Today’s report (week ended 3 Aug): EIA: +46 bcf, EA: +44 bcf
- This week’s print was in line with consensus, breaking a three-week streak of below-expectation builds. To match up with today’s report, we downwardly adjusted power demand to 35.8 bcf/d.
Next Thursday’s report (week ending 10 Aug): EA preliminary: +28 bcf
- Strong power readings, with several days above 40 bcf/d, are resulting in a reduced injection rate. A modest increase in production is totally overwhelmed by demand-side gains.
Our weekly balances suggest full-month August injections of around 225 bcf, which would follow a July total of less than 200 bcf. August balances show no sign of injection rates materially accelerating, so it seems increasingly likely that the market will enter the heating season with a historically low carryout for the shale era.
Production is running largely in line with late July receipts. Maintenance and other disruptions are responsible for the pause in the skyrocketing trajectory of production seen in late June and through July. In the Rockies, the shutdown of Enterprises’ 1.8 bcf/d Meeker gas processing plant in Colorado led to a sharp 0.4 bcf/d d/d decline in receipts on 7 August, although there was a partial recovery on 8 August with another minor decline today. In Appalachia, maintenance on the Columbia Gas Transmission Line 1983, scheduled to last until 14 August, is hindering output in the region. Initial data for 9 August show Appalachian receipts have fallen to 26.7 bcf/d, a 1.6 bcf/d d/d decline and nearly 2 bcf/d lower than the recent peak. So far this month, Appalachian receipts have shown a good deal of variability, but on a month-to-date basis have dropped by 0.3 bcf/d m/m. GoM receipts are trending moderately higher at 0.1 bcf/d m/m. The Bakken is also up by 0.1 bcf/d m/m, but it is likely going to top out soon given processing capacity limits.
Feedgas for LNG exports remains variable this month, with ebb and flow at both Cove Point and Sabine Pass. In terms of scale, though, Sabine Pass has come off by 0.7 bcf/d from its run rate over the past three days. We had assumed a modest recovery this month to 3.45 bcf/d of average feedgas flows, but this looks in jeopardy if such low flows continue for a few more days.
With the completion of both the El Encino-Topolobampo and Nueva Era pipelines, there is more capacity to move gas into and within Mexico just in time for the end of the peak cooling season. However, it is our view that pipeline flows to Mexico are likely to have seen only a moderate tick-up so far this month. Flows on the El Encino-Mazatlan pipe were trending near 80 mmcf/d over the past two days, but that figure has been as high as 0.15 bcf/d (Fig. 1), according to TransCanada Mexico data. Nueva Era is online, but it appears to have been merely flowing test volumes since the end of July. As a result, we have maintained our outlook for Mexican pipeline trade of 4.7 bcf/d for the week ending 17 August. Verifying these trade volumes with cross-border flow data is difficult given the gaping holes in coverage as Texas intrastate pipelines do not report nominations. From what we can monitor using cargo-tracking data, LNG deliveries into Mexico for July were a whopping 1.2 bcf/d, a 0.5 bcf/d y/y increase and the highest since October 2014 (see Data review: Mexico – Despacito, 31 July 2018). That level suggests there was a significant need for LNG imports to supplement pipeline trade last month, offering evidence that a massive step-up in net pipeline trade has yet to occur.
While we anticipate a m/m decline in gas use in the power sector, burns have still been incredibly strong. Power burn on 6-9 August looks to be above over 40 bcf/d, with peak volumes near 42 bcf/d, according to our power models. Continued heat along the East and West coasts is boosting CDD counts above normal and should easily outdo depressed readings in August 2017, especially toward the end of the month, which was impacted by Hurricane Harvey.
For the near term, cash settlements have been supported by those recent peak power burn numbers, together with a lack of follow-through in US output. While maintenance could continue to depress those flows for the coming week, our power burn models do not show the same 40+ bcf/d highs in daily demand that have characterised the week in progress. Current forecasts point to the week ending 17 August posting 13% fewer CDDs w/w, which is likely to reverberate back into the cash market. For the prompt contract, technicals are pointing to resistance near $3/mmbtu and support at $2.87/mmbtu. While today’s print did not stoke the same degree of bullish enthusiasm as last Thursday’s miss vs consensus, a storage trajectory for a shale-era low end-October carryout is likely to keep the market supported.
|Fig 1: El Encino – Mazatlan injections, mmcf/d||Fig 2: Appalachia production, bcf/d|
|Source: TransCanada, Energy Aspects||Source: Ventyx, Energy Aspects|