Triple-digit storage injections boost US winter gas outlook [GGP]
Last week’s underground storage injection of 129 billion cubic feet (Bcf) was the second largest since the US Energy Information Administration (EIA) began reporting weekly storage data in January 2010.
This boost in gas stocks resulting from increased domestic supply amid easing demand, means storage levels are now just 8% below the five-year average.
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However, current market dynamics are transient, with peak seasonal demand trends this winter and increased US LNG exports now in view.
US dry gas production continues at record levels, with supply hovering above 100 billion cubic feet per day (Bcfd) in recent weeks, helping subdue natural gas prices and keeping regional fundamentals in check.
Supply growth has largely come from the Permian and Haynesville regions but not all gas basins are reporting gains.
Appalachia has continued to show monthly declines in outbound flows, down 7% in the first week of October compared to June and down 2% last week, compared to the final week of September.
However, as the winter season approaches, the Appalachian region could boost supply as local consumption picks up.
Regional balances could increase variability in the coming weeks
With the fall (autumn) shoulder season in full swing, temperatures have become inherently cooler, meaning heating demand will begin to kick in.
However, regional temperatures can vary significantly making natural gas demand particularly difficult to estimate.
Last week, total US gas demand fell as a result of reduced demand for power in the US southeast, owing to the remnants of Hurricane Ian’s gas demand destruction, while other parts of the upper east coast and northeast region saw an uptick in gas demand, primarily for heating.
Total US gas demand will remain elevated for the remainder of 2022, supported by consistently high LNG exports which are expected to strengthen further once all operational facilities return to full capacity in the coming weeks.
With Freeport and Cove Point still offline, nearly 2.7 Bcfd (2 Bcfd from Freeport LNG and 0.7 Bcfd from Cove Point) has boosted shoulder season balances.
Cove Point feedgas volumes dropped to low levels at the start of October due to scheduled annual maintenance, but this year, the operator expects the facility will be offline for 17 days, returning on October 18.
This downtime is five days below the historical average of 22 days for 2019-2021. With US LNG exports critical for global balances, a favorable pricing environment is incentivizing a quick turnaround.
Henry Hub gas prices remain under $7 per million British thermal units (MMBtu), with strong demand forecasts tempered by recent gains in dry gas production and a boost in domestic supplies from ongoing US LNG facility outages.
We anticipate healthy injections into storage during the shoulder season which will support domestic inventories heading into winter and keep prices muted.
However, prices will likely stay within the current range or higher, given strong domestic gas consumption and robust demand for US exports due to gas supply disruptions in Europe.
We forecast total US storage injections this month will surpass 415 Bcf, supporting our end-of-season (EOS) outlook of 3.5 trillion cubic feet (Tcf).
However, the US is not yet past the hurricane season which technically concludes at the end of November.
If a severe weather event was to occur, it could have a material impact on supply and demand fundamentals.
In addition, any severe winter events or a prolonged winter could quickly push gas storage inventories outside of the five-year range.
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