US natural gas storage deficit grows as South Central region reports net withdrawal

US natural gas inventories increased by a margin well below the five-year average for the week ended June 18 as the Henry Hub balance-of-summer reached $3.40/MMBtu.

Storage inventories increased 55 Bcf to 2.482 Tcf for the week-ended June 18 the US Energy Information Administration reported June 24. The build was less than the 63 Bcf addition expected by an S&P Global Platts' survey of analysts, as well as the five-year average build of 83 Bcf, according to EIA data.

Storage volumes now stand at 513 Bcf, or 17%, less than the year-ago level of 2.995 Tcf, and 154 Bcf, or 6%, less than the five-year average of 2.636 Tcf. The injection was less than half the 115 Bcf build reported for the same week in 2020.

Markets remained notably tight in the South Central region as temperatures there surged, driving up power demand. The region posted a net withdrawal of 4 Bcf. Over the past five years, the region has added an average of 19 Bcf in the corresponding week, according to EIA data.

Platts Analytics' base case forecast expects net storage withdrawals across the Gulf Coast region the next two months due to higher burns as well as slower-than-anticipated production growth from the Haynesville and Permian.

Gulf Coast inventories are forecast to exit the summer at 950 Bcf, 250 Bcf less than the five-year average and the lowest end to the summer since October 2018, when total US stocks entered the winter with just 3.2 Tcf in the ground.

The NYMEX Henry Hub July contract added 7 cents to $3.40/MMBtu in trading on June 24. Spreads from summer to winter now stand at just 10 cents/MMBtu, disincentivizing economic storage cycling and positioning the winter for potentially even more bullish price moves.

Henry Hub is also being boosted by rebounding LNG demand. Total US LNG feedgas broke back above 11 Bcf/d on June 23 for the first time since June 1 as multiple export facilities and feedgas delivery pipelines have gone down for maintenance work.

The 1.6 Bcf/d increase in LNG demand since June 21 has caused spot prices at Henry Hub to strengthen from $3.15/MMBtu to $3.33/MMBtu for flow date June 24, the strongest daily cash price for Henry Hub since mid-February. US LNG feedgas is forecast to average 10.9 Bcf/d in July.

Further declines in Gulf inventory projections could see prices move well above $3-$4/MMBtu (perhaps as high as $9-$10/MMBtu to cut LNG demand) given the limited elasticities in the power sector at higher loads/prices as witnessed this month, according to Platts Analytics.

Platts Analytics' supply and demand model currently forecasts a 67 Bcf injection for the week ending June 25, which would measure only 2 Bcf more than the five-year average.

The hot weather that drove power demand higher during the week ended June 18 has cooled off considerably for the week ending June 25. Total supplies are up 800 MMcf/d week over week, averaging 96.1 Bcf/d, after production was seen staging a roughly 1.2 Bcf/d recovery after falling 1 Bcf/d the week before. Downstream, total demand is trending nearly 1 Bcf/d lower on the week, with power burn driving nearly all of the declines as deliveries to power generators have fallen by roughly 2.2 Bcf/d on the week.

End-of-season storage bets remain solid around the 3.6 Tcf level, which would be nearly 400 Bcf less than the season-ending inventory level from November 2020.