Canadian imports

The collapse in crude oil prices that resulted from the Saudi-Russian price war in March — made only worse by the oil demand-depressing effects of COVID-19-related shelter-in-place orders — has begun to exact a toll on U.S. crude supplies. The Bakken, America’s #3 oil-producing basin, is a prime example of how quickly the price downturn has begun to negatively affect oil supplies as uneconomic wells there have been shut in and oil-focused drilling has ground to a near standstill. The spillover effects on the Bakken’s associated gas supplies have been just as dramatic with a sharp reduction seen since April as oil well shut-ins began to accelerate. The decline in these natural gas and NGL supplies to date provides a stark example of how quickly gas balances may be shifting in the region and may also be creating an opening for long-suffering Canadian gas exports. In today’s blog, we take a closer look at how Bakken oil supply declines are beginning to impact its gas supplies.

At this time last year, the U.S. natural gas market was exiting an extremely bearish winter, the gas storage inventory was nearly 500 Bcf higher, and prompt month prices for the CME/NYMEX Henry Hub natural gas futures contract were more than $1.00/MMBtu lower. The question on our minds then was how far would production have to decline or how much demand was likely to show up to prevent storage capacity constraints by fall. In either case, the overarching sentiment was that prices would have to remain relatively low to balance the market. Now we’re exiting an almost equally mild winter, but a combination of lower production and higher exports has drawn down storage to well below year-ago levels, and the question occupying the market is more along the lines of, just how bullish could the market get this year? Today, we wrap up our look at injection season storage scenarios for the next seven months.

After exceptionally mild weather nearly derailed the U.S. natural gas market earlier this year, the gas supply/demand balance is set to end the 2016-17 withdrawal season relatively bullish compared to last year. Storage is finishing the season more than 400 Bcf lower than last year, albeit still 260 Bcf/d above the 5-year average. In addition, gas exports are continuing to ratchet higher. The April 2017 CME/NYMEX Henry Hub natural gas futures contract expired Wednesday (March 29) at $3.175/MMBtu, nearly $1.30 (67%) higher than the April 2016 contract settlement of $1.90/MMBtu and also about 55 cents higher than the March 2017 contract settlement. Yet, with the storage inventory still higher than the 5-year average and production growth on the horizon, the market remains susceptible to downside risk if incremental demand doesn’t show up. In today’s blog, we look at potential supply/demand scenarios for injection season.

The March 2017 CME/NYMEX Henry Hub natural gas futures contract has shed nearly 60 cents/MMBtu (17%) since February 1, 2017, and the rest of the 2017 curve has been slashed by an average 40 cents (12%) in that time. On February 1, prices for all 10 remaining 2017 futures contracts (from March to December 2017) carried $3 handles. Now, all but two contracts are below $3. Weather has been the primary driver of this shift. February 2017 is set to rank as the warmest February since 1970, after January 2017 also came in as one of the warmest in 40 years. Weather forecasts are also showing the warmth extending into March. These developments are signaling a more bearish 2017 than expected. Today, we continue our supply and demand update with a look at the 2017-to-date balance.

After ending 2016 on a bullish note, the U.S. natural gas market has been hammered so far in 2017 by relentlessly mild weather—January 2017 ranked as the fifth warmest in 40 years. The prompt CME/NYMEX Henry Hub futures contract, which had climbed to nearly $4.00/MMBtu by late December 2016, has come off more than $1.00 since then to settle at $2.834/MMBtu as of last Friday (February 17, 2017). With every balmy winter day that passes, the chances of sustained $3-$4 natural gas prices seem to be fading away. Nevertheless, there are still some bulls out there hanging on in hopes of a rebound. Prices are still well above year-ago levels and the underlying supply/demand balance continues to carry the implied potential for tightening if given even normal weather. In today’s blog, we provide an update of the gas supply/demand balance, starting with a recap of how we got here.

The U.S. natural gas market in the past two years has undergone massive change, from breaking storage records and crossing long-held thresholds to flipping flow patterns and pricing relationships on their heads. This November, the market crossed yet another milestone:  the U.S. became a net exporter of natural gas for the first time ever on September 1, 2016. That lasted only a few days. But net exports resumed again starting November 1 and have continued through the month, almost without interruption, with pipeline deliveries to Mexico and to the first two liquefaction “trains” at Cheniere Energy’s Sabine Pass LNG terminal exceeding imports from Canada and LNG import terminals by an average 0.6 Bcf/d. Today, we look into what’s really driving this shift and what that tells us about the trend going forward.

<p>June was somewhat of a game-changer for the 2016 U.S. natural gas market. Summer weather finally arrived and U.S. consumption, particularly from power burn, was at record highs, as were exports to Mexico.</p>

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.