Still in triple-digit territory

Published at 17:35 2 May 2019 by

Today’s report (week ended 26 Apr): EIA net change: +123 bcf, EA: +116 bcf

  • Today’s print featured the largest ever injection in the South Central region and is the second-highest total injection on record. To true up to today’s number, we made a downward adjustment to res-com demand.

Next Thursday’s report (week ending 3 May): EA preliminary: +96 bcf

  • Next week’s report, based on our preliminary analysis, may interrupt a string of triple-digit injections. We currently forecast a 96 bcf injection, with the big w/w slump due to our projection of a 0.2 bcf/d w/w fall in output and a 1.4 bcf/d w/w rise in power demand.

Still in triple-digit territory

In last week’s Panorama, we highlighted that our balances were pointing to triple-digit builds through the week ending 7 June. Since then, a combination of heating loads and cooling loads in the week in progress has chipped away at our estimate for the week ending 3 May, bringing it down to the high 90s bcf and the impact of price on the power sector has chipped our preliminary estimate for the week ending 7 June back down to double-digits land. Without the emergence of more sustained hot weather in May, the start of the injection season is far from constructive. Indeed, weather forecasts suggest May could be a record-breaking month, potentially recording the top three storage injections of all time (see Fig 1), or at least the second and third spot. The market seems to be pricing in those expectations, even more so after today’s bearish miss on the storage number versus consensus. Currently, we are seeing such strong builds without production even hitting the peak weekly readings seen in December.

As we wrote last week, market positioning had appeared to indicate a potential level of support for the market. Since then, the remainder of the injection season strip has moved up $0.05-0.06/mmbtu through settlement yesterday, although fundamentals have barely changed and fell back to that level of support today. Short-term factors have sliced a few bcf of our projected end-May injection season balances (see Fig 1). Production has been volatile of late, but it is trending slightly lower w/w, once more impacted by maintenance events. LNG intake is higher as compressor station maintenance is no longer impacting flows into Corpus Christi, while Cameron feedgas volumes are now up to 0.2 bcf/d with an estimated 1.5 bcf in the storage tanks. Meanwhile, Freeport has not taken in any additional volumes since 24 April.

Power demand climbing nationally to its highest levels in a month, along with continued cash gas pricing near $2.50, has finally nudged gas burn for generation the week in progress to 24.5 bcf/d. Coal generation in April fell by 19 aGW, a steeper fall then expected due to milder weather and lower gas prices. We expect a decline of at least 13 GW in May coal-fired power generation, one-third of which will be due to retirements (adjusted for capacity utilisation) over the past year, with the rest due to coal-to-gas switching.

Coal prices have finally followed international thermal coal prices. They have also started tracking to the recent move in gas prices, moving lower with the Northern Appalachian coal benchmark—used in the PJM grid—which is off 10% over the past month, though still up y/y. However, in PJM, the second (and likely last) new CCGT to start up in 2019—the 0.5 GW Birdsboro plant west of Philadelphia—began commissioning in mid-April (see Fig 2) and is expected to reach commercial service by next month, which will make it harder for coal to take back significant market share in power.

The month-ahead forecast is showing June population-weighted CDDs some 1% higher than normal. However, our modelling shows that that skew to the warm side, in even a 5% hotter-than-normal June, would only yield some 0.3 bcf/d incremental gas burn. This implies that a 1% increase will not garner much additional gas burn in June if those early weather forecasts hold.

We still remain cautious on any step-up in pipeline exports to Mexico. IEnova in its Q1 19 earnings call indicated that commercial operations on Sur de Texas-Tuxpan would be declared ‘soon’ affirming its schedule for a Q2 19 in-service date. It also stated gas should begin being scheduled in the next few weeks for testing and line pack. However, its investor presentation also listed that offshore tie-ins are still ‘pending.’

Unless there is a substantial change in weather, near-term pricing appears fairly rangebound. Put options selling continued in earnest this week with paper selling the Jul-Oct strip $2.25/mmbtu puts. Despite higher flat price, summer volatilities softened this week by about half a point to 22.50, indicating lack of expectation for substantially higher price movements.

Fig 1: Weekly EIA storage change, bcf Fig 2: Birdsboro plant gas intake, bcf/d
Source: EIA, Energy Aspects Source: Ventyx, Energy Aspects

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