Natural Gas - Tighter Market this winter
Posted: Tue Nov 29, 2016 10:04 am
Notes below are from First Energy Equity Research team on 11-28-2016:
For this week’s report, we are forecasting a withdrawal of 62 bcf. After the
modest (and surprise) withdrawal of last week’s report, it appears that
withdrawals for the current winter heating season are more forcefully getting
underway. Importantly, our estimate is greater than the 5-year average
withdrawal for the week and well ahead of last year’s miserly withdrawal,
helping to further close the surplus for both measures.
Pipe scrape data indicates a significant increase in space heating needs last
week on the order of 7.6 bcf/d versus the prior week, reflecting heating degree
days for the U.S. that were relatively close to normal, the first “near normal”
week so far this heating season. Although other measures of demand saw mild
changes (power and industrial), what remains more important is that U.S.
domestic supply has still shown little sign of improvement, lagging behind last
year’s levels by around 1 bcf/d. With the heating season getting into higher
gear, the market remains structurally undersupplied on our estimates by
around 2 bcf/d. The longer U.S. domestic supplies remain in a near stasis
mode, the tighter the storage season will become with greater calls to storage
sites (and Canadian imports).
With the rapid turnaround that has been seen for prices, we believe the
market is now acknowledging both a pattern shift in the weather (colder for
most areas) and the recognition that U.S. domestic supplies have yet to show
up to the party. Barring another sudden reversal in weather outlooks (always
possible), we think prices have correctly reacted higher and may still be
undervaluing the 2017 market by 15 to 25 cents at present.
We expect that there could be some improvement in U.S. supplies during the
month of December as several pipeline additions will be adding upwards of 1
bcf/d of deliverability from the Marcellus/Utica region heading to the Midwest
and the South. Although this could finally push supplies higher, there is also
the incremental demand growth components of LNG exports (not occurring at
this time last year) and higher exports of gas to Mexico that are helping to
create a structurally tighter market. As such, do not expect an immediate price
negative reaction should U.S. supplies start to show upward movement,
especially if weather forecasts also start to turn colder.
Based on forecast degree days, we expect next week’s report to show a
withdrawal between 35 and 45 bcf.
For this week’s report, we are forecasting a withdrawal of 62 bcf. After the
modest (and surprise) withdrawal of last week’s report, it appears that
withdrawals for the current winter heating season are more forcefully getting
underway. Importantly, our estimate is greater than the 5-year average
withdrawal for the week and well ahead of last year’s miserly withdrawal,
helping to further close the surplus for both measures.
Pipe scrape data indicates a significant increase in space heating needs last
week on the order of 7.6 bcf/d versus the prior week, reflecting heating degree
days for the U.S. that were relatively close to normal, the first “near normal”
week so far this heating season. Although other measures of demand saw mild
changes (power and industrial), what remains more important is that U.S.
domestic supply has still shown little sign of improvement, lagging behind last
year’s levels by around 1 bcf/d. With the heating season getting into higher
gear, the market remains structurally undersupplied on our estimates by
around 2 bcf/d. The longer U.S. domestic supplies remain in a near stasis
mode, the tighter the storage season will become with greater calls to storage
sites (and Canadian imports).
With the rapid turnaround that has been seen for prices, we believe the
market is now acknowledging both a pattern shift in the weather (colder for
most areas) and the recognition that U.S. domestic supplies have yet to show
up to the party. Barring another sudden reversal in weather outlooks (always
possible), we think prices have correctly reacted higher and may still be
undervaluing the 2017 market by 15 to 25 cents at present.
We expect that there could be some improvement in U.S. supplies during the
month of December as several pipeline additions will be adding upwards of 1
bcf/d of deliverability from the Marcellus/Utica region heading to the Midwest
and the South. Although this could finally push supplies higher, there is also
the incremental demand growth components of LNG exports (not occurring at
this time last year) and higher exports of gas to Mexico that are helping to
create a structurally tighter market. As such, do not expect an immediate price
negative reaction should U.S. supplies start to show upward movement,
especially if weather forecasts also start to turn colder.
Based on forecast degree days, we expect next week’s report to show a
withdrawal between 35 and 45 bcf.