injections

The once unthinkable level of 100 Bcf/d for U.S. natural gas production is just around the corner, it would seem. Lower-48 gas production last week hit a new high of 96.4 Bcf/d, after surpassing 95 Bcf/d not too long ago (in late October). That’s remarkable considering that production was only 52 Bcf/d just 12 years ago. Gas demand from domestic consumption and exports this year has set plenty of records of its own, but the incremental demand has not been nearly enough to keep the storage inventory from building a significant surplus compared with last year. CME/NYMEX Henry Hub prompt gas futures prices tumbled nearly 40 cents last week to $2.28/MMBtu, the lowest November-traded settle since 2015. Today, we break down the supply-demand fundamentals behind this year’s bearish storage and price reality.

The CME/NYMEX prompt Henry Hub natural gas price yesterday settled at about $2.28/MMBtu, down 40 cents from the summer peak of $2.68 in mid-September. That’s also a long way down from the $3-plus prices seen at this time last year. What’s more, daily prompt-month contract settlements this injection season, from April to present, have averaged the lowest in over 20 years. This, despite the Lower-48 gas storage inventory starting the 2019 storage injection season in April well below year-ago and five-year-average levels. How did we get here? Today, we begin a short series breaking down the supply-demand fundamentals that brought the gas market to its knees in recent months.

After sustaining a record pace since March, natural gas storage injections have been slowing dramatically and are projected to fall below the 5-year-average rate over the next few weeks. While weather has factored heavily into the swing in storage activity, increased baseload demand for gas in the power sector has amplified the effects of weather anomalies and electricity demand seasonality on overall gas demand. As a result, gas demand volumes have diverged from historical levels on a temperature-adjusted basis. Today, we examine the changing historical relationships of power burn and storage injections to weather and electricity demand.

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.