Gas Injection Below Expectation While LNG Export Demand Weakens

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Natural gas storage inventories increased 70 Bcf for the week ending April 24, according to the EIA’s weekly report. This was slightly below the expected injection of 74 Bcf.

Working gas storage inventories now sit at 2.210 Tcf, which is 783 Bcf above inventories from the same time last year and 360 Bcf above the five-year average.

Prior to the storage report’s release, the June 2020 contract was trading at $1.875/MMBtu, roughly $0.006 above yesterday’s close. The May 2020 contract closed earlier this week at $1.794. After the release of the report and at the time of writing, the June 2020 contract was trading slightly higher, jumping to $1.885/MMBtu.

As the crude oil industry copes with the demand hit from COVID-19 and wonders when things will get back to normal, the US LNG export industry is also feeling the hit as global demand for the liquefied gas has diminished in the last month due to the pandemic. Just a little over a month ago, LNG exports reached an all-time high, with ~9.44 Bcf flowing to terminals. However, demand destruction has caused reduced flows to LNG terminals, leaving the month of April averaging ~8.12 Bcf/d of exports and yesterday showing ~7.37 Bcf of exports. Recently, some LNG importers in Asia and Europe, including Kogas, Tokyo Gas, CNOOC, Petronas, and Petronet, have announced deferrals in response to the COVID-19 demand fall out. As the world continues to get through the pandemic and begins to reopen, demand for LNG will rebound, but it will not likely rebound to pre-pandemic levels until at least late 2020.

Gas Injection Below Expectation While LNG Export Demand Weakens

 

 

 

 

 

 

 

 

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

Gas Injection Below Expectation While LNG Export Demand Weakens

This Week in Fundamentals

The summary below is based on Bloomberg’s flow data and Enverus’ analysis for the week ending April 30.

Supply:

  • Dry natural gas production decreased 1.29 Bcf/d on the week. Decreases in the South Central (-0.59 Bcf/d), Mountain (-0.49 Bcf/d), and East (-0.19 Bcf/d) regions account for the production drop.
  • Canadian net imports decreased 0.50 Bcf/d as exports to Canada picked up in the Midwest.

Demand:

  • Domestic natural gas demand decreased 6.16 Bcf/d week over week. Res/Com demand accounted for the majority of the decrease, dropping 5.77 Bcf/d on the week, while power demand also fell 0.71 Bcf/d. Industrial demand saw an increase of 0.32 Bcf/d on the week.
  • LNG exports decreased 0.67 Bcf/d on the week largely due to decreased flows at Sabine and Corpus Christi, while Mexican exports decreased 0.67 Bcf/d.

Total supply decreased 1.79 Bcf/d, while total demand decreased 7.26 Bcf/d week over week. With the decrease in demand outpacing the decrease in supply, expect the EIA to report a stronger injection next week. The ICE Financial Weekly Index report is currently expecting an injection of 94 Bcf. Last year, the same week saw an injection of 85 Bcf; the five-year average is an injection of 77 Bcf.