Major U.S. natural gas traders post declines in Q2 2021, but surging prices point to progress
Major North American natural gas distributors reported lower overall sales volumes for the second quarter, continuing a downward year-over-year trend following production cuts imposed in response to the coronavirus pandemic. Still, there were several bright spots that suggested the momentum was building.
The 25 gas distributors included in the latest NGI Top North American Natural Gas Marketers ranking reported combined sales transactions of 109.85 Bcf / d in 2Q2021, down 4% from 114.07 Bcf / d in 2Q2020 . This is the third consecutive year-over-year decline.
The collective decline was caused in large part by drops near the top. Perennial No. 1 BP plc fell 19% per year, while No. 4 Macquarie Energy fell 17% and No. 5 Shell Energy NA fell 13%.
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However, half of the top 10 traders saw increases, and many analysts expect both increased production and increased sales volumes in the second half of 2021, given the growing demand and increasing demand. global supply tight after a scorching summer and an ongoing recovery of the virus.
25% gain for ConocoPhillips
Three of the biggest winners of 2Q2021 were in the top 10. Volumes of ConocoPhillips No.3 increased 25% from the previous year. The No. 8 EQT Corp. climbed 21%, while No.9 CFEi, a marketing subsidiary of Mexican state-owned electricity company Comision Federal de Electricidad, gained 23%.
The increase in ConocoPhillips was the largest in absolute volume terms – nearly 2 Bcf / d. Spokesman Dennis Nuss attributed much of the gain to the company’s acquisition of Concho Resources Inc. earlier this year. The deal made ConocoPhillips one of the largest producers in the Permian Basin. Its production from Lower 48 averaged 794,000 boe / d in the second quarter, more than double its 311,000 boe / d in the same period a year earlier. The latest figures included 435,000 boe / d from the Permian.
Nonetheless, Nuss added, the company also entered into “new gas marketing and energy management agreements with generators, end users and power producers across the United States” during the second quarter, a sign of positive progress.
Additionally, Houston-based ConocoPhillips on Monday agreed to pay $ 9.5 billion to buy the Permian portfolio from Royal Dutch Shell plc, a deal that would give it a further production increase of around 175,000 bpd. . The Permian assets held by Shell are weighted 50% oil, with a weight of 25% for each natural gas and liquids.
Natural gas futures hit seven-year highs above $ 5,000 / MMBtu in September, as traders focus on high spot prices amid the heat of the end of the month. summer, strong demand for US exports of liquefied natural gas (LNG) and an imbalance between supply and demand. of winter.
Demand for LNG is expected to remain strong throughout the winter as supplies are precarious in Europe.
The US market, meanwhile, could face its own challenges. It is about to store 3.5 Tcf of natural gas for the coming winter, Bespoke Weather Services has estimated. This would leave the country well below the previous year’s level of 3.9 Tcf. Supply could run out, Bespoke said, if winter conditions arrive early or if the peak demand season turns out to be particularly cold.
“Everything is scary in the market, due to storage levels considered less than sufficient in cold winters, not just here in the United States but even more so in Europe,” Bespoke said after a rally on the last week. which pushed the October New York Mercantile Exchange contract above $ 5,400.
Analysts at Goldman Sachs and Morgan Stanley have warned that natural gas prices could reach $ 10.00 this winter to temper U.S. demand for LNG and maintain more supplies at home to meet home heating needs.
Alan King, senior director of PBF Energy Inc., told the LDC Gas Forums Midcontinent in Chicago this month that if domestic supplies prove to be weak this winter, the US market could indeed reduce LNG exports. to meet America’s energy needs. LNG volumes have hovered above 10 Gcf / d for most of this summer.
“As a country, this is a national priority,” said King, who sources gas for the six US refineries from PBF. “The fact remains that there are 10 Bcf in their hip pocket that for me, in an emergency, we keep locally. It’s a good thing to have, and there aren’t any countries that have it.
Still, he added: “I think people will be able to respond and we won’t run out of storage.”
Resumption of production
Federal researchers expect more producers to increase production to ensure adequate supplies and take advantage of high prices. With more production, traders would have more gas to sell, likely increasing volumes before winter.
The Energy Information Administration (EIA) ‘s latest monthly drilling productivity report predicted that gas production would increase from October through September in six of the seven major onshore basins. Overall, EIA expects production to increase by 219 million cubic feet per day next month. This would follow modest increases over the summer months.
The EIA estimated in its latest short-term energy outlook earlier this month that U.S. dry natural gas production would average 92.7 Bcf / d for the second half of this year, compared to 91.7 Bcf / d. / d for the first six months of 2021. The agency forecast production would continue to increase to 95.4 Bcf / d in 2022, as higher crude oil and natural gas prices provide enough incentive for drilling to maintain the growth.
“Demand is definitely back in force,” Jacob Thompson of Samco Capital Markets told NGI. The general manager of the Austin, Texas company said, “Energy will always fluctuate, but there is no doubt that the need for oil and gas is increasing.”
Thompson noted that growers kept production mostly under control during the first half of the year, taking conservative stances amid the uncertainty of the pandemic. Yet, with prices continuing in high territory, “producers are almost sure to respond,” he said.
However, threats persist. The Delta variant of the coronavirus has increased infection rates in recent weeks, raising concerns about further economic restrictions – and interruptions in energy demand – if the pandemic worsens. An already wild hurricane season also served as a reminder that more hits could follow storms.
Hurricane Ida, which crashed into Louisiana on August 29, destroyed the majority of gas production in the Gulf of Mexico during the first half of September. Hurricane Nicholas followed last week and caused additional production problems.
Any production challenges that persist this fall would amplify storage concerns. “Things could get risky … before this winter,” said James Bevan, analyst at Criterion Research.
Editor’s note: NGI rankings are compiled using data reported in quarterly regulatory files or directly to NGI. Companies providing data directly to NGI include Antero Resources Corp., ARM Energy Management, BP plc, Castleton Commodities Merchant Trading, CFEI, CIMA ENERGY LP, ConocoPhillips, Direct Energy, EDF Trading NA, Hartree Partners, J. Aron & Co de Goldman Sachs. ., Macquarie Energy, NJR Energy Services, Shell Energy, Symmetry Energy Solutions LLC and Tenaska.