North American gas

Published at 12:06 15 Mar 2017 by . Last edited 13:36 15 Mar 2017.

Energy Aspects expects tomorrow’s EIA storage number to be a 50 bcf withdrawal. Our initial forecasts for the next three EIA storage weeks are withdrawals of: 139 bcf, 54 bcf, and 49 bcf. This multi-week forecast would see end-of-March inventories a hair above 2.0 tcf.

Winter temperatures have returned with a vengeance, with forecasts pointing to sustained colder-than-average weather in the Northeast. In the Midwest, temperatures are expected to fall below normal around 22 March until the end of the month.

Another powerful Nor’easter storm has slammed into the East Coast, bringing blizzard conditions, power cuts and shutting travel links in several areas. Though temperatures have fallen throughout the region, the brunt of the storm spared the largest cities, hitting more powerfully further west and north.

Henry Hub (HH) cash prices responded accordingly, averaging 12% higher at 2.92 $/mmbtu in the week through 14 March, from an average of 2.60 $/mmbtu the week before. Near-curve prices also found support from the cold weather forecasts. This softened the curve’s contango and narrowed quarterly spreads in the two front seasons.

Demand is looking much stronger this week as a result of the cold and stormy weather. Our balances peg residential and commercial demand up by nearly 10 bcf/d w/w at 38 bcf/d. Given the cold weather, power sector demand will take a hit over the next couple of weeks. We expect it will be down by 1.8 bcf/d y/y on average over the two-week period ending 31 March.

Net imports from Canada into the US are up this week, likely on account of the blizzards in the Northeast. Indeed, flows into the region are up by 0.47 bcf/d w/w and 1.09 bcf/d y/y at 1.49 bcf/d. Algonquin prices have spiked to over 8.0 $/mmbtu, leaving the premium to Dawn (Ontario) at a chunky 5.6 $/mmbtu as of yesterday (14 March). The widening of this spread has undoubtedly led to stronger flows into the region from Canada in order to meet increased heating demand.

Data indicate US dry gas production is down by 0.3 bcf/d w/w to 70.8 bcf/d in the current week, which represents around a 2.6 bcf/d y/y decline.   

Henry Hub cash is now trading around 3.0 $/mmbtu, and as such prices remain above the fuel switching trigger to the downside of 2.89 $/mmbtu (7,500 gas vs 10,000 coal). The next major fuel switching level would be around 3.21 $/mmbtu, where more gas will be pushed out of merit by coal (7,100 gas vs 10,300 coal). Given an even more constructive weather outlook, with Northeast temperatures staying low, cash prices look like they will rise toward the upper trigger this week, before moderating the week after as demand begins to ease.

Balance forecasts, bcf/d
Source: Energy Aspects

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