Energy Aspects expect tomorrow’s EIA storage number to be a 58 bcf injection. Our initial forecasts for the next three EIA storage weeks are injections of: 52 bcf, 39 bcf, and 64 bcf.
At current forecasted injection rates, over the next four weeks, injections will be lower y/y by 4.1 bcf/d on average. We now forecast the end of October storage level will be 4.00 tcf, 30 bcf higher than our previous forecast.
Weather forecasts continue to point towards much warmer than normal weather for almost all of the country over the next two weeks. Even the EC 45-day forecast for the continental US shows CDDs trending far above normal through the beginning of August.
California in particular is looking exceptionally hot. We expect gas burns for power to average around 35 bcf/d during the current week, and to increase to 36.7 bcf/d over the week ending 1 July. We expect power burns to peak at 40 bcf/d on 27 June, the hottest forecast day.
In the current week, US dry gas production is up w/w by 0.29 bcf/d to 72.5 bcf/d. This still represents a 1.5 bcf/d y/y decline. Total wellhead production is down w/w by 0.18 bcf/d at 79.8 bcf/d, which also amounts to a 1.5 bcf/d y/y decline.
Over H2 16, we expect production to decline by an average of 1.8 bcf/d, with bigger reductions seen in Q3 16 than Q2 16. Over all of 2016, we expect production will fall by 0.64 bcf/d, softer than our previous forecast of 0.74 bcf/d, reflecting the faster than expected increase in prices.
While the US storage overhang continues to fade at a significant pace, Canadian storage remains very full, especially in the west, where levels are close to capacity (470 bcf). As of 10 June, western Canada has 443 bcf of gas in storage, which is 134 bcf more than last year and 146 bcf more than the five-year average. This means that storage in western Canada is roughly 94% full, only half-way through the injection season.
Henry Hub cash is looking exceptionally strong, closing yesterday around 2.79 $/mmbtu. This is up by $1 from same time last month. While strong power burns have clearly pushed cash prices up, these high prices are increasingly encouraging more coal-fired power generation in many regions, helping to ease the burden on the gas market.
Given the market appears to now be pricing in a sustained period of hot weather extending into August, most of the weather related risks seem to be to the downside. Certainly an easing of that outlook, bringing forecasts closer to seasonal norms, would allow prices to slip back, at least to the 2.59 $/mmbtu trigger level.