Posted: Oct. 16th 2020
Research Natural Gas Storage Report – 15 October 2020
US natural gas inventories increased by 46 Bcf for the week ending October 9, compared with the five-year (2015–19) average net increase of 87 Bcf. Working gas stocks total 3,877 Bcf, which is 353 Bcf higher than the five-year average and 388 Bcf higher than last year at this time. Analysts’ expectations had been for an injection of 53 Bcf. The weekly report came in a few BCF under the market estimates and well below last year’s injection for the same reporting week. Some chillier-than-normal weather helped increase heating degree day demand. Also, Hurricane Delta prompted Gulf gas wells to shut-in production ahead of the storm. That removed almost 2 BCF/day of gas supply that outweighed LNG shut-in demand from Sabine Pass LNG. Natural gas storage is now at an all-time high for this time of year, but NYMEX gas futures for Nov20 are more focused on short-term weather forecasts. It has been a wild month for the Nov20 contract. After opening trading as the prompt month contract at $2.77 on September 29, the contract has traded in $2.37-$2.95 trading range. This week alone thus far, Nov has traded in a $2.61-$2.95 range. Weather outlooks for the remainder of October seem to flip flop on a daily basis. The market knows that some chilly air is coming in starting this weekend and into next week, but the models currently have low confidence in just how chilly and how long the cold shot will last. Today’s storage report virtually went unnoticed. The market knows that storage levels are historically high and on pace for a possible record-setting levels by October 31. Nevertheless, the bullish undertone of the gas market fundamentals can’t be ignored. Supply is flat while demand is growing. LNG exports should return to 9-9.5 BCF/day soon when Cameron LNG finally returns to service (since being down since 8/28 thanks to Hurricane Laura). The Army Corps of engineers continues to remove barge wreckage in the Calcasieu Ship Channel that is preventing LNG tankers from being able to operate and take cargos from Cameron LNG. It was announced yesterday that the Corps could have the channel cleared by the end of the week. Weather will still play a key role in natural gas prices in winter. The right amount of cold will likely propel NYMEX winter gas futures into the $4-$5/DTH range. Three factors are creating the perfect storm for natural gas pricing in 2021 and potentially 2022: (1) longer-term LNG demand in 2021, (2) shale gas producer’s resistance to increased production and spending (drilling) to please Wall Street and (3) the loss of associated gas supply from crude oil production declines in the US due to being uneconomical (in a $40/BBL global market). End users should be prepared for continued market volatility and proactively take hedge coverage positions for 2021 (if already not done by now), 2022 and beyond.