Denver — High natural gas storage volumes combined with effects of the coronavirus outbreak could suppress demand and prices through at least the end of the summer and likely into winter, according to the president of a top US gas marketing company.
What's more, widespread cuts in capital expenditures and production outlooks by operators could exacerbate deliverability issues later this year.
Mark Whitt, president of Tenaska Marketing Ventures, said these issues create challenges across the board, but the industry has always remained resilient.
"It has changed the way we interact with our customers and with our teams," Whitt said. "Fortunately, we prepared for a scenario like this (where employees need to work from home) several years ago. It's been seamless, besides barking dogs and crying babies in the background during meetings."
Tenaska ranked as the No. 3 North American gas marketer at 10.6 Bcf/d during the fourth quarter of 2019, according to a survey by Platts Analytics. Much of the volume marketed by Tenaska finds an end use in gas-fired power plants and residential and commercial demand.
Steep declines in US natural gas demand have not yet materialized across all sectors from the stay-at-home orders issued throughout much of the nation. However, the pandemic continues to apply downside risks, worsened by elevated volumes of gas in storage.
"As we look at this day to day, we've only seen a little impact to demand so far," Whitt said. "However, we expect a drop in demand this summer and even into the winter. It's been made worse by the mild winter, which led to high storage levels."
"The industrial sector is one area you have to look at for demand destruction," he added. "Residential and commercial could also see a drop."
Month-to-date, US industrial demand is down 900 MMcf/d compared with March 2019, according to S&P Global Platts Analytics.
In the most affected areas of the US, declines in commercial sector loads at offices, schools and retail establishments are outweighing gains in residential demand, reducing power use and changing hourly load profiles, according to Platts Analytics. This is evident in New York City, as rising COVID-19 cases led to the closure of non-essential business and prompted residents to remain at home.
Recent daily average electricity demand has started to trend below the five-year range, with demand down as much as 16% from 5 am to 8 am.
Across the entire US Northeast region, power burn demand is down only by an average of 86 MMcf/d month-to-date over March 2019, according to Platts Analytics.
In California, the governor issued a similar order across the state. While year-over-year load comparisons are more difficult given behind-the-meter generation, the pattern is similar to New York City. However, the impact is smaller, with morning and afternoon hours ranging from 5% to 10% lower than a year ago.
The effects of the virus has already spread across the exploration and production sector as well. The number of active rigs plummeted by 47 last week, according to data from Enverus. The Permian shed 20, dragging the total below 400. Chevron recently announced it was dropping its Permian production outlook by 20% in 2020.
"Due to the effects of COVID-19 and the dramatic drop in oil prices, we expect lower deliverability later this year, especially out of the Permian," Whitt said. "Production is contingent on prices, and it's a tough time for them right now. We'll help them market their production and get through thee tough times ... The natural gas industry is very resilient."
Although operators target the Permian for oil, it produces high volumes of natural gas. It averaged 11.7 Bcf/d last month, according to Platts Analytics.