Today’s report (week ended 2 March): EIA: -57 bcf, EA: -58 bcf
- To align with today’s reported withdrawal, we made a 0.1 bcf/d downward adjustment to net Canadian imports, leaving them effectively flat w/w. Additionally, we made a 0.1 bcf/d downward adjustment to the lease, plant and pipeline fuel category on the weakening demand.
Next Thursday’s report (week ending 9 March): EA preliminary: -93 bcf
- Versus Tuesday’s estimate, we are now calling for a 1 bcf larger withdrawal. On the strong flows posted for today and yesterday, we have upwardly revised net Canadian flow by 0.3 bcf/d. Adjustments were also made to gas in power based on weather-related load.
Mere weeks are left in the traditional heating season and, just yesterday, a storm hit the Eastern Seaboard in the US. Current forecasts point to a March that will be more than 10% colder than the 10-year normal. If that forecast comes to fruition, the 2017-18 heating season as a whole will look remarkably close to 10-year normal weather, but with an obviously disjointed accumulation of degrees day on a monthly basis.
February GWHDDs were more than 10% below the 10-year normal benchmark. Even though GWHDDs in March are on track to be over 10% above the 10-year average, this comes too late in the heating season to give much of a proverbial runway to gas market bulls’ momentum.
Currently, our balances point to a 1.33 tcf end-of-season carryout, an approximate 750 bcf deficit to last year. This forecast is underpinned by our forecast for withdrawals of 93 bcf and 104 bcf for the weeks ending 9 March and 16 March. Res-com demand in March could be 2.5 bcf/d higher y/y if forecasts for cold weather come to fruition. Gas use in the power sector is on pace to gain some 1.5 bcf/d y/y in March. On Tuesday, Entergy indicated that it would shut down its Pilgrim nuclear plant in Massachusetts due to a potential water leak inside its feedwater heating system. However, the total impact on gas balances will be marginal as uplift here would not be more than 0.1 bcf/d.
In addition to growth in demand from res-com and the power sector are the ‘three pillars’ of structural gas demand: feedgas for LNG exports, pipeline exports to Mexico, and gas use in the industrial sector. Feedgas for LNG exports has shown some degree of variation over the past several days. Volumes into Cove Point have reached as high as 0.4-0.5 bcf/d before falling to 0.1 bcf/d this week.
The first LNG tanker arrived at the facility on 1 March and ship tracking data show the next ship bound for the facility scheduled to arrive on 31 March. Flows into Sabine Pass have been trending near 3.0 bcf/d as fog conditions lifted and Sabine Pilots reinstated traffic. The lower availability of storage capacity at the facility, driven by the closure of two storage tanks, is necessitating a highly optimized pattern of ship loadings to allow full capacity production at the facility. This month feedgas for LNG export volumes are on pace to grow by 1.5 bcf/d y/y assuming no additional weather issues or storage congestion at the facility that would effectively choke feedstock. The current pace of pipeline trade with Mexico puts it on track for a 0.3-0.4 bcf/d y/y gain, as flows have vacillated between 4.4-4.5 bcf/d over the past few weeks. For the industrial sector, we anticipate an uplift of some 0.8 bcf/d y/y due to a combination of growing underlying baseload gas use, as well as heating needs supported by the colder-than-normal forecast weather.
On the supply side, current cross-border trade with Canada looks like it is on track for a 0.3 bcf/d y/y decline, though some uplift to this figure is possible given the wintry mix of weather expected on the US east coast. However, the market is still looking very long supply, as the recent muted price gains on weather would suggest there is still an underlying market preoccupation with Lower 48 production gains, which are on track to be 7.0 bcf/d y/y.
Yesterday’s 2.77 $/mmbtu Henry Hub cash close, on the back of that elevated eastern demand, is the strongest cash price at the hub dating back to early February. Our preliminary estimate for the call on storage for the week ending 16 March is currently pointing to a 104 bcf withdrawal. The anticipated strengthened demand for that week versus the week in progress suggests there is still some limited upside for HH cash in the coming weeks. While our projected 1.33 tcf end-of-season storage estimate is certainly low compared to recent history, as we have maintained, this final push of weather is leaving the market fairly complacent since scarcity concerns have been firmly off the table for some weeks now given the mild February.
|Fig 1: US March y/y change, bcf/d||Fig 2: LNG feedgas by facility, bcf/d|
|Source: Ventyx, Energy Aspects||Source: Ventyx, Energy Aspects|