CIBC Notes EQUITY RESEARCH
July 11, 2024 Industry Update
Natural Gas Guide: LNG Canada One Step Closer To Commissioning
NGTL Field Receipts Dropping Sharply
A Few Things We Are Watching
Fluor announces final weld on LNG Canada Train 1 which is another
milestone towards commissioning. NGTL field receipts have
demonstrated material oscillations in recent days, which appears to be
related to the high daytime temperatures being experienced in Western
Canada. Western Canadian field receipts dipped versus last week,
averaging 17.3 Bcf/d while demand was flat at 6.8 Bcf/d. Upstream James
River showed a decline of ~1.5 Bcf/d in three days this week, while oil sands
and east gate were also down on planned maintenance activities. We
estimate Western Canadian storage increased by 8 Bcf to 634 Bcf, which is
155 Bcf above the five-year average. With inventories approaching historical
levels and weak local prices, operators have revised capital programs,
including pushing volume growth from Q3 to Q4 in the face of a steep rise in
pricing on the forward strip. We would not be surprised to see additional
announcements from other gas producers in the coming weeks as earnings
season kicks off. NYMEX closed Wednesday at US$2.40/MMBtu (up
US$0.38 W/W).The AECO basis to NYMEX stayed flat at -US$1.53/MMBtu
(-US$1.53/MMBtu last week) and the Station 2 basis to NYMEX narrowed to
-US$1.26/MMBtu (-US$1.88/MMBtu last week).
Early start to what is forecast to be an active hurricane season is
disrupting LNG flows: According to Platts, U.S. dry gas production averaged
101.9 Bcf/d last week, which is 0.6 Bcf/d above the week prior. Hurricane Beryl
caused unplanned outages at Freeport for the fourth straight day, pushing
feedgas flows down by ~2 Bcf/d to 11.1 Bcf/d across all U.S. facilities.
Freeport’s restart could have a material impact on U.S. supply and demand
balances depending on how smoothly it goes. U.S. gas in storage increased
by 65 Bcf last week, which was above consensus expectations for a 59 Bcf
build. At 3,199 Bcf, stocks were 283 Bcf above the same period in 2023 and
504 Bcf above the five-year average.
Warm weather is increasing demand for natural gas globally as the
Northern Hemisphere enters peak cooling season: According to
Bloomberg, Japanese buyers have started to secure additional LNG cargoes
for delivery in August in response to rising temperatures, increasing demand
for natural gas-fired electricity generation. Bloomberg reported that a heat
wave in Italy has widened the regional gas basis between that country and
Spain. European inventories increased by 69 Bcf to reach 3,068 Bcf,
narrowing the surplus over the five-year average by 16 Bcf to 429 Bcf.
Despite recent heat waves in Europe, local prices remain relatively
unchanged as inventories remain well above historical level which has
widened JKM-TTF differentials. NBP closed Tuesday at US$8.90/MMBtu
(down US$0.45/MMBtu W/W), while Netherlands TTF closed at
US$9.74/MMBtu (down US$0.46/MMBtu W/W) and JKM decreased to
US$12.35/MMBtu (down US$0.07/MMBtu W/W).