Today’s report (week ended 29 Jun): EIA: +78 bcf, EA: +75 bcf
- Today’s reported injection was in line with consensus and directly in line with our flow model. To align our supply-demand model, we made minor downward adjustments to baseload res-com consumption and gas use in the power sector.
Next Thursday’s report (week ending 6 Jul): EA preliminary: +57 bcf
- We forecast that a marked increase in power burn (+4.7 bcf/d w/w) will have more than offset holiday-related reductions in industrial sector gas use.
Last week we highlighted the tug of war between record-high production and weather-aided gas power burn that was set to define balances at the height of the cooling season. This week, the focus is on US output continuing to soar. Since last week’s Panorama, production has been on a tear, rising by 0.6-0.8 bcf/d w/w to well above 80 bcf/d. That massive surge is weighing on both cash and futures pricing. On the weather front, the short-term forecast is still pointing to a warmer than normal month, though those expectations have moderated somewhat. National population-weighted CDD forecasts from 11 July onwards are now clustering near 10% higher than the 10-year normal, giving the market at least a temporary window to mop up the excess supply that has so profoundly characterised balances and prices.
The production growth has been geographically widespread, taking hold in the absence of new major takeaway capacity. While gas-directed drilling is driving some of the growth, namely in Appalachia and the Haynesville, the ‘free’ gas molecule (i.e. associated production) is leading the rise in output, with offshore Gulf of Mexico, Permian, Anadarko, Arkla and both East and South Texas all contributing.
GoM output has recovered by 0.4 bcf/d over the past two weeks from a month-long baseline that averaged near 2.6 bcf/d. We have seen incremental uplift from Mississippi Canyon, where flows this week reached a daily high of 1.1 bcf/d, according to pipeline data that we monitor, for the first time since a two-week stretch in late October/early November 2017. Flows on Nautilus are also up. Based on flow data, it appears that the uplift on the two pipelines is coming from Ship Shoal, Ursa/Mars, Olympus and Manta Ray.
This week Appalachia production has hit a new daily high of 28.2 bcf/d and has registered 28 bcf/d or higher each day so far in July. On a m/m basis, output is now up by 0.6 bcf/d, though the June baseline was beset by a series of maintenance events and some minor losses after the explosion on Leach Xpress. TCO originally stated that Leach Xpress would return to service in early July. However, based on current progress the pipe is not likely to return until mid-July. While we anticipate some volumetric shifts from existing pipes once Leach returns to service, there should also be some higher organic output increases that would move the July baseline higher for production across the region.
|Fig 1: Production by basin, bcf/d|
|Source: Ventyx, Energy Aspects|
For the week ending 6 July, the 0.6–0.8 bcf/d sequential increase in production will be more than offset by a power burn estimate right below 37 bcf/d. After climbing by more than 15 GW in the week ending 29 June, average ISO load was up by 33 GW w/w through the week ending 6 July, when population-weighted CDDs were nearly 35% higher than the 10-year normal and 30% higher y/y. To contextualise that demand figure, it is still below the levels hit in late July 2017 as well as the total demand seen during the ‘bomb cyclone’ at the start of January. Despite the high level of CDDs, the continued impact of energy efficiency and behind-the-meter solar generation on reducing grid electricity demand, peak demand in the PJM ISO did not even register in the all-time top 10 high for summer loads.
CDDs in the overnight weather forecast update saw downward adjustment, which is ultimately less supportive for demand but still puts temperatures almost 10% higher than normal through the 15-day short-term forecast period. For the weeks ending 13 and 20 July, balances look to be 3.5 bcf/d looser y/y thanks to the surge in output. For a move outside of the current cash trading range, even higher temperatures will have to take hold. With the highest national CDD counts of the year forecast for mid-month, that is the period when the market could once more look to test the high $2.90s/mmbtu.