US natural gas in storage forecast to post another triple-digit withdrawal

Lower US natural gas production, record LNG exports and a winter-to-date high for heating demand last week likely resulted in another triple-digit withdrawal from natural gas storage in mid-December.

According to a survey of analysts conducted by S&P Global Platts, the US Energy Information Administration is expected to report a 154 Bcf withdrawal from inventory for the week ended Dec. 18. Responses to this week’s survey ranged widely from a withdrawal of 135 Bcf to one as much as 172 Bcf. The EIA plans to release its storage report one day early this week at 10:30 am ET on Dec. 23.

In the week ended Dec. 18, US natural gas production dropped to an average 89.8 Bcf/d, according to data compiled by S&P Global Platts Analytics. That figure was down about 300 MMcf/d on the week, and more than 2 Bcf/d lower compared with a late-November high for US output at over 92 Bcf/d.

Recent production weakness could be a response by producers to a disappointing start to this winter’s heating season, according to Phil Flynn, senior market analyst at Price Futures Group.

“We got obliterated on heating demand in November,” Flynn said Dec. 22. “That appears to be keeping production lower this month.”

Recent supply-side weakness has been exacerbated by higher exports and strong domestic heating demand – factors that also contributed to last week’s tighter supply balance and large storage withdrawal.

In December, feedgas demand from US LNG export terminals is averaging its highest on record at over 11 Bcf/d as import prices in Northeast Asia push the $12/MMBtu level. According to Flynn, a coal shortage in China could be adding to LNG demand strength in Asia this month.

As winter demand overseas climbs, US heating demand also appears to be gaining traction. Last week, US residential-commercial gas demand surged to its highest since last February at over 50 Bcf/d as this winter’s first Nor’easter slammed the Eastern Seaboard with ice, snow and freezing temperatures.

According to an updated seasonal forecast from the US National Weather Service, the current weather trend could be short-lived, though. In January, February and March most of the continental US – including the Northeast and much of the Midwest – faces a 33% to 40% risk for above-average temperatures, the agency said in an outlook published Dec. 17.

In Dec. 22 trading, the NYMEX January natural gas futures contract climbed about 9 cents to $2.79/MMBtu, data from CME Group showed.

This week’s projected 154-Bcf withdrawal would be slightly more than the 146-Bcf withdrawal in the corresponding week last year and significantly higher compared with the five-year average pull of 127 Bcf. A withdrawal within expectations would cut stocks to 3.572 trillion cubic feet (Tcf). As a result, the surplus to the five-year average would slide by 11% to 216 Bcf, and the overhang to 2019 would decline to 276 Bcf.
Source: Platts