Summer Weather Paints A Bearish Picture For Natural Gas


I continue to smirk at the consternation some still exhibit with respect to US Gas production data.  Is it accurate?  Were the 914 adjustments made earlier in the year enough?  Is production in fact falling (with many stating this not as a question, but an assertion)?

In assessing the current supply/demand balance of the US Gas Economy, more salient data exists.  It’s the weekly storage report gas traders lose their minds over each Thursday.  At all times, in the US Gas Economy, Supply – Demand = Storage.  We garner storage information through survey-based sampling of storage and pipeline facilities throughout the lower 48 states each week.  This data has absolutely no tie in any form or fashion to a single series of EIA production data. 

The largest single driver of oscillations in US Gas Storage is temperatures.  Extremes on both sides of 65F result in greater demand for gas.  The less gas that is demanded, the less supply is used, the more gas goes into storage, and vice versa.

Given the temperatures we have experienced, especially since mid-June, we can take a look at the storage signature that has resulted and make inferences. 

From June 18 through July 16, the past 4 gas weeks, we have built 267 Bcf of gas in US Storage.  This compares to a build over the same period last year of 305 Bcf.  On the surface, this looks bullish – we’ve had 38 bcf less residual gas this year versus last year once all demand has been satisfied.

But US temperatures are some 19% warmer this June 18-July 16 than last year, and in fact are as warm for this period in at least 50 years.  This has been serious, widespread heat and storage injections in the face of it are running 1.35 bcf/day lower than last year. 

Importantly, and rather neatly, industrial demand estimates are higher this year than last, and preliminary data shows that US industrial demand is running on average 1.28 bcf/day higher this year over the period June 18-July 16.  This nearly perfectly matches the rate at which storage additions have been deficient this mid June-mid July period to last year’s.

Roughly speaking, data supports the supposition that after controlling for the improvement in industrial demand, storage additions from June 18-July 16 of this year have run flat to last year – in the face of 50-year heat that is 19% hotter than last year.  Given the balance between supply and demand that storage defines, what then are we to say of such robust storage additions in the face of what we know to be very strong NG demand?

Production is very strong and with gathering and takeaway capacities only improving in the southeast, Rockies, and the NE/Marcellus, and a gas rig count that only continues to increase with very strong additions to Horizontal rigs, the production outlook for the rest of the year seems strong.   

So, for those who are so incessantly beating the “production is declining” drum, a simple question: what then do you make of the storage data? 

There is a reason prompt price can’t get anywhere near its mid June highs, despite the longest Broadway run of “The US in Heat” in decades.

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