U.S. Natural Gas Market Update from TPH - March 26

[dan_s]

Notes below are from Tudor Pickering Holt Equity Research on March 26, 2021

US Natural Gas Recap
Strong print could be the night cap for withdrawal season
Sector: Macro | Ticker: HHUB | Recommendation: NA | Target: NA | Close: $2.57/mmbtu
A bullish print was a refreshing change from recent trends, with the EIA showing a 36bcf draw from storage, relative to consensus of 22bcf (TPHe 39bcf). This may bring an end to the withdrawal season as our early modeling shows a build of ~12bcf next week, although the week ending April 2 could flip back to a draw on colder weather. If this week does end up concluding the withdrawal season, we finish at a cumulative draw of 2.17tcf, 26% ahead of last year and the highest since the infamous winter of ‘13/’14. More telling is the large cumulative draw comes despite total degree days only 1% ahead of norms, indicating material undersupply in the market. Without material supply growth we expect this undersupply to persist through summer, resulting in a modeled end of injection balance of 3.25tcf. If this prognostication proves to be reasonably accurate, we expect a meaningful rise in summer pricing ($3.00-3.25/mmbtu) in order to drive gas to coal switching and force more gas into storage ahead of winter. On the switching front, latest data points show gas making up ~60.5% of the thermal power stack, in-line with our coal to gas switching model, which predicts 61.2% gas at current prices.

Global Gas Weekly
Europe: The Kevin Koe of Gas Storage (drawing in the 10th)
Sector: Macro | Ticker: TTF | Recommendation: NR | Target: NA | Close: $6.35/mmbtu
In 2020, the final European draw of the season occurred on March 21st, but don’t tell that to 2021 as this year March 21st delivered a robust 11bcf draw. If you weren’t looking at the calendar it would be hard to believe we’re on borrowed time for storage draws, as this week Europe pulled out 70bcf, compared to the 5-year average of 41bcf. Demand has been the driver, as it tracks 7% above the 3-year average and so far isn’t showing any impacts from enhanced lockdown provisions, although demand looks poised to soften on above normal temperatures next week. As forecast, LNG imports to Europe continue to press higher as Asian demand fades, resulting in a YTD high of 10.5bcfd of send out in Europe and we model imports averaging 12.7bcfd in Q2, up from 10.7bcfd last year. While the supply ramp might seem bearish for European pricing, inventories are currently 13% below the 5-year average and 46% below year-ago levels, meaning even record summer imports are unlikely to be sufficient to re-fill Europe’s storage to the 5-year average. The global market is shaping up for a tight summer and potentially an extremely tight winter ‘21/’22, especially given we model no significant capacity adds to the LNG market for the balance of the year.
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MY TAKE: If demand for LNG stays high through Q2 it will be difficult if not impossible for U.S. natural gas storage to get back to the 5-year average before the beginning of the 2021-2022 winter heating season. Each time storage was below the 5-year average heading into winter there has been a spike in natural gas prices with utilities getting into a bidding war for physical supply.