Another bearish US gas storage report expected from EIA as the end of winter approaches

The US Energy Information Administration is widely expected to report another tepid drawdown from US natural gas storage inventories in late February, as mild weather and weak demand continue to drive a widening surplus to the five-year average stock level.

In the week ending Feb. 24, US gas inventories likely fell 79 Bcf, according to the latest S&P Global Commodity Insights survey of market analysts. Storage withdrawal estimates narrowed from the previous week, ranging from 65-95 Bcf.

The anticipated 79-Bcf withdrawal would register well below the average 134-Bcf drawdown reported in the corresponding week over the past five years and the 137 Bcf/d pull reported in late February 2022.

Assuming the anticipated withdrawal for last week is accurate, US storage inventories would fall to 2.116 Tcf, widening the surplus to the five year-surplus for the seventh time in eight weeks as the storage surplus climbs to 344 Bcf, or more than 19% above average. The surplus to year-ago storage levels of 1.663 Tcf would be a remarkable 453 Bcf, or more than 27%, surplus.

Fundamentals

On Feb. 28, the NYMEX April futures contract was trading at about $2.70/MMBtu, or roughly flat to the prior-day settlement, intraday exchange data from CME Group showed. Traders have been somewhat more bullish this week, with the April 2023 future contract rallying in its debut prompt month spot Feb. 27, after bottoming out in the low $2s/MMBtu as recently as Feb. 21, with colder weather across much of the central and western US in the next 14 days looking to support demand headed into March, S&P Global data showed.

"We have had a nice bounce off the bottom," said Phil Flynn, senior account executive at Price Futures Group, by telephone Feb. 28. "Now we're probably going to be in a trading range here for a little bit until we get a new catalyst to drive us, whether it be weather or production or some other issue going forward."

The ramp-up underway at the Freeport LNG terminal in Texas has provided some support to the domestic price sentiment after an eight-month-long outage of the export facility. Feedgas demand at Freeport remains significantly below the more than 2 Bcf/d that the facility can take when operating fully. But the return of the terminal to producing LNG and exporting cargoes has given US gas futures traders hope that demand from the facility could help balance a series of other bearish factors that have led to the mounting storage inventories.

Freeport was scheduled to receive nearly 801 MMcf/d of feedgas Feb. 28, based on nominations for the morning cycle that could later be revised, S&P Global data showed. Flows to the facility have averaged over 680 MMcf/d since Feb. 22, which was a day after US energy regulators approved the return to commercial operations of two of the liquefaction trains at the three-train 15 million mt/year capacity terminal.

"It's not necessarily the type of story that will get you back up to $5, but it definitely could put in a floor above $2," Flynn said.

Outlook

For the week in progress, S&P Global's natural gas supply-demand model is already projecting another below-average withdrawal of just 77 Bcf, likely lowering domestic inventories to below 2.1 Tcf. If accurate, the current-week withdrawal would again widen the storage surplus to the five-year average.

"The next several weeks will be key in setting the stage for the balance of 2023," S&P Global natural gas analyst Eric Brooks said in a Feb. 28 report. "Little could change this at this point, barring some extreme late-season cold-weather event, so the question now turns to how the US market can manage a fairly loose supply-demand balance, and whether colder weather late in the winter season can possibly help erode some of that surplus, or, at the very least, help minimize how quickly it grows."