Hurricane Harvey has dissipated, but the affected areas, including energy infrastructure and operations, are still in recovery mode and will be for some time to come. In the natural gas market, production fell as low as 71.3 Bcf/d this past week, and has now rebounded to pre-storm levels near 72 Bcf/d. But exports to Mexico, which were averaging near 4.4 Bcf/d in the 30 days prior to Harvey, were at 3.6 Bcf/d last Friday, still lagging 0.8 Bcf/d (18%) behind their pre-storm level, after dropping to as low as 2.85 Bcf/d last week. Deliveries for LNG export are also down nearly 1.0 Bcf/d (47%) from the 30-day average to just under 1.0 Bcf/d last Friday and dropped to about 475 MMcf/d over the weekend. Meanwhile, U.S. consumption — in the power, industrial and residential and commercial sectors — this past week averaged 62.8 Bcf/d, down 6.0 Bcf/d (9%) versus last year and also 1.6 Bcf/d (3%) lower than the five-year average for this time. In another important market development, Energy Transfer Partners’ new Rover Pipeline began partial service on Friday and deliveries rose to more than 500 MMcf/d over the weekend. What will these shifts mean for the gas market balance and storage inventory? Today, we continue our analysis of the gas market balance, this time with a forward look at potential storage scenarios for the balance of injection season.
We first considered potential supply and demand scenarios for the 2017 injection season in our late-March/early-April blog series You Keep Me Hangin’ On. At the time, the U.S. gas storage inventory was at 2,051 Bcf, 429 Bcf lower than at the same time in 2016. Based on that year-on-year deficit in storage, and given sluggish production growth and prospects for rising exports, we concluded that it would take exceptionally low gas consumption — from the power, residential and commercial and industrial sectors —to come in at three-year lows (2014 levels) in order for the national storage inventory to peak near record highs above 4,000 Bcf for the third consecutive year. What’s more, we found that it would take demand falling to well below 2016 levels for the U.S. storage inventory to even exceed 3,600 Bcf.
Now, with little more than two months left of the injection season, it seems that some version of a lower-demand scenario has indeed materialized. As we detailed in our retrospective of the season-to-date supply-demand balance in Part 1 and Part 2 of this series, gas consumption (excluding exports) this season to date hasn’t been quite as mild as 2014, but it has trailed 2016 by nearly 4.0 Bcf/d, with just about all that decline occurring in the power sector. A surge in exports to Mexico and Cheniere Energy’s Sabine Pass liquefaction and LNG export facility in Louisiana helped to partially offset that, but total demand still has averaged a net 2.1 Bcf/d lower year-on-year. On the supply side, we found that production has been flat, but lower imports from Canada left total gas supply down 0.7 Bcf/d lower year-on-year. That shift in supply and demand has left the market with an average 1.4 Bcf/d more gas than last year. That’s meant more gas going into storage.