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.
This is our latest update on the fundamental factors influencing the natural gas market – especially the supply/demand balance. At the end of April in My Sweet Hoard we recapped the storage picture going into the start of summer 2015, which indicated the possibility of an end-of-season inventory balance substantially above last year. From the vantage point of April, the looming questions presented by this year-over-year surplus were whether production would slow, how big would the demand response be to the supply glut and resulting lower prices, and how would the weather wild-card factor in. In the previous episode of Tightening Up in Mid-May we reviewed supply/demand balance data from PointLogic Energy’s Daily Market Report to highlight fundamentals contributing to the storage inventory situation as of mid-May. NYMEX Henry Hub price activity at the time signaled some level of confidence in the market that a production slowdown and demand response from the power and industrial sectors would eventually resolve a potential year-over-year storage surplus. Now with June, one of the hotter months, under our belt, we revisit that data to see whether changes in supply or demand have moved the needle.
Table 1 below shows PointLogic’s supply/demand balance data as of June 30, 2015 with month-to-date and year-to-date averages in billion cubic feet (Bcf), and a comparison to the same period last year. [Note the report also contains daily data.] The model used uses natural gas pipeline flow data posted by individual pipelines, which is the basis for supply numbers (production, imports, etc.) and demand (power, industrial, residential/commercial and the net into and out of storage). We’ve added the colored circles in Table 1 to highlight the numbers discussed below.
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