US natural gas storage volumes add 73 Bcf as surplus continues to rise: EIA

High volumes of US gas in storage combined with weakening demand due to preventative coronavirus measures look to test the limits of injection capacity this summer.

Storage inventories increased by 73 Bcf to 2.097 Tcf for the week ended April 10, the US Energy Information Administration reported Thursday morning. The injection was just above an S&P Global Platts survey of analysts calling for a 71 Bcf build, but much stronger than the five-year average addition of 27 Bcf.

Storage volumes now stand 876 Bcf, or 72%, more than the year-ago level of 1.221 Tcf and 370 Bcf, or 21%, more than the five-year average of 1.727 Tcf.

With much of the US under stay-at-home orders against the spread of the coronavirus, the impact to gas demand is already evident. US electricity load has dropped 5%-6% below normal. Industrial demand has fallen 1.5 Bcf/d below historical levels, according to Platts Analytics.

Total US gas demand could be 6 Bcf/d lower in the second quarter as people continue to work from home. Much of the excess supply will go into storage, with inventories possibly reaching 4.1 Tcf by the end of October.

This scenario assumes production declines by an average of 1.9 Bcf/d from the current forecast through the summer, due to oil curtailments and producers slashing capital expenditures.

While Platts Analytics data shows evidence of demand destruction, it has yet to show a drop in gas production. If the production forecast were to remain unchanged, but demand declined by roughly 6 Bcf/d, storage inventories would reach 4.0 Tcf by late August and hit storage capacity by mid-September.

The NYMEX Henry Hub May contract slipped 3 cents to $1.567/MMBtu in trading following the release of the weekly storage report. However, it added 9 cents to $1.69 by late afternoon trading.

Platts Analytics latest Henry Hub forecast expects cash prices to average $1.97/MMBtu this summer. However, as storage inventories start to fill, cash prices will continue to weaken.

The current spread of $1.04/MMBtu between Henry Hub April cash prices and the upcoming winter strip is the widest it has been in the past five years. By comparison, the spread for the past two years was only around 30 cents/MMBtu. The high spread incentivizes strong injections in the near term.

If demand remains low due to the impacts of the virus, it may become more difficult for the gas market to balance on power demand, as it has in the past, given lower electricity loads. However, this month, there have been signs gas is still eating away at coal's market share.

Platts Analytics supply and demand model currently expects a 35 Bcf addition to US storage volumes for the week ending April 17, which would chip into the surplus slightly.

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