January 17, 2017

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Natural Gas Pulls Back To A 10-Day Low After EIA Reports Modestly Bearish -53 BCF And Supply/Demand Balance Loosens; Natural Gas Falls To Finish The Week, But Exceptionally Strong Weekly Withdrawal Still Anticipated; LNG Feedgas Deliveries Wrap Up Strongest Week Yet

6:00 AM EDT, Friday, March 17, 2017
In its weekly Natural Gas Storage Report for March 4-10, the EIA announced Thursday afternoon that natural gas inventories fell by -53 BCF. The withdrawal was 5 BCF smaller than my -58 BCF projected withdrawal. The withdrawal was also 32 BCF bearish versus the 5-year average, but 44 BCF larger than last year's anemic -9 BCF withdrawal. This placed it tied with 2012 for the second smallest withdrawal in the past 5-years.

On the bearish side, the South Central Region saw an ugly 5 BCF storage injection versus the 5-year average -21 BCF draw. Inventories in the South Central Region now stands at a hefty +256 BCF or +36% above the 5-year average, which is the most bearish region in the nation, responsible for over 60% of the nationwide surplus on its own.

The East Region, on the other hand, saw a strong -36 BCF weekly withdrawal, 8 BCF bullish versus the 5-year draw. The bullish withdrawal was likely driven by exceptionally strong demand on the first Saturday and Sunday of the week as a potent arctic airmass brought a brief period of record cold to the region. Inventories in the East Region now stand within 1 BCF of their 5-year average, a spread that I expect will surge to a storage sizable deficit after next week's likely historically bullish report. At 2242 BCF, natural gas inventories stood at +395 BCF or +21% as of March 10, which was the largest storage surplus since early August 2016. The surplus is up over 450 BCF to start 2017 after a near record warm January, February, and first week of March after a storage deficit had grown as large as -79 BCF in late December. Through the first 17 weeks of the storage withdrawal season, natural gas inventories have declined by -1805 BCF, which is 148 BCF less than the 5-year average. This ranks as the 3rd smallest season-to-date withdrawal in the last 5-years (after reaching as high as the second largest in mid-December) and the 10th most bearish in the full 22-year period for which EIA storage data is available.

See more on Current Natural Gas Inventories HERE.

When temperature is eliminated as a variable, the withdrawal was an estimated 0.1 BCF/day loose versus the 5-year average, the first time that the calculated supply/demand balance was loose since Spring of 2016. While this could certainly be a 1-week anomaly, it could just as well be an evolving trend driven by record wind generation and 5-year low nuclear reactor outages. This could become a significant headwind as we move into the summer cooling season and the impact of these variables on Powerburn significantly curtails daily demand. Overall, this was a neutral report falling within analyst expectations, although I skew it slightly to the bearish side given the temperature-independent implied loosening of supply/demand balance. Following the report, natural gas fell 8 cents or 2.6% to settle at $2.90/MMBTU, the lowest close since March 8. Following the pullback and further rapid decline in the storage surplus amidst the last gasps of the most recent arctic invasion, natural gas is now trading at a small 1% undervaluation versus its instantaneous Fair Price based on the current storage surplus alone. This time last week, the commodity was at an over 7% overvaluation. The commodity is also undervalued by 3% versus its long-term 8-month Fair Price. This all suggests that natural gas may be reaching the lower bounds of its trading range.

Natural gas demand will finish an otherwise extraordinary week on a low note today as temperatures begin to more quickly rebound. High temperatures across the central Plains and Midwest will rise 10F day-over-day with highs reaching the mid-60s from Omaha, to Kansas City, to St Louis, 10F-15F warmer than average. Further north, highs will reach into the low-to-mid 40s from the Dakotas to Minnesota and Wisconsin, near average and around 5F warmer day-over-day. Below-average temperatures will persist along the Eastern Seaboard today, but will begin to relax their iron grip on the region. Across the interior, highs will rise into the upper 20s to lower 30s--5F-10F warmer day-over-day--while highs along the Megalopolis will hold steady in the upper 30s, 10F-15F colder than average. Overall, the forecast mean population-weighted nationwide temperature will rise more than 4F day-over-day to 48.3F today, still 1.2F colder than average. Based on this outlook and early-cycle pipeline data, I am projecting a -11 BCF daily natural gas withdrawal today, 10 BCF smaller than yesterday, but still a bullish 8 BCF larger than the 5-year average of -3 BCF/day. See more on today's projected withdrawal and intraday inventory levels HERE.

For the storage week of March 11-17 ending today, I am projecting an exceptionally bullish preliminary -162 BCF weekly storage withdrawal. Such a withdrawal would be 141 BCF bullish versus the 5-year average and 175 BCF bullish versus last year's +13 BCF build. It would be the largest withdrawal in the last 5 years by a whopping 91 BCF margin over 2013's -71 BCF withdrawal as well as being the largest withdrawal in the full 22 year period for which EIA data is available, handily over 1998's -111 BCF draw. It would also be the largest withdrawal this winter since way back on January 13. Should it verify, natural gas inventories would fall to 2081 BCF while the storage surplus versus the 5-year average would fall to +255 BCF or +14%. The year-over-year deficit would surge to -410 BCF or -16%, a multi-year high. The EIA will release its official Storage Report for this week on Thursday, March 23. This remains a preliminary projection and will be revised further over the next 4 days. For more details, see my weekly natural gas storage page HERE.

Looking ahead to next week, natural gas demand will continue to slump as temperatures moderate further, but the week should still squeak out a bullish withdrawal, although it looks considerably less bullish today than earlier in the week. The densely-populated Northeast and Mid-Atlantic look to remain at or below average through the weekend driving daily withdrawals in the -6-8 BCF/day range, slightly above the 5-year average -4 BCF/day. The strongest demand day looks to be on Wednesday as a brief, reinforcing shot of arctic air drops temperatures across the Northeast, Mid-Atlantic, and Ohio Valley to 5F-15F colder than normal. This will likely be short lived as a strong southerly return flow boosts highs to 10F-20F warmer than average across the Midwest and South-Central by Friday with a daily withdrawal near 0 BCF. Projected daily withdrawals are shown in the Figure to the right. For the week of March 18-24, I am projecting a preliminary -45 BCF weekly withdrawal, which would be 18 BCF larger than the 5-year average and 26 BCF larger year-over-year. It would be the third most bullish withdrawal for the week in the past 5 years, behind only 2013's -95 BCF draw and 2014's -64 BCF withdrawal. The EIA will release its official Storage Report for the week on Thursday, March 30. See more on next week's projected withdrawal HERE.

In other news, based on early-cycle pipeline data, feedgas deliveries to the Sabine Pass LNG Plant will rise to 2.47 BCF today, a fresh all-time high, the second time demand has reached new highs this week. Given that each of the 3 operational liquefaction "Trains" has a capacity of just over 0.8 BCF/day, this likely represents all three units operating near 100% capacity and it is unlikely we will see feedgas too much higher until later in the summer when Train 4 begins commissioning. On the week, feedgas rose to a record 16.45 BCF, topping the previous record of 15.6 BCF from the week of February 24 and more than double last week's 8.6 BCF, which was impacted by assumed maintenance. Weekly feedgas demand is shown in the Figure to the right. As of Friday morning, only the LNG tanker Clean Ocean was in port, although the GDF Suez Point Fortun was just offshore and the Oak Spirit and Maran Gas Alexandria were rounding Cuba seemingly en route to the facility this weekend or early next week. For more on LNG feedgas demand and current tanker positions, see my LNG Exports Page HERE.