Three weeks ago, Hurricane Harvey threw a wrench in — well in a lot of things — but also into the natural gas market, curbing gas demand for power generation, curtailing pipeline exports to Mexico and stymying LNG exports. The market is still digesting the full impact of these disruptions and their potential effects on the gas market balance and storage. Adding to recent market shifts is the start-up of Energy Transfer Partners’ (ETP) Northeast-to-Midwest Rover Pipeline Phase 1A on September 1, which already is flowing 0.7 Bcf/d and lifting gas production out of Ohio. The market is hurtling towards winter, with just five weeks or so left until heating demand typically starts showing up and storage facilities officially begin to flip into withdrawal mode. What can recent supply and demand volumes tell us about what to expect from the gas market this winter? Today, we wrap up our most recent gas market update series with a forward look at potential scenarios for supply, demand and storage in the coming withdrawal season.
In Part 1 and Part 2 of this series, we looked at the U.S. natural gas supply and demand balance for the injection season to date. While export demand has been strong this summer, gas consumption, particularly from power generators has been down hard, trailing 2016 by nearly 4.0 Bcf/d. Supply has also lagged behind last year, not nearly as much as demand. With production averaging flat to last year and less gas coming in from Canada, total U.S. gas supply has averaged 0.7 Bcf/d lower year-on-year since April. The result is that the gas market this summer has been averaging 1.4 Bcf/d longer and about 230 Bcf more gas has gone into storage compared with the same period last year. The market started the injection season on April 1, with more than a 400-Bcf deficit in storage versus 2016. But that deficit has shrunk down to about half that. Now, with a couple more months of weekly injections still likely, the question is, where will the U.S. gas storage inventory peak and what will that mean for withdrawal season, which officially runs from November 1, 2017 through March 31, 2018.
In early September, in Part 3, we looked at the various factors at play for the balance of injection season and some scenarios for where natural gas inventories could peak. At the time, RBN’s NATGAS Billboard storage model, which assumes the 15-day weather forecast and the 10-year average temperatures beyond the 15-day period, estimated that the inventory would peak this year at around 3,780 Bcf. That would be 267 Bcf lower than last year’s record peak of 4,047 Bcf. But we noted a variety of factors, including the effects of Hurricane Harvey and its aftermath, that could change the trajectory of injections between now and early- to mid-November, when the inventory typically peaks. We then turned to historical storage data for some potential injection scenarios. We projected that after the 15-day outlook, if the market injects at the five-year minimum, the inventory would peak right around 3,764 Bcf, not much lower than our Billboard projection. On the other hand, if the market injects near the five-year maximum, the inventory could potentially set a new record, peaking at around 4,053 Bcf. And, simply injecting at the 2016 pace for those weeks would leave the inventory at a peak of about 3,890 Bcf/d, about 150 Bcf lower than 2016.
Since we wrote about these scenarios, the fundamentals already have shifted. The EIA reported a 91-Bcf injection for the week ended September 8, a level that is indeed in line with the five-year high for the same week and about 30 Bcf higher than last year in that week. That’s pushed the inventory up to 3,311 Bcf as of September 8th, and also pushed up the Billboard projection for the season-ending peak inventory closer to 3,800 Bcf. At the same time, the market also has yet to fully assess the impacts of Hurricane Irma, which made landfall in Florida last week and temporarily doused power burn across the U.S. Southeast. Moreover, there are several more tropical storms swirling in the Atlantic — Hurricane Jose moving north off the Atlantic Coast, Hurricane Maria barreling towards the Caribbean, and Tropical Depression Lee making its way east across the Atlantic behind Maria — that could suppress power burn levels, or stall the movement of LNG tankers in and out of the Gulf of Mexico, or both.