Working gas in storage was 1,443 Bcf as of Friday, February 14, 2014, according to EIA estimates. This represents a net decline of 250 Bcf from the previous week. Stocks were 975 Bcf less than last year at this time and 741 Bcf below the 5-year average of 2,184 Bcf. In the East Region, stocks were 364 Bcf below the 5-year average following net withdrawals of 129 Bcf. Stocks in the Producing Region were 277 Bcf below the 5-year average of 806 Bcf after a net withdrawal of 91 Bcf. Stocks in the West Region were 100 Bcf below the 5-year average after a net drawdown of 30 Bcf. At 1,443 Bcf, total working gas is below the 5-year historical range.
Very Bullish. Storage is now sure to dip under 1,000 bcf by end of March and may dip under 800.
I doubt that ngas will stay over $6 but it may stay over $5 for months until it becomes clear that storage will refill.
Natural Gas Storage Report - Feb 20
Natural Gas Storage Report - Feb 20
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Natural Gas Storage Report - Feb 20
Citi is revising its 2014 US daily Henry Hub natural gas price forecast from $3.7/MMBtu (set in Nov’13) to $5.0/MMBtu. $5 gas would be needed to both cut demand and perhaps incentivize more production. A much colder than normal winter sharply drew down gas inventories, pushing the expected end-of-March storage below 1-Tcf, which was last seen in 2003 when March prices spiked to $9.5. Citi is keeping prices in 2015 at $4.5, 2016 and 2017 at $4.9, and 2018 at $5.5.
· The backwardation seen in the front of the forward curve should continue to roll forward because (a) the competition for gas supply for normal consumption and storage refill should keep the front tight and (b) the hope that more production would come on over time could loosen the balance later. For our analysis, we assume the 14-day weather outlook and normal weather afterwards.
· Four key factors contribute to the supply-demand balance tightening: 1) low gas inventories; 2) low Northeast prices boosting demand; 3) low West Coast hydro increasing gas-fired generation and 4) low Canadian gas storage limiting gas exports to the US. In particular, although the cold winter also depleted storage in the East region, partially alleviating the Marcellus/Utica production glut, prices there remain low, making gas-fired generation very competitive vs. coal, keeping gas demand elevated. To reduce coal-gas switching, NYMEX or Henry Hub prices might have to edge higher to pull up Northeast prices to damp continued coal-to-gas switching in the region. See “ US Northeast Gas Glut” for an extensive examination of Marcellus/Utica production, demand, pipe capacity and pricing.
· Lower Canadian gas storage and low West Coast hydro generation should boost West Coast and Western Canadian gas prices higher, where AECO prices could go to Henry Hub level in spring and summer. To retain gas for storage refill in Canada, Canadian gas exports to the US should fall year-on-year.
· Four factors could partially mitigate the tightness: (1) low gas storage in the Northeast helping to debottleneck constrained Marcellus/Utica production; (2) increased producer gas drilling activities in the US; (3) higher gas rig counts in Canada raising production and (4) gas-to-coal switching coming to a partial rescue. Some form of producer response should take place (e.g. a producer added rigs in Haynesville). But it is unclear what price levels would encourage producers to return to gas drilling. Producers may want to see forward prices elevated for a sustained period of time before committing to increase drilling.
· Higher prices should reduce gas-fired generation demand and coal-gas switching but only by a small amount. The complication would be low Northeast prices boosting demand. A gas price rise from $4.5 to $5 should reduce gas demand by about 0.8-Bcf/d, but this increase might be offset by lower West Coast hydro generation using gas-fired generation as a substitute. There could be further complication to the switching response due to low inventories of other energy sources, so producers may choose to produce more liquids instead, for example.
· The backwardation seen in the front of the forward curve should continue to roll forward because (a) the competition for gas supply for normal consumption and storage refill should keep the front tight and (b) the hope that more production would come on over time could loosen the balance later. For our analysis, we assume the 14-day weather outlook and normal weather afterwards.
· Four key factors contribute to the supply-demand balance tightening: 1) low gas inventories; 2) low Northeast prices boosting demand; 3) low West Coast hydro increasing gas-fired generation and 4) low Canadian gas storage limiting gas exports to the US. In particular, although the cold winter also depleted storage in the East region, partially alleviating the Marcellus/Utica production glut, prices there remain low, making gas-fired generation very competitive vs. coal, keeping gas demand elevated. To reduce coal-gas switching, NYMEX or Henry Hub prices might have to edge higher to pull up Northeast prices to damp continued coal-to-gas switching in the region. See “ US Northeast Gas Glut” for an extensive examination of Marcellus/Utica production, demand, pipe capacity and pricing.
· Lower Canadian gas storage and low West Coast hydro generation should boost West Coast and Western Canadian gas prices higher, where AECO prices could go to Henry Hub level in spring and summer. To retain gas for storage refill in Canada, Canadian gas exports to the US should fall year-on-year.
· Four factors could partially mitigate the tightness: (1) low gas storage in the Northeast helping to debottleneck constrained Marcellus/Utica production; (2) increased producer gas drilling activities in the US; (3) higher gas rig counts in Canada raising production and (4) gas-to-coal switching coming to a partial rescue. Some form of producer response should take place (e.g. a producer added rigs in Haynesville). But it is unclear what price levels would encourage producers to return to gas drilling. Producers may want to see forward prices elevated for a sustained period of time before committing to increase drilling.
· Higher prices should reduce gas-fired generation demand and coal-gas switching but only by a small amount. The complication would be low Northeast prices boosting demand. A gas price rise from $4.5 to $5 should reduce gas demand by about 0.8-Bcf/d, but this increase might be offset by lower West Coast hydro generation using gas-fired generation as a substitute. There could be further complication to the switching response due to low inventories of other energy sources, so producers may choose to produce more liquids instead, for example.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group