With the first month of storage injection season now behind us, the weekly storage report from Energy Information Administration (EIA) shows U.S. natural gas stocks at about 850 Bcf higher than last year. While the surplus vs. 2015 has contracted from over 1,000 Bcf at the start of injection season April 1, it has a long way to go before the gas market is out of the woods, and prices are reflecting that. The CME/NYMEX Henry Hub contract for June delivery settled Wednesday at $2.141/MMBtu, down 68 (24%) from last year, and the balance-of-summer strip is priced at an average $2.408/MMBtu as of yesterday’s settles, 48 cents (17%) lower than a year ago. Given the sheer size of the overhang at this point, the pace of the surplus contraction will be at least as important to price direction as the fact that it is contracting. Today we look at the various supply and demand factors that could either help or hinder the market to whittle down the storage surplus this summer.
This is Part 3 of our natural gas supply/demand and storage update series, “Carry That Weight.” In Part 1 we recapped the 2015-16 winter supply/demand balance, which left the market with a record-high storage overhang by the start of the 2016 injection season (April 1 to October 31). In Part 2 we looked at what that overhang is likely to mean for this injection season: essentially that, given the size of the storage surplus, injections into storage will need to be consistently below what they have been historically in these months if the market is to prevent a storage capacity shortage (and further price discounts) by fall 2016. And that will require supply/demand to tighten relative to recent years, either due to lower supply or higher demand or some combination of the two.