Analysis: US Midcontinent natural gas inventory below 5-year average due to prices, production
Natural gas storage levels in the Midcontinent Producing region — which includes Kansas, Oklahoma and Missouri — remain on track to enter winter far below average, due in part to strong local production in the SCOOP/STACK.
Also, prices have offered little incentive to inject gas now to withdraw later during the winter. Inventories in the Midcon Producing region sit at 139 Bcf, a deficit of 81 Bcf to the prior five-year average for this time and also considerably below the five-year low of 164 Bcf, according to S&P Global Platts Analytics. Since mid-June, daily injections have tumbled, with the region injecting just 220 MMcf/d, which is just 30% of the five-year average injection rate of 740 MMcf/d. These weak injections appear to be driven by weak cash-to-winter strip spreads around the region.
The differences between daily cash prices around the Midcon and their respective 2018-2019 winter strips so far this summer have been weak compared to other markets. Since May, the cash-to-winter spreads at Natural Gas Pipeline Co. of America Midcon, Panhandle Eastern Pipeline TX-OK and Northern Natural Gas Demarc have averaged 16 cents/MMBtu, 20 cents/MMBtu and 12 cents/MMBtu, respectively, compared to 29 cents at Chicago.
LITTLE INCENTIVE EXISTS TO INCREASE INJECTIONS
Looking at the futures market for the same three Midcon Producing hubs suggests that injections might actually taper as summer progresses. On average, the summer-to-winter spread across the three hubs is expected to tighten by two cents to minus 14 cents through October.
Weak incentives to inject and the subsequent weak injections so far this summer, along with market expectations that this will continue, would seem to indicate that the market is willing to accept a reduced amount of gas in storage this winter compared to years past.
The relatively weak winter prices despite the likelihood of low inventories may be due to the expectations of strong supply from the nearby Permian and in Oklahoma’s SCOOP/STACK, with a limited ability to move this gas out of the region.
EIA’S SOUTH CENTRAL, MIDWEST REGIONS STRUGGLE TO REFILL
For further reference, Kansas and Oklahoma are in the US Energy Information Administration’s South Central storage region, while Missouri is in the Midwest. Both Midwest and South Central storage regions are the most undersupplied by volume out of all five regions.
The comparatively strong 28 cents/MMBtu Chicago cash-to-winter strip spread doesn’t even appear wide enough to incentivize strong injections in the Midwest, further highlighting how weak incentives to inject have been in the Midcon Producing region.
Also, although South Central storage has refilled at a pace near the five-year average this season, Platts Analytics does not expect this trend to continue given the need to also refill storage inventories in both the Midwest and East regions.