Bearish US gas storage report seen from EIA as winter demand outlook fades

The US Energy Information Administration is widely expected to announce another tepid drawdown from US natural gas storage in early February, further widening the surplus, as mild weather and correspondingly weak demand continue to drive a supply overhang weighing on the US gas market.

In the week ended Feb. 10, US gas inventories likely fell 109 Bcf, according to the latest survey of market analysts by S&P Global Commodity Insights. Storage withdrawal estimates were reported in a wider range, with analysts predicting drawdowns ranging from 80 Bcf to as much as 127 Bcf.

This week’s consensus withdrawal of 109 Bcf would undershoot the average 166 Bcf drawdown reported over the past five years. The estimate also falls dramatically below the year-ago pull of 195 Bcf, data from EIA shows.

If the market’s anticipated storage withdrawal is accurate, US stocks would fall to 2.257 Tcf, widening the storage surplus to 174 Bcf, or more than 8%, above the five-year average. The withdrawal would also move domestic inventories to a surplus of 319 Bcf, or almost 17%, above the year-ago level.

Fundamentals
On Feb. 14, the NYMEX March futures contract was up about 20 cents from the prior-day settlement to trade around $2.61/MMBtu, intraday exchange data from CME Group showed.

Over the past eight weeks, prompt-month futures prices have lost more than 60% of their value, plummeting on exceptionally mild winter temperatures, low US heating demand and bearish winter weather forecasts — compounded by an eight-month outage at the Freeport LNG export terminal.

Over the weekend, Freeport LNG exported its first LNG cargo since a June 8 fire shut the Texas facility, giving futures traders a glimmer of hope that the terminal’s restart could soon help to balance a host of other bearish factors. The Freeport terminal can take more than 2 Bcf/d when operating fully. The terminal’s restart promises to tighten supply in the US Gulf Coast gas market, helping to reduce the domestic supply overhang.

“Looks like we’re getting a little bit of a Freeport bounce today,” said Phil Flynn, senior account executive at Price Futures Group, by telephone Feb. 14.

“Obviously it’s been a long process and there’s still a regulatory hurdle to get through, but it does look like this thing is finally getting ready to move and that’s given us a little bit of support — and let’s face it, this weather is not very helpful at all,” he said.

Freeport was scheduled to receive more than 700 MMcf/d of feedgas Feb. 14, based on nominations for the morning cycle that could later be revised, S&P Global Commodity Insights data showed. The scheduled deliveries to Freeport were up from nearly 430 MMcf/d Feb. 13, which marked the highest volume of daily feedgas deliveries to the terminal since the outage began.
Outlook

Following a nearly 19 Bcf/d weather-fueled decline in US gas demand last week, short-term forecasts from the National Weather Service show mild temperatures continuing in the Midwest and across the Eastern Seaboard — both key heating-demand regions — through late February. According to a seasonal outlook from the agency, a risk for mild weather in both regions continues into March and potentially through April.
S&P Global’s latest supply-demand model estimate is already calling for a smaller withdrawal from US inventory for the week in progress, further weighing on the market’s bearish outlook. According to the latest projection, US storage withdrawals will likely total just 70 Bcf in the current week. If the projection is accurate, domestic inventories would drop below 2.2 Tcf, but it would still widen the surplus to the five-year average and the year-ago level
Source: Platts