DI Blog

Insights across the energy value chain

Natural gas storage inventories decreased 77 Bcf for the week ending December 7, according to the EIA’s weekly report. This week’s draw is roughly in line with market expectations, which were 79 Bcf. The East, Midwest, and Pacific regions led the draw, accounting for 64 Bcf of the 77 Bcf.

At the time of writing, the January 2019 contract was trading flat to yesterday’s close of $4.136/MMBtu. Weather forecasts have moderated over the past week, causing the January ’19 contract to hit its lowest point this month as of yesterday’s close, at $4.136/MMBtu.

Working gas storage inventories now sit at 2.914 Tcf, which is 722 Bcf below last year and 723 Bcf below the five-year average.

Winter prices continue to be volatile and driven by the fundamentals. Weather forecasts are currently one of the biggest drivers of the winter prices, and will continue to be throughout the winter. As the fundamentals: supply, demand, and weather forecasts, continue to change, volatility is expected to remain.

Salts have continued to build, adding 8 Bcf to inventory on this week’s release, leaving total inventories at 271 Bcf. Even with the salts continuing to build, they are below last year (360 Bcf) and the five-year average (352 Bcf). Salt caverns play a significant role in storage due to the high injection/withdrawal rates they are capable of producing. As storage facilities start depleting inventory, ratchets will make more of an impact on non-salt storage.

See the chart below for projections of the end-of-season storage inventories as of November 1, the end of the injection season.

This Week in Fundamentals
The summary below is based on Bloomberg’s flow data and DI analysis for the week ending December 13, 2018.

Supply:

  • Dry gas production decreased 1.76 Bcf/d on the week, largely because of decreases in the South Central/Gulf (-1.12 Bcf/d) and the East region (-0.52 Bcf/d). A bulk of the decrease in the South Central/Gulf came from Louisiana (-0.57 Bcf/), while the East region was mainly attributable to decreases in Pennsylvania (-0.37 Bcf/d).
  • Canadian imports increased 0.62 Bcf/d. A majority of the increase came from Iroquois, which received ~0.50 Bcf/d of incremental Canadian gas week over week.

Demand:

  • Domestic natural gas demand increased 9.45 Bcf/d week over week. Cooler temperatures caused Res/Com demand to increase 7.04 Bcf/d. Power and Industrial demand also increased 1.63 Bcf/d and 0.78 Bcf/d, respectively.
  • LNG and Mexican exports both remained relatively flat week-over-week.

Total supply is down 1.13 Bcf/d, and total demand increased 9.70 Bcf/d week-over-week. With the increase in demand and the decrease in supply, expect the EIA to report a stronger draw next week. The ICE Financial Weekly Index report is currently expecting a draw of 140 Bcf for next week. Last year, the same week was a draw of 182 Bcf, while the five-year average is a draw of 152 Bcf.

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