Storage Surplus

The U.S. natural gas market is carrying about an 850-Bcf surplus in storage versus last year and the 5-year average.  But it looks like the surplus will finally start to contract in earnest over the next few weeks. So the big question is -- will it be fast enough to prevent crippling supply congestion by this fall? With Canadian storage inventories also high and U.S. gas production still averaging slightly higher than last year, it seems record demand will be needed to bring storage into balance. Today we look at the prospects for demand this summer to trump last year’s record demand.

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.

The U.S. natural gas market ended the winter withdrawal season with inventories carrying a record high overhang and an enormous surplus versus previous years. Since then, the historic surplus has begun to contract, and the CME/NYMEX Henry Hub futures contract has responded, rallying 11.2 cents since April 1st to settle at $2.068/MMBtu Thursday. Now, well into the third week of injection season, the big questions are whether the recent bullishness can be sustained and what it will take to relieve the surplus in storage. In today’s blog, we assess how the existing surplus will impact summer storage activity and prices.

U.S natural gas storage inventories ended the winter heating season at a record high for this time of year of 2,480 Bcf as of April 1, 2016. Yesterday (Thursday April 14) the Energy Information Administration (EIA) reported that U.S. natural gas storage fell a notch as of April 8 to 2,477 Bcf or 956 Bcf (63%) higher than the corresponding week last year. CME/NYMEX Henry Hub natural gas futures prices for May delivery closed at $1.970/MMBtu yesterday, 56 cents lower than last year at this time. Moreover the current 12-month strip is averaging $2.48, 32 cents lower than last year at this time. In today’s blog, we look at how inventories got here and implications for the summer market.

On Friday (March 4, 2016) the April NYMEX/CME futures contract settled at $1.666/MMBtu, the lowest contract settlement since 1999. Rock bottom prices reflect a growing supply/demand imbalance and concerns about hitting storage capacity limits later this year. Last Thursday’s EIA report showed U.S. gas inventory stands 827 Bcf above last year at this time and 687 Bcf above the 5-year average. These are the biggest surpluses the market has seen since 2012. Moreover, our latest NATGAS Billboard storage outlook shows March withdrawals lagging way behind last year and expanding the surplus further heading into April. In today’s blog, we look at how a similar situation was resolved in 2012 and what it will take to bring down the surplus this year.

As of the weekly EIA natural gas storage report due out today (Thursday) for the week ending February 5, 2016, the U.S. gas inventory surplus is likely to grow to near 600 Bcf above levels at the same time last year. Current weather forecasts suggest the surplus over 2015 will soar to near 800 Bcf by the end of February. With outright inventory levels already exceptionally high, this surplus growth kicks the market’s oversupply problem further down the futures curve – meaning prices could stay lower for longer. Today we look at the winter 2015-16 fundamentals leading to this surplus and what it means for the rest of 2016.

The mild winter in the U.S. thus far has created a balancing nightmare for the natural gas market. A freakishly warm December has meant below-average withdrawals and contributed to a record storage surplus over last winter’s levels. Not surprisingly, natural gas futures prices have been struggling under the weight of this surplus. However, a closer look at gas consumption over the past few weeks shows some underlying demand strength despite the warm weather. Today we take a closer look at where gas demand is coming from.

The natural gas market just managed to dodge a collision this summer between excess gas supply and available storage capacity. Now about a month into the gas winter season, storage inventories are still near record levels after topping 4.0 Tcf just two weeks ago. The Henry Hub CME/NYMEX January contract price closed yesterday (December 2, 2015) at $2.165/MMBtu, historically low even as we head into the highest demand months of the year. It’s now clear that 2016 will inherit this bearish market unless there is a Polar Vortex Tsunami in January and February. But what does this mean for producers, and how much will demand respond? In today’s blog, we begin a series on potential scenarios for the 2016 gas market balance.

CME/NYMEX Henry Hub natural gas futures prices for August delivery continue to trail $1.50/MMBtu behind year-ago levels and natural gas production volumes show little sign of softening. Gas demand is rallying to record-setting levels and the balance is tightening. But there is still a long way to go before the storage inventory surplus is reined in. Today we revisit supply/demand balance and its impact on storage this summer.

At yesterday’s close (April 28, 2015) the CME NYMEX Henry Hub natural gas futures strip (average) for the nearby 12 months was $2.794/MMBtu.  That was only slightly above Monday’s three year low for the strip. The price weakness has been brought on by concern about a growing storage surplus. Last week the Energy Information Administration (EIA) last week reported that U.S. natural gas storage as of April 17 was 737 Bcf, or 83%, higher than this time last year. Within a year, the gas market has gone from the biggest storage deficit and lowest inventory since 2003 at the end of March 2014, to a massive year-over-year surplus and the possibility of a record-high inventory by the end of injection season. In today’s blog, we look at how inventories got here and implications for the summer gas market.