Natural gas storage activity this spring suggested extremely bearish fundamentals. The market injected gas into storage at a record pace, well above year-ago and 5-year-average levels. The high injection rate was in part a result of demand loss as weather abruptly moderated in April and May. However, a look at injections on a weather-adjusted basis suggests there’s another dynamic at play — namely, that increased baseload demand for gas in the power sector amplified the effects of the mild weather this spring, lowering demand even more than temperatures alone would indicate. Moreover, that same dynamic could have an opposite, equally extreme effect during the hotter months when power generation is the primary driver of gas demand. Today, we look at the latest gas storage and demand trends, and what they can tell us about the balance of injection season.
Back in April, in our Living in the Wild, Wild West blog, we said the winter of 2018-19 was one of records and extremes for the gas market, including record production and demand, and both the highest and lowest spot gas prices ever recorded in the U.S. physical gas market. It’s safe to say that theme extended into spring. Lower-48 gas production continued setting record highs, as did demand, particularly from LNG exports. And we can add one more extreme to that list — some of the highest storage injections seen this decade for the April-May time frame.
Figure 1 plots the monthly total injection/withdrawal volumes for 2019 to date (black line) versus last year (blue line) and the 5-year average (green line). Injections in April and May of 2019 totaled 332 Bcf and 524 Bcf, respectively, exceeding both year-ago and 5-year-average levels (dashed red oval). In April, injections came just 24 Bcf shy of the highest total injection for that month seen this decade (356 Bcf in 2010). By contrast, the net storage change was a net withdrawal of 11 Bcf in the comparable weeks last year, and the next-highest injection level in the past 5 years was 250 Bcf 4 years ago in 2015.