Gas Prices Continue Trading on Winter Weather and Production Growth Expectations

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Natural gas storage inventories increased by 65 Bcf for the week ended Oct. 27, per EIA. The injection was in line with most market expectations of an injection in the mid 60s. However, the prompt month contract (Dec17) is trading up $0.045 to $2.938 per MMBtu, at time of writing.

Working gas storage inventories increased to 3.775 Tcf, level 180 Bcf below last year and also below the 5-year average by 41 Bcf.

The chart attached has been updated to start projecting end-of-season storage inventories as of April 1 or the end of the withdrawal season. However, storage injections are expected to continue well into November as demand remains relatively mild keeping a lid on demand gains and therefore failing to surpass production.

Gas Prices Continue Trading on Winter Weather and Production Growth Expectations

This Week In Fundamentals
The summary below is based on PointLogic’s flow data and DI analysis for the week ending 11/02.

• Supply: natural gas dry production is up this week 170 MMcf/d, while Canadian imports are down 160 MMcf/d. The production gains happened mainly at the end of the month, but November production increases due to additional pipeline takeaway capacity has not materialized yet.

• Demand: cooler temperatures continue to push residential/commercial demand higher. Total demand is up 6.0 Bcf/d including a gain of 6.7 Bcf/d from the res/com sector while power demand decreased 1.3 Bcf/d.

• Total supply is relatively flat week-on-week, up 60 MMcf/d. Total demand is up 6.0 Bcf/d. The market is shorter again this week, therefore expect a significant smaller injection in next week’s EIA release.

Looking ahead, there are two drivers the natural gas market is currently watching:
1) Weather. Every winter, weather forecasts is the main factor driving prices in the US. This year is no exception. However, there is a second sector playing a key role, listed as #2 below.
2) Marcellus/Utica production growth. Pipeline takeaway capacity constraints are expected to be a thing of the past this winter, which will allow significant production growth from the Marcellus/Utica basin. Drillinginfo expects gains to be north of 1.5 Bcf/d over the next two months. These gains are directly linked to pipeline projects coming online. Columbia projects, Rayne Xpress and Leach Xpress are currently waiting for FERC authorization to start service. Transco Atlantic Sunrise and Rover have started service with partial capacity already, but additional capacity will come online in December. TETCO Access South also started partial service.

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