Key Points: Average dry gas production dipped slightly for the report week of Apr 5 by 0.34 Bcf/d or 2.4 Bcf for the week. On the demand side, consumption in power and industrial plants rose by 1.44 Bcf/d or approximately 10 Bcf for the week. The increase in Canadian imports (by 0.02 Bcf/d) and decrease in Mexico exports (by 0.01 Bcf/d) helped ensure that trade fundamentals remain unchanged.
Our analysis leads us to expect a 22 Bcf storage build will be reported by EIA on April 11, a good bit below the current 30 Bcf consensus whisper expectation.
Last week’s storage build of 23 Bcf announced by EIA was a surprisingly bearish injection based on our expectation as well as the analyst estimates. The inventory levels ended the week of Mar 29 with 1,130 Bcf, 20% lower than year ago level of 1,358 bcf and 45% lower than five year average level of 1,635 Bcf. Henry Hub remains below $2.80/MMBtu and we expect that to continue for next fortnight. Waha prices, on the other hand, plummeted with reported lows of negative $9/MMBtu. They have recovered to positive values since the start of the week.
Storage – Neutral
We estimate a storage build of 22 Bcf will be reported by the EIA this week for the week ended Apr 5. In our prior forecast, we estimated a build of 10 Bcf for the week ended Mar 29. We were right directionally but the actual reported 23 Bcf was even higher. That was the first of the several consecutive builds that we anticipate throughout the rest of the 2019 injection season. All in, we see storage changes as being a neutral driver for gas prices this week.
Weather – Neutral
In a reversal of last week’s NOAA short term forecasts, the latest 10-15 day forecasts shows that the northern half of the US will have cooler than season temperatures coming up for the next 2 weeks. Along the Gulf Coast and the South, temperatures are at or above normal for the same period. We could see demand increasing mildly due to weather. It is more likely that increased production coupled with a cooler April might balance each other out as well.
Supply – Positive
Average field supply decreased by 0.34 Bcf/d or 2.4 Bcf during the report week. Accordingly, supply should likely offer a positive pressure to this week’s price activity.
Demand – Positive
As the summer progresses, the demand is increasing from industrial units and power plant generating facilities. We see a positive effect for structural demand side drivers this week. The report week of Apr 5 saw the demand increase of almost 10 Bcf from these establishments. We see demand as being positive for gas prices.
Flows – Negative
We read reports this week of maintenance ongoing at the Texas Agua Dulce/NET Mexico export system across the U.S.-Mexico border that may crimp as much as 1.2 bcf/d of outbound capacity during the outage. That could back up more gas in Texas and pressure U.S. gas prices.
Trader Sentiment – Positive
Natural gas futures for May have risen marginally to $2.67/MMBtu at the start of the week. This is probably because cooler weather is going to arise in mid-April. The CFTC's 4/5/2019 commitment of traders report for NYMEX natural gas futures and options showed that reportable financial positions (Managed Money and Other) on 4/2/2019 were 20,763 net short while reportable commercial operator positions came in with a 14,699 net short position as well.
With winter over, Stratas Advisors projects a report showing a 10 Bcf natural gas build.
Stratas Advisors projects a higher gas withdrawal than the five-year average.
Total SA and Tellurian Inc .have signed deals supporting the development of the proposed $30 billion Driftwood LNG project, the two firms said on April 3.