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Stronger-than-Expected Gas Storage Build


Natural gas storage inventories increased by 75 Bcf for the week ended May 19, per EIA. The build came above market expectations, which were calling for a 71-Bcf increase in stocks. The full range of forecasts was between 65 Bcf and 82 Bcf. The report is bearish and the prompt contract (June 2017) is down 2 cents following the release at $3.181 per MMBtu, at time of writing.
Working gas storage inventories increased to 2.444 Tcf, level 371 Bcf below last year but 241 above the 5-year average. See Drillinginfo EIA’s chart below. This graphic shows projections for end-of-season inventories as of Nov 1. Two scenarios are included for summer injections (April-Oct) that result in inventories between 3.6 Tcf and 4.2 Tcf.

Natural Gas Fundamentals Overview

Supply: Natural gas production is flat from last week and remains strong at about 70.9 Bcf/d. Canadian imports are down pushing total supply lower by 0.4 Bcf/d from last week.
Demand: mild temperatures are causing total demand to drop by 1.5 Bcf/d from last week, led by losses on Power Burn. LNG exports have dropped over 0.7 Bcf/d over the past 2 days due to maintenance on Cheniere’s header pipeline, Creole Trail. The maintenance is at the interconnect with TETCO at Gillis Compressor Stations, which is expected to be completed by the end of the month.
Storage: demand weakness will bring storage injections in the 70-80 Bcf over the next couple of weeks, which are in line with last year’s activity. However, these injections are about 10 Bcf/week lower than the 5-year average, which will help continue to close the inventory gap to the 5-year average inventories.

Gas Production Increases in May and Implications For the Rest of the Summer

Dry natural gas production is showing gains of about 1 Bcf/d in May compared to April. As explained in Monday’s Market Bulletin, while some of the gains are explained by the return of production from maintenance projects, Drillinginfo estimates 500 MMcf/d comes from new production during the last month. Most of the new production comes from the Permian and Haynesville basins and offsets other basins’ declines. Some of this new production was the by-product of hedges when prices rallied in late 2016 and various rallies in 2017 (open interest in the commercial short position has gained from 180,314 contracts in early Oct 2016 to over 343,000 contract currently), however this growth will have to continue throughout the summer months to allow for 3.7 Tcf in storage by the end of Oct.

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