Posted: Jul. 16th 2020
Research Natural Gas Storage Report – 16 July 2020
U.S. natural gas inventories increased by 45 Bcf for the week ending July 10, compared with the five-year (2015–19) average net increase of 63 Bcf. Working gas stocks total 3,178 Bcf, which is 436 Bcf higher than the five-year average and 663 Bcf higher than last year at this time. Analysts’ expectations had been for an injection of 47 Bcf. Cooling demand from extreme heat in most major consuming regions continues to be the biggest driver of natural gas usage. Current projections indicate that July could be the warmest since 1950 from a population-weighted cooling degree day (PWCDD) basis. Hot weather has kept the natural gas market fundamentally supported since the August NYMEX futures contract has been trading as the prompt month contract. However, reductions in demand from both the LNG and Industrial sectors have helped off-set the power generation need. Also, areas that have been extremely hot like Texas have benefited from steady blowing winds for the abundance of local wind farms. Early projections for next week’s storage report indicate another injection of 40-50 BCF. July is on pace to inject about 220+ BCF of gas into storage. While this monthly figure is lower than what was seen in June, the end of season storage levels is still expected to yield a record of over 4.1 TCF. The natural gas market continues to observe pricing in the oil patch to get a sense of if/when associated gas supply will return to the market. Various oil producers (specifically in the Permian basin) have begun to announce the reopening of closed wells. Depending on timing, the gas market is still likely to face a physical supply glut that might test operational storage limits. This could lead to an even more bearish view of the natural gas market in the short-term. However, while the short-term looks great for end-users with open market exposure, the market still anticipates a much “tighter” physical gas market in 2021. A potentially normal or even below-normal cold winter, coupled with Wall-Street investors holding shale production companies to their promises to tighten drilling budgets in 2021, could boost natural gas prices to levels that the market has not seen in a few years. End-users with open market exposure in 2021 need to mitigate this risk to prevent significant year-over-year cost increase.