Tightening Up? Prospects For the Natural Gas Supply Demand Balance This Summer

Last year at this time (May 2014) the natural gas market was concerned with how depleted US natural gas storage might be by the start of the 2014-15 gas winter season. A short year later, the concern now is how full storage could get before next winter. CME/NYMEX Henry Hub natural gas futures prices for June delivery closed at 2.915/MMBtu yesterday – presumably reflecting a decidedly bearish 2015 supply/demand balance with forecasts predicting summer-ending inventory at upwards of 4.1 Tcf, which would be the highest on record. Today we provide an update on gas fundamentals.

This is the latest in our occasional series examining the latest fundamental factors influencing the natural gas market – especially the supply/demand balance. We have recently covered the gas storage picture from this winter (see My Sweet Hoard) and last fall we looked at how previous winters compared with the exceptionally cold 2013-2014 (see Goldilocks and the Three Winters).

This time we begin by looking at US monthly supply/demand data courtesy of our good friends at OPIS PointLogic Energy (see Table 1 below).   The table is from their Daily Market Report which summarizes natural gas supply and demand each day for the previous week, the month-to-date averages and the year-to-date averages.  The model used is based on 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).  Numbers are in billion cubic feet (Bcf).  Note that we cut the daily data out of the table so we can focus on annual and monthly developments in the supply/demand balance.   Also, all those colored circles are our additions to help you follow the analysis in the paragraphs below.

On the supply side, natural gas dry production averaged 72.12 Bcf/d year-to-date (red circle) or 4.27 Bcf/d higher than last year. However, the year-over-year difference has narrowed so far in May to an average of just 2.61 Bcf/d (green circle), in part the result of somewhat slower growth as the year has progressed.   Last year gas production jumped about 1 Bcf/d between April and May, but stayed relatively flat from month to month this year, as producers have held back on completions and new drilling. Net Canadian imports are nearly 0.5 Bcf/d higher year-to-date (orange circle) but in May are just about flat to last year. Robust production and low gas prices continue to whittle away at US imports of liquefied natural gas (LNG), which started the year higher than 2014 but have dwindled in May to 0.1 Bcf/d less than last year (brown circle). Total supply year-to-date (blue circle) is 78.78 Bcf/d – up 4.74 Bcf/d over 2014.

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