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Early Price Drops Hold After EIA Gas Storage Release

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Natural gas storage inventories increased 90 Bcf for the week ending Oct. 5, according to the EIA’s weekly report. This week’s injection is below market expectations, which were 94 Bcf. Before the EIA report was released this morning, the November 2018 contract was trading at $3.191/MMBtu, significantly lower than the November ‘18 close yesterday of $3.284. After the EIA release and at the time of writing, the November ’18 contract was trading at $3.163/MMBtu.

Working gas storage inventories now sit at 2.956 Tcf, which is 627 Bcf below last year and 607 Bcf below the 5-year average.

For the week of 10/1-10/5, November 2018 prices traded in a range from $3.094/MMBtu to $3.230/MMBtu. Prices started the week at the low end of the range at $3.094 but strengthened by mid-week to the weekly highs of $3.23. After the storage report was released last week, prices weakened to $3.165 on Thursday, with the injection being above market expectations, and continued to fall into Friday, closing the week at $3.143. This week, 10/8-10/10, prices have traded in a higher range, with closing prices for the November ’18 contract between $3.266/MMBtu and $3.284/MMBtu.

Production is increasing, storage is at a record low, and the most volatile time of the year is quickly approaching. Within the last week, Transco’s Atlantic Sunrise and NEXUS received in-service approval from FERC. Atlantic Sunrise started service on Sat. Oct 6, with flows increasing ~0.83 Bcf/d on Transco. NEXUS, although received the ok from FERC, has not started service at the time of writing. DI expects these bottleneck reliefs to continue to drive up Northeast production. However, total US production has not yet seen increases due to Hurricane Michael hitting the Gulf of Mexico, offsetting the production gains out of the Northeast. The GoM production is expected to rebound in the coming weeks.

Storage levels for end of season are nearly set in stone, with the expectation of ending season inventories to be at a record low, roughly 3.2-3.3 Tcf. The price volatility the last couple weeks can be attributed to the market’s concern for supply for the winter and certain weather projections showing a potential colder-than-normal winter. The market has become uneasy with the amount of inventory for the winter, questioning if production will be able to cover the deficit.

See the chart below for projections of the end-of-season storage inventories as of Nov. 1, the end of the injection season.

This Week in Fundamentals

The summary below is based on PointLogic’s flow data and DI analysis for the week ending October 11, 2018.

Supply:

  • Dry gas production increased 0.14 Bcf/d on the week. There was significant production movement out of the Northeast (+0.71 Bcf/d) and the GoM (-0.67 Bcf/d). Northeast production gains came from Transco’s Atlantic Sunrise coming online. The GoM production decline is caused by Hurricane Michael and producers shutting down production for precautionary reasons. DI anticipates the GoM to recover these production losses in the coming weeks.
  • Canadian Imports are down 0.25 Bcf/d week-over-week, bringing Canadian Imports to 4.89 Bcf/d.

Demand:

  • Domestic natural gas demand increased 0.38 Bcf/d week-over-week due to heating demand. ResCom increased +0.63 Bcf/d with a slight offset in Power, -0.24 Bcf/d. Total domestic demand increased to 63.77 Bcf/d for the week.
  • LNG exports were down 0.28 Bcf/d week-over-week, while Mexican Exports also decreased 0.14 Bcf/d.

Total supply is down 0.12 Bcf/d and total demand is down 0.02 Bcf/d week-over-week. With the decrease in supply outpacing the decrease in demand, expect EIA to report a weaker injection next week. The ICE Financial Weekly Index report is currently expecting an injection of 83 Bcf for next week. Last year’s injection for the same week was 50 Bcf, while the 5-year average is 76 Bcf.

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