Energy Aspects expects tomorrow’s EIA storage number to be a 65 bcf injection. Our initial forecasts for the next three EIA storage weeks are injections of: 31 bcf, 28 bcf, and 25 bcf.
Commercial weather forecasts are now suggesting more widespread hot weather will grip the continental US over the next five days, with cooling demand thus supporting gas burn in the power sector. Our balances have demand up by 2.8 bcf/d w/w in the week ending 14 July at 35.1 bcf/d.
In Canada, output in British Columbia (BC) so far this week has continued to be affected by the McMahon processing plant outage, which has slashed production by 0.5 bcf/d since it began at the start of June. According to the operator, the facility's return was delayed from 2 July to 12 July, with the plant’s status last reported as being in in the ‘warm-up’ phase. The market should see the 0.5 bcf/d of BC production begin to return when McMahon returns to operation.
Data for the current week indicate that US net imports from Canada have picked up w/w by around 0.6 bcf/d to 5.7 bcf/d. Last week, AECO prices crashed to just 1.04 $/mmbtu. Though Alberta production has been 0.5 bcf/d higher y/y since the end of June, AECO likely dropped due to recent compressor problems and planned maintenance. The crash blew out the HH-AECO spread to 1.9 $/mmbtu, wider by some 70 cents w/w, thus encouraging stronger flows to the US.
US production has cooled slightly this week, down by 0.3 bcf/d w/w at 72 bcf/d but higher by 0.1 bcf/d y/y. So far in July, output has been mostly flat y/y. That said, scrape data show NE output has been near record levels, supported by production in the Utica hitting a near-record high 4.6 bcf/d in early July, though this has eased back by 0.1 bcf/d. Elsewhere in the NE, production in the Marcellus play has been stuck in a 20-20.3 bcf/d range since early May.
US exports to Mexico have averaged 4.3 bcf/d so far this week, higher by 0.1 bcf/d w/w. Mexico’s imports are currently running higher y/y by around 0.7 bcf/d, although constraints likely remain in the Mexican domestic pipeline system and are thus limiting the y/y gains. Indeed, US exports into Mexico have yet to move much above 4.3 bcf/d during peak cooling season.
Structurally, demand is beginning to increase nicely, with LNG and Mexican exports demand up by 1.0 bcf/d y/y in the current week. With hot weather on the horizon, power sector gas demand should also remain supported. We believe market fundamentals are currently tighter than the past week’s 2.85-2.95 $/mmbtu front month trading range would suggest. Yesterday’s break above $2.95, moving up as the fuel switch triggers increased on higher coal prices, cautiously suggests a more sustained period trading above the 3.00 $/mmbtu threshold this week.
|Balance forecasts, bcf/d|
|Source: Energy Aspects|