CIBC Notes EQUITY RESEARCH
July 20, 2023 Industry Update
Natural Gas Guide: LNG Canada Achieves 85% Completion
Drilled But Uncompleted Wells At Lowest Level Since 2014
A Few Things We Are Watching
LNG Canada project achieves 85% completion and Coastal GasLink
also 90% complete: The project appears to be well on schedule for
delivering first cargoes by mid-decade. Western Canadian field receipts
averaged 16.9 Bcf/d while demand continued its upward move and averaged
6.8 Bcf/d (17% above the five-year average). Western Canadian storage
increased by 8 Bcf last week to 346 Bcf, which is 45 Bcf above the five-year
average. NYMEX closed Wednesday at US$2.52/MMBtu (down
US$0.05/MMBtu W/W). AECO basis narrowed to US$0.56/MMBtu below
NYMEX (-US$0.63/MMBtu last week), and Station 2 basis narrowed to
US$1.03/MMBtu below NYMEX (-US$1.09/MMBtu last week).
U.S. gas storage surplus versus its five-year average narrows due to
strong power burn: U.S. gas in storage increased by 41 Bcf last week,
below consensus expectations for a 45 Bcf build. At 2,971 Bcf, stocks were
575 Bcf above the same period in 2022 and 360 Bcf above the five-year
average. The lower-than-expected build can be attributed to a strong power
burn. Power burn increased by 5.8 Bcf/d and averaged 47.8 Bcf/d, which is
8.5 Bcf/d higher than the five-year average. Recent weather forecasts
suggest above-average temperatures will persist in the short term, which
could support power burn to stay at elevated levels. Last week, the Baker
Hughes rig count showed the number of gas-directed rigs in the U.S.
declined by two. The number of rigs in the Haynesville and Permian
decreased by one and five, respectively. The recent drilling and productivity
report from EIA shows the number of Drilled but Uncompleted (DUC) wells is
at the lowest level since June 2014. Given the recent moderation in drilling
activity across gas-producing basins in the U.S., the decline in the number of
DUCs, and limited near-term pipeline expansions, we believe gas production
growth could be modest in H2/23, which should support inventories entering
the heating season closer to the five-year average.
The International Energy Agency (IEA) says Europe could still face a
gas crisis: European inventories increased by 77 Bcf to reach 3,150 Bcf,
narrowing the surplus over the five-year average by 9 Bcf, to 646 Bcf.
According to Platts, IEA lowered the European gas demand outlook for 2023
due to lower gas burn for power generation and growing renewable
generation capacity. However, the agency warned that in the event of cold
winter along with a full halt of piped gas supplies from Russia, upward price
volatility remains likely. NBP closed Wednesday at US$8.34/MMBtu (down
US$0.57/MMBtu W/W), while Netherlands TTF closed at US$8.73/MMBtu
(down US$1.91/MMBtu W/W). JKM closed at US$10.75/MMBtu (down
US$1.23MMBtu W/W).