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October 12, 2018

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Natural Gas Pulls Back After The EIA Reports Neutral Storage Injection Amidst Tumultuous US Markets, Profit-Taking, And Volatile Computer Model Outlook; Gas Demand Continues To Rise Today As Arctic Air Makes Its Presence Known Across The Plains; Neutral Storage Injection Expected This Week Before Very Bullish Build Next Week


6:00 AM EDT, Friday, October 12, 2018
In its weekly Natural Gas Storage Report for the week of September 29-October 5, the EIA announced Thursday afternoon that natural gas inventories rose by +90 BCF. This was equal to both my projection and the 5-year average--about as neutral as you can get. With the +90 BCF build, natural gas inventories rose to 2956 BCF while the storage deficit versus the 5-year average held steady at -607 BCF. The year-over-year deficit contracted slightly to -627 BCF. On the bearish side, the East and Midwest regions saw injections of +27 BCF and +35 BCF, 6 BCF bearish and 4 BCF bearish, respectively. The storage deficit in the East Region is now just -79 BCF or -9%, the smallest percentage deficit of any region by a huge margin, 4% behind the Midwest in second place at -13%. The East Region--and to an extent the Midwest Region--has been consistently injecting at above the 5-year average throughout the late summer and Fall due to takeaway capacity constraints, with booming Marcellus and Utica shale production, but limited pipeline infrastructure to transport the gas to other markets. This is changing, beginning with the Atlantic Sunrise pipeline which came online in early October and can transport 1 BCF/day of gas from the Marcellus shale to the Mid-Atlantic and Southeast. On the other side of the coin, the South Central Region saw another bullish +25 BCF injection, 3 BCF smaller than the 5-year average. This region has the largest storage deficit on an absolute and percentage basis at -285 BCF or -25%. The region has benefited from consistent demand from the Sabine Pass LNG export plant on the Texas/Louisiana border as well as strong powerburn demand throughout the summer. Click HERE for more on this week's EIA inventory report. With the early-season arctic outbreak potentially preventing inventories from even topping 3200 BCF this year, I do now feel that sub-$3.00/MMBTU is off the table for the foreseeable future. Click HERE for more on current natural gas inventories.


Natural gas demand will rise today as unseasonably chilly temperatures drive early-season heating demand across the Heartland. After falling into the low 30s this morning, Chicago, Des Moines, and Kansas City will all struggle into the mid-40s today, around 20F below-average. These are temperatures more typical of early November, or the first weeks of the withdrawal season. Further east, in the wake of the remnants of Hurricane Matthew, highs across the mid-Atlantic and Northeast will flip from unseasonably warm to seasonably cool, no longer driving cooling demand but not cold enough to support significant heating demand. Highs from Philadelphia to New York City will be in the low-to-mid 60s today, around 5F below-average. Overall, the forecast mean population-weighted nationwide temperature today will continue to cool down, falling another 5.4F day-over-day to 59.6F, 2.1F below-average. Forecast Total Degree Days today will rise to 9.4 TDDs today, 1.5 TDDs greater than normal and the 9th most for October 12 in the last 37 years since 1981. Click HERE for more on today's temperature and degree day outlook. Based on this forecast and early-cycle pipeline data, I am projecting a +9 BCF/day daily natural gas storage injection, 2 BCF smaller than Thursday's build and 2 BCF bullish versus the 5-year average +11 BCF/day injection. Click HERE for more on today's projected daily injection and Realtime natural gas inventories.


For the natural gas storage week of October 6-12 that ends today, I am projecting a preliminary +81 BCF storage injection. For a second straight week, such a build would be nearly neutral, just 2 BCF larger than the 5-year average +79 BCF injection. However, it would be a robust 26 BCF bearish versus the 5-year average. As a result, the year-over-year deficit will contract to -602 BCF while the storage deficit versus the 5-year average will hold nearly steady at -606 BCF, the first time that the deficit versus 2017 has been the smaller of the two since last winter. As the Figure to the right shows, a +81 BCF storage injection would be the third largest in the last 5 years, behind only +91 BCF and +94 BCF injections in 2015 and 2014, respectively. The neutral build was driven by the combination of strong cooling demand across the Eastern US for the first half of the week followed by strong heating demand across the Central US to wrap up the week, all in the setting of record production. Additionally, nuclear outages remained near 5-year highs throughout the week, driving natural gas substitution to over 4 BCF/day, more than 1 BCF/day higher than last year. However, more than half of these gains were offset by the shutdown of the 0.75 BCF/day Cove Point LNG export plant which was shuttered through Thursday for scheduled maintenance, with flows rebounding to 0.36 BCF/day to wrap up the week. The EIA will release its official storage numbers for the week next Thursday, October 18, at 10:30 AM EDT. Click HERE for more on this week's projected storage injection.


Looking ahead to next week, I project that natural gas demand will soar as unseasonably cold to record cold air is reinforced. The coldest day of the week looks to be Monday when a potential wintry mix and highs only in the 30s to low 40s--30F below-average--will be widespread across West Texas and adjacent states. As the Figure to the right shows, daily injections could fall as low as +5 BCF/day--more than 6 BCF/day bullish versus the 5-year average. While injections will rise during the second half of the week as temperatures moderate, I expect demand to be at or above-average throughout the week. At this time, I am projecting a preliminary +48 BCF weekly storage injection, 29 BCF bullish versus the 5-year average and the single smallest injection for the October 13-19 period in the last 5 years. Such an injection would drive the storage deficit versus the 5-year average to a new multi-year high of around -634 BCF. This just goes to show that, even with production up more than 10 BCF/day year-over-year, if temperatures are cold enough, it won't matter how imbalanced supply and demand are. It is this fact that is motivating many natural gas bulls to get long the commodity despite how otherwise unfavorable the market looks on paper. Click HERE for more on next week's projected inventory build.