecast
to be 4% colder than last winter (though still 3% warmer than
the 30-year average)-and supply, which is projected to average
8.2 Bcf/d less than last winter's 94.2 Bcf/d.
Two factors are exerting downward pressure on the market:
the economy and gas storage. With so much uncertainty and
gross domestic product growth down significantly, both U.S.
and global economic indicators can be characterized as moving
from " slow growth " to a " recovering from recession " mode.
In regard to storage, Lower-48 inventories stood at 3.93
trillion cubic feet at the start of November, which was 200 Bcf
FIGURE 1
Projected End-of-March Storage Under
Different Weather Scenarios
Base Case (10-Year Normal)

Last Year (2019-2020 Winter)

Cold Winter

Warm Winter

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

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