Weekly Natural Gas Storage – 3/23/17

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The EIA announced a 150 Bcf withdrawal for the week ended March 17, which is in line with market expectations. The full range of forecasts ahead of the release was between 127 and 170 Bcf draw. Natural gas forward prices opened 2 cents higher ahead of the release and extended gains to 3-4 cents after the EIA report. The prompt contract (April2017) is trading at $3.047 per MMBtu, at time of writing.

Working gas storage inventories dropped to 2.092 Tcf and remain below last year and 5-year high levels by 399 Bcf. However, inventories remain above the 5-year average this week by 266 Bcf. See Drillinginfo EIA’s chart below. Two storage reports remain of the traditional withdrawal season (Nov-March), which will leave inventories relatively unchanged from current levels as a small withdrawal is expected next week followed by an injection on the last week of March.

Weekly Natural Gas Storage – 3/23/17

Natural gas prices are back to levels above $3.00 /MMBtu with an average of $3.22 for the rest of 2017. Dry gas production average less than 70.5 Bcf/d so far this year (3months) and over the past 6 months. This average has not been seen in the last two years as production averaged 71.5 Bcf/d in 2016 and 72.7 Bcf/d in 2015. Other important factors negatively affecting the supply outlook are the rig count and DUCs.

  • The rig count has been on the rise but remains at levels significantly below 2014 when production growth started to materialized. In 2014, production averaged 69.4 Bcf/d and increased to 72.7 Bcf/d in 2015, a 3 Bcf/d increase.
  • DUC wells, which are basically underground storage are down over 40% in the last 6 months.
  • While production is declining, natural gas demand is growing. Cheniere has now 3 trains in service and a fourth being commissioned. LNG exports are reaching record highs almost every month. MX exports and Power demand are also increasing.

    The outlook for natural gas is therefore bullish and the recent mild winter only delayed the need of higher prices.

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