My Take on the U.S. natural gas market - Apr 10
Posted: Sun Apr 10, 2022 9:54 am
Susan & I were in vacation in Puerto Vallarta, Mexico April 3-9 with 4 other couples and we had a great time. Now I have a lot of work to do to catch up. First let me say that the airport in Houston on April 3 and the airport in PV on April 9 were totally packed. This tells me that Americans are traveling and demand for jet fuel is going way up.
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EIA's natural gas storage report on Thursday was a strong signal that tells me that natural gas and NGL prices will remain high all year. In fact, we may see double digit natural gas prices in Q3. Remember, natural gas prices are set by regional supply & demand. Natural gas prices in Europe and Asia are 5X higher than in North America.
EIA's report on Thursday, April 8:
"Working gas in storage was 1,382 Bcf as of Friday, April 1, 2022, according to EIA estimates.
This represents a net decrease of 33 Bcf from the previous week.
Stocks were 399 Bcf less than last year at this time and 285 Bcf below the five-year average of 1,667 Bcf.
At 1,382 Bcf, total working gas is within the five-year historical range."
What's so bullish?
> April 1st is considered the beginning of the storage refill season. Starting the refill season with a deficit of 285 Bcf is a BIG DEAL. The 5-year average storage build for the month of April is 224 Bcf. If LNG exports remain near U.S. export capacity, there is NO WAY that the storage build for April this refill season will be over the average. So, the deficit to the 5-year average should be even larger heading in to May.
> Refilling the U.S. natural gas storage network is NOT OPTIONAL. We MUST refill storage to at least 3,500 Bcf to make it through a normal winter.
> One week's storage report can be misleading, so you need to take a look at what's happened over the last 13 weeks (a quarter of the year). The net change in U.S. natural gas storage over the 13 weeks ending April 1, 2022 was -377 Bcf larger than the 5-year average. That is a HUGE difference.
> For the week ending April 8, the 5-year average build is 43 Bcf. It was colder than normal in the Great Lakes region last week, so we should see a much smaller build this year and maybe a small draw from storage. A draw could push the NYMEX strip over $7.00.
> May is the peak month of the refill season with a 5-year average build of 410 Bcf. I doubt this year's build for May comes close to that. So, we could see a storage deficit of more than 400 Bcf heading into June when demand for power generation ramps up.
> LNG exports will stay high all summer because Europe and Asia will continue to be in a bidding war for LNG cargos. BTW Old Joe's promise to send more natural gas to Europe is meaningless. Joe Biden has no control of where LNG cargos end up. They go to the highest bidder.
> U.S. natural gas production has not increased much over the last two years.
CONCLUSION: EIA's weeking storage reports will be the PRIMARY DRIVER OF THE GAS PRICE. We are one heat wave or one Gulf of Mexico hurricane away from $10/MMBtu gas in the U.S. market.
PS: The "Mother of all Bidding Wars" has just started. The U.S. gas market is now being sucked into the War for gas supply. It may take years for gas supply to catch up to global demand for gas. BTW this is very bullish for coal.
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EIA's natural gas storage report on Thursday was a strong signal that tells me that natural gas and NGL prices will remain high all year. In fact, we may see double digit natural gas prices in Q3. Remember, natural gas prices are set by regional supply & demand. Natural gas prices in Europe and Asia are 5X higher than in North America.
EIA's report on Thursday, April 8:
"Working gas in storage was 1,382 Bcf as of Friday, April 1, 2022, according to EIA estimates.
This represents a net decrease of 33 Bcf from the previous week.
Stocks were 399 Bcf less than last year at this time and 285 Bcf below the five-year average of 1,667 Bcf.
At 1,382 Bcf, total working gas is within the five-year historical range."
What's so bullish?
> April 1st is considered the beginning of the storage refill season. Starting the refill season with a deficit of 285 Bcf is a BIG DEAL. The 5-year average storage build for the month of April is 224 Bcf. If LNG exports remain near U.S. export capacity, there is NO WAY that the storage build for April this refill season will be over the average. So, the deficit to the 5-year average should be even larger heading in to May.
> Refilling the U.S. natural gas storage network is NOT OPTIONAL. We MUST refill storage to at least 3,500 Bcf to make it through a normal winter.
> One week's storage report can be misleading, so you need to take a look at what's happened over the last 13 weeks (a quarter of the year). The net change in U.S. natural gas storage over the 13 weeks ending April 1, 2022 was -377 Bcf larger than the 5-year average. That is a HUGE difference.
> For the week ending April 8, the 5-year average build is 43 Bcf. It was colder than normal in the Great Lakes region last week, so we should see a much smaller build this year and maybe a small draw from storage. A draw could push the NYMEX strip over $7.00.
> May is the peak month of the refill season with a 5-year average build of 410 Bcf. I doubt this year's build for May comes close to that. So, we could see a storage deficit of more than 400 Bcf heading into June when demand for power generation ramps up.
> LNG exports will stay high all summer because Europe and Asia will continue to be in a bidding war for LNG cargos. BTW Old Joe's promise to send more natural gas to Europe is meaningless. Joe Biden has no control of where LNG cargos end up. They go to the highest bidder.
> U.S. natural gas production has not increased much over the last two years.
CONCLUSION: EIA's weeking storage reports will be the PRIMARY DRIVER OF THE GAS PRICE. We are one heat wave or one Gulf of Mexico hurricane away from $10/MMBtu gas in the U.S. market.
PS: The "Mother of all Bidding Wars" has just started. The U.S. gas market is now being sucked into the War for gas supply. It may take years for gas supply to catch up to global demand for gas. BTW this is very bullish for coal.