South by South Central

Published at 16:48 9 May 2019 by

Today’s report (week ended 3 May): EIA net change: +85 bcf, EA: +86 bcf

  • Estimates for today’s print ranged widely across the spectrum. To true up to today’s number, we made a 0.1 bcf/d upward adjustment to res-com demand.

Next Thursday’s report (week ending 10 May): EA preliminary: +106 bcf

  • Fundamentals are essentially flat across the ledger w/w except for res-com demand, which falls by nearly 3 bcf/d and drives a return to triple-digit builds.

South by South Central

Last Thursday’s reported injection into South Central inventories set a record high, narrowly eclipsing the previous shoulder season injection record posted in 2015. The combination of a low absolute storage level to start the season, burgeoning production and lower gas prices has been stoking injections. Injections into salt inventories have been particularly high, as storage at such facilities can be ‘turned’ more quickly, allowing capacity holders to take advantage of any potential profit-taking in the spread between cash and nearer-term forwards during peak cooling season.

Making comparisons to 2015 is not going to stoke any measure of bullish sentiment. That season saw more than 800 bcf added into South Central stocks (salt and non-salt) and raised questions regarding how full inventories could physically get. The pace of injections so far in 2019 could put us back toward at least a 1.2 tcf end-of-season regional carryout and near 1.28 tcf if the activity from the 2015 injection season is mirrored this year. One difference this year is the expectation of a pick-up in demand: incremental exports are likely at the Cameron LNG, Corpus Christi T1 and Freeport T1 LNG terminals; two ethane crackers should be added before the close of Q2 19; and exports to Mexico should pick up once Sur de Texas-Tuxpan comes online. Before the Gulf Coast XPress and Midship pipelines come online, there will still be enough demand to use up that latent supply in inventories.

Based on the region’s storage facilities that we can monitor through flow data, several facilities have actually seen recent shoulder season injections number among the highest on record, which goes back to the start of the injection season of 2015. Of the three facilities where injection activity outstripped that of recent history, each appears to point to slightly diverging underlying dynamics behind that strong injection push.

The Keystone facility, fed by pipes coming from West Texas, is filling not only because of a need to place Permian gas anywhere, but also because of a series of maintenance and other force majeure events at other transport lines in the region (represented by the effects of regional maintenance pushing Waha price into negative territory in Fig 1). The facility is consistently filling near its 0.2 bcf/d injection capacity, with its largest three weekly injections all occurring this year.

For Arcadia gas storage, three of its largest five weekly injections recorded since the injection season of 2015 have been posted this shoulder season in spring 2019. The facility sits at a massive cross-section of pipes and could receive supply from South Texas, the Midcon and Haynesville production regions. In addition, coffers to start the injection season were significantly lower than average. Similarly, two of the largest three injections at Golden Triangle, owned by a subsidiary of Southern Gas Company, have occurred this year, with daily injections of 0.2 bcf/d versus 0.3 bcf/d of capacity, suggesting gas is being pushed in nearly as quickly as possible.

While we anticipate such strong injection activity will help stoke triple-digit storage injections for at least the next four storage reports (see Fig 2), the salt push is limited in seasonal scope. As cooling loads build, the prop-up from salt cavern injections will bow out seasonally and take balances back toward double-digit injections.

Looking to the nearer-term, short-term weather maps are not showing much of anything to stoke cooling demand in the 15-day forecast. However, the forecast late season snowstorms in Denver and the Great Lakes have kept res-com demand clinging on in our balances until the week ending 17 May. Assuming normal weather and with current prices, our models indicate gas demand in the power sector rising to about 30 bcf/d for the week ending 31 May, though a portion of that demand growth will be partially offset by a fall in industrial demand due to the Memorial Day holiday. At this point, a breakout of the recent trading range appears unlikely without more supportive weather.

Fig 1: Keystone storage change (bcf/d) vs Waha price ($/mmbtu) Fig 2: Weekly EIA storage change, bcf
Source: Refinitiv, Ventyx, Energy Aspects Source: EIA, Energy Aspects

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