Tightening Up? Natural Gas Demand Response Emerging

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.

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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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