Posted: Nov. 05th 2020
Research Natural Gas Storage Report – 5 November 2020
US natural gas inventories decreased by 36 Bcf for the week ending October 30, compared with the five-year (2015–19) average net increase of 52 Bcf. Working gas stocks total 3,919 Bcf, which is 201 Bcf higher than the five-year average and 200 Bcf higher than last year at this time. Analysts’ expectations had been for a withdrawal of 31 Bcf. It is unusual to see a withdrawal at the end of October. But based on the strong cold front that encompassed most of the major consuming regions for this reporting week, heating degree demand was expected. All the incremental gas demand and flat supply implied a withdrawal. ResCom demand jumped a whopping 56% week over week. LNG feedgas demand, which averaged 9.5 BCF for the week, was also up 15% week over week. However, as quickly as the cold moved in, it moved out and gave way to well above normal weather conditions for most of the country. This trend is expected to be in place for the next few weeks. Based on known data thus far this week, the reporting week ending 11/6 and week ending 11/13 may both yield small injections. If longer-dated outlooks hold true, weekly injections could be seen until the Thanksgiving holiday. This is short-term bearish news coupled with existing high levels of storage inventory could continue to pressure December futures down some. Since taking over as the prompt month after Nov20 expired at $2.996, the Dec20 contract opened trading as the lead contract at $3.28 and has already traded in a $2.93-$3.40 range. Volatility is indeed alive and well at the front end of the natural gas forward curve. While sentiment might be a bit bearish in the short-term, the longer-term outlook still looks very bullish. LNG demand posted its highest daily level at 10.4 BCF earlier this week. The maximum capacity at US LNG plants indicates that there is still room for another .5-1 BCF/day of daily demand potential. The US’s domestic supply is at about 90 BCF/day and remains well below a year ago levels of almost 96 BCF/day. With stable LNG demand and record-high levels of pipeline exports into Mexico, exports will play a key role in keeping natural gas prices well supported for the next few months. Assuming a more “normal” winter occurs, the existing comfortable level of storage could end the heating season at only around 1.4 TCF. Assuming flat growth, strong export demand and cooling demand for next summer (all are expected), it is possible that working levels of gas storage entering next winter 2021/2022 could be under 3 TCF as gas struggles to make it into storage next year. This poses a significant threat to 2022 NYMEX futures. The bottom line is that natural gas prices have more upside risk than downside gain in the long term. End users with exposure to NYMEX pricing in either 2021 or 2022 need to cover that exposure. Otherwise, they will risk both higher and extremely volatile pricing in certain contract months.