North East Infrastructure Constraints Will Not Be Alleviated This Winter

Highlights of the Natural Gas Summary and Outlook for October 17 2014 follow. The full report is available at the link below.

Natural Gas Summary and Outlook

• Price Action: The November contract fell 9.3 cents (2.4%) to $3.766 on a 24.0 cent range.
• Price Outlook: The market easily established a new low as weather forecasts moderated and an above expected injection weighed on the market. The market broke barely below the recent $3.80/$4.10 range. With weather forecasts continuing to delay any significant cooling, another new low is expected. Liquidation of the managed money net long position continued dropping to levels not seen September 2012. Total open interest rose slightly to 3.66 million as of October 14 with the option related position increasing once again. CME futures aggregated open interest fell to 916,000 as of October 16.
• Weekly Storage: US working gas storage for the week ending October 10 indicated a build of 94 bcf. Thus total working gas inventories rose to 3,299 bcf. Current inventories fall 355 bcf (9.7%) below last year and 352 bcf (9.7%) behind the 5 year average.
• Storage Outlook: This week did not establish another new 5 year weekly maximum. The injection did not match 128% of the 5 year average while it did exceed the 16 bcf needed to put inventories on pace to reach 3,550 bcf in early November. Inventories now need to equal 131% of the 5 year average which is 96 bcf for next week or exceed it by 14 bcf which will be 88 bcf to reach 3,550 bcf.
• Supply Trends: Total supply rose 0.9 bcf/d to 73.0 bcf/d. US production and Canadian imports were higher. Mexican exports were lower. LNG imports were unchanged. The US Baker Hughes rig count fell 12 with oil activity sliding while natural gas rose. The total US count now stands at 1,918. The Canadian rig count fell 3 to 417. Thus, the total North American rig count fell 15 to 2,335 and now surpasses last year by 208. The higher efficiency US horizontal rig count was unchanged at 1,353 and rises 254 above last year.
• Demand Trends: Total demand rose 3.7 bcf/d to 60.1 bcf/d. Higher R&C and industrial demand offset lower power demand. Electricity demand fell 952 gigawatt-hrs to 72,215, which exceeds last year by 1,964 (2.8%) and the 5 year average by 2,008 (2.9%).
• Other Factors: The S&P 500 ended lower despite a Friday rally.
• A proprietary heating index will soon be released.
• NE basis markets have “relaxed” somewhat with Transco January 2015 now under $13 and AGT January 2015 falling below $20. Even if the winter begins on a warm note, these prices may still be “cheap” if the back half of winter turns cold as infrastructure constraints will not be alleviated this winter.