Tag: Market updates

As we continue into the winter season, Vicinity’s team has been evaluating weather patterns and predictions for the natural gas market to prepare our customers for potential price fluctuations.

After peaking in December 2023, the El Niño pattern continues, and February 2024 weather forecasts indicate above-average temperatures in the Northeast and Midwest, induced cooling in the South, and higher precipitation in the Pacific, which experts predict may continue into the remainder of the winter season.

The natural gas markets have reset to similar levels as 2021, before the geopolitical events in 2022 drove prices above average.

By the numbers: what we know and what we can expect

Prior to January 2024’s well freeze-offs, the U.S. lower 48 saw strong natural gas production, primarily due to efficiencies in the Permian Basin of the U.S. that have provided ample supply to the market, mitigating demand risk. However, due to colder weather in the Permian basin in recent weeks, natural gas production has fallen.

Currently, natural gas storage levels are 4% above 2023 levels and 5% above the 5-year average. Europe’s storage facilities were 80% full through the first half of January 2024, slowing European demand for LNG and suppressing pricing.

Colder weather conditions in January 2024 have contributed to well freeze-offs in the Permian natural gas basin, impacting output and potentially providing more upside risk to pricing. However, the January 2024 futures contract settlement was less than levels at this time last year.

Key electrification progress

The adverse effects of natural gas far outweigh the benefits of continuing to invest in this unsustainable fuel source.

In 2023, the U.S. saw an estimated 1.9% decrease in carbon emissions, as measured in research done by the Rhodium Group. Throughout the year, emissions remained below pre-pandemic levels and dropped to 17.2% below 2005 levels.

While this decrease is substantial, an even greater emissions reduction is necessary to limit climate change. In 2023, Earth’s average land and ocean surface temperature was 2.12 degrees F above the 20th century, making it the highest global temperature among all years recorded since 1850, according to the U.S. National Oceanic and Atmospheric Administration.

The undeniable climate crisis drives Vicinity’s progress towards transitioning away from fossil fuels and eliminating carbon emissions from our operations. By electrifying our operations nationwide, we will be able to offer an affordable, carbon-free path for building owners to meet sustainability goals and join us in limiting climate change.

Our first electric boiler has been delivered to our Kendall facility in Cambridge, Massachusetts, and it will enter service in 2024, immediately allowing our customers to harness carbon-free energy and decarbonize their buildings.

The industrial-scale heat pump complex we are developing in partnership with MAN Energy Solutions is undergoing engineering and will enter service in 2026. These milestones demonstrate our commitment and progress towards a net zero carbon future.

Last year saw drastic changes in the natural gas market, from the ongoing war in Ukraine to record high energy prices to fluctuating natural gas inventories.

As we reported in our last natural gas outlook, the team at Vicinity is constantly monitoring the state of the fuel markets. United States natural gas spot prices saw lower prices throughout the country during the first two months of 2023, as mild weather patterns brought overall gas use to a five-year low of 110.65 Bcf/d for the two-month period.

U.S. temperatures averaged 42.8°F between January and February this winter, the third-highest average in the last 17 years. At the start of the winter season, the mild weather caused gas prices to reduce significantly, reaching pre-COVID-19 levels with the winter November 2023 through March 2024 time period now trading at an almost 38% decrease compared to highs seen for the corresponding months in 2022.

In this market update, we want to update you on what drove this price reduction, the state of global and domestic gas storage today, and predictions for the rest of the year. 

By the numbers: what we know and what we can expect

The start of this winter was very mild: this year saw the seventh warmest January on record in North America, leading to lower-than-expected natural gas consumption. In January 2023, the Henry Hub spot price of natural gas averaged $3.27 per MMBtu, down $2/MMBtu from December 2022.  

This shift led the U.S. Energy Information Administration (EIA) to forecast a Henry Hub spot price of $3.00/MMBtu for 2023. As the EIA noted, the largest decline in consumption was related to residential and commercial demand. Natural gas prices remain volatile; extreme weather events and cold temperatures could still pressure prices through March 2023.

An additional factor that could influence natural gas demand in the U.S. is the Freeport LNG export facility coming back online. The 3-train LNG export plant resumed partial operations in February 2023 and received confirmation from regulators on March 8, 2023 that the site has been cleared to resume its full capacity of 2.2 billion cubic feet per day. This incremental LNG Export capacity will create additional demand for natural gas. 

In June 2022, a fire at Freeport LNG’s natural gas plant in South Texas caused a full 8-month shutdown of the facility, leading to a decrease in U.S. liquefied natural gas (LNG) export capacity. During the shutdown, the U.S. reduced its LNG exports by 2.2 BCF/day.

After the partial restart of the plant, LNG demand grew as gas flows to all seven of the big U.S. LNG export plants rose to 13.5 bcf/d in March, up 5.5% from 12.8 bcf/d in February. The top destination for U.S. LNG cargoes are countries in Europe who have decreased delivered pipeline gas supply from Russia.

As a result of the milder weather patterns, steady production (97.5 BCF/d for the two-month period), and the Freeport LNG outage, gas storage inventories now stand at 2.1 TCF, which is a 22% surplus to the 5-year average for the same period. Even more notable is the surplus to year-ago storage levels which is now 32%.

Natural gas and climate change

This winter’s record-low and high temperatures and subsequent natural gas demand fluctuations have sparked conversations on the many impacts of climate change.  

As the Natural Resources Defense Council (NRDC) explains, global warming occurs when greenhouse gases like CO2 collect in the atmosphere and absorb sunlight and solar radiation that have bounced off the earth’s surface. These pollutants, which remain in the atmosphere for many years, trap the heat and cause the planet to get hotter in the long term. 

In this way, global warming may contribute to more extreme winter weather. As water vapor is trapped in our atmosphere later and later in the year, the resulting precipitation leads to heavier snowfall when temperatures eventually drop.

We are already seeing the impact of global warming with warmer-than-normal winters and extreme heat in the summer months. In fact, since 1896, average winter temperatures across the continental U.S. have increased by nearly 3°F. Spring temperatures have increased by about 2°F, while summer and fall temperatures have increased by about 1.5°F.

How can Vicinity help?

The transition away from fossil fuels to renewable energy sources is leading the charge for the most energy-intensive industries around the world.

Heating, electricity, and energy transportation are consistently the single highest contributor to global carbon emissions. In 2020, it was reported that 76% of global carbon emissions came from the energy sector.

To reduce this staggering amount of carbon emissions, it is essential to transition to renewable energy sources and move away from fossil fuel use.

Here at Vicinity Energy, we are working with our customers, communities, and local government to decarbonize our operations across the country and do our part to reduce the impact of the energy sector on the earth’s warming atmosphere. 

Vicinity is currently in the process of electrifying its operations to offer an affordable, carbon-free path for the commercial buildings we serve. Our first electric boiler will enter service in 2024, immediately allowing our customers to harness carbon-free energy and decarbonize their buildings.

Looking ahead

With the many fluctuations in the natural gas market that we’ve seen this year, it’s clear that the benefits of investing in renewables far outweigh those of continuing to utilize natural gas to power our communities.  

Now is the time to fuel the transition to an entirely clean energy future and seize every opportunity to encourage the building of green infrastructure and invest in carbon-free energy sources.