The EIA announced a 43 Bcf withdrawal for the week ended March 24. The full range of forecasts ahead of the release was between 28 and 55 Bcf draw. Natural gas forward prices opened ~3 cents lower ahead of the release and extended the losses temporarily to 4 cents after the EIA report. The prompt contract (May2017) is trading at $3.179 per MMBtu, at time of writing.
Working gas storage inventories dropped to 2.049 Tcf and remain below last year and 5-year high levels by 423 Bcf. However, inventories remain above the 5-year average this week by 255 Bcf. With only one week remaining of the official withdrawal season, inventories will end just below the 2.1 Tcf level as a small injection (~10-20 Bcf) is expected for next week’s EIA report.
See Drillinginfo EIA’s chart below. This graphic has been updated to project end-of-season inventories as of Nov 1. Two scenarios are included for summer injections (April-Oct):
1) 5-year average injections: under this scenario, storage inventories will be refill at its maximum and reach a new high of 4.2 Tcf. If injections track closely to those seen over the past 5 years, natural gas prices will decline from current levels.
2) 2016 weak injections: if storage activity is similar to that seen in 2016, inventories will end at 3.5 Tcf or near record lows. Based on current supply and demand figures, this is a likely scenario and supports Drillinginfo call for higher than current forward prices to incentive drilling activity. Dry gas production remains weak at 70-71 Bcf/d, a decline of over 2 Bcf/d from last year. Demand is expected to be at the same levels or higher than last year. Power burn will be lower in 2017 compared to 2016 due to less fuel switching on higher gas prices (less competitive with coal). However, LNG and Mexico exports are already higher with more capacity available to move gas from the US via pipeline and Cheniere bringing online Trains 3 and 4.
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