Posted: Nov. 13th 2020
Research Natural Gas Storage Report – 13 November 2020
US natural gas inventories increased by 8 Bcf for the week ending November 6, compared with the five-year (2015–19) average net increase of 33 Bcf. Working gas stocks total 3,927 Bcf, which is 176 Bcf higher than the five-year average and 196 Bcf higher than last year at this time. Analysts’ expectations had been for a withdrawal of 2 Bcf. Despite the average analyst expectation of a small withdrawal, many had forecasted a modest injection. For the week ending November 6, weather dramatically improved from the previous week, so Res/Com demand shrank. Based on known data for the week ending November 13, another injection in the 15-20 BCF is forecasted at this time. Weather remains the primary factor when determining that the market will start to see a steady stream of weekly withdrawals. However, forecasts for both the 6-10 and 11-15 day outlooks remain pretty mild. Some chilly air enters parts of the country this weekend but moves out quickly. It is still possible that storage inventories get to 4 TCF but that has been known for a while now. Instead, the market is shifting focus to next year’s storage entering heating season 2021/2022. Using a ten-year average weather scenario and adding in extra demand factors for exports and flat to small supply growth, inventories levels could end the heating season at around 1.4 TCF with the market having a lot of difficulties injecting ample supplies for the following season. Current outlooks peg working storage at only 3.1 TCF by the end of next October. That is extremely bullish for forward natural gas prices in 2021 and 2022. LNG export demand levels (which recently continue to set almost daily record highs) and Mexican pipeline export levels should remain very strong in 2021. Global crude oil prices are still seen to be weak (compared to previous years) in 2021, which makes the prospects of a meaningful return of associated gas supplies unlikely. Major gas shale producers are still showing restraint to spend for more drilling in an attempt to keep Wall Street happy with their now or soon to be positive cash flows. With daily supply volumes unlikely to match daily demand volumes in 2021, it is no surprise that 2021 NYMEX prices are up 35% YTD and 2022 NYMEX prices are up 20%. Given the fundamental picture outlined above, it is likely that these prices continue to rise in the coming months. End users that have the ability to hedge and to think LONG-TERM need to start doing so now, as there is more upside NYMEX risk than downside gain.