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Lower production, strong LNG demand likely to lead to 150 Bcf-plus storage withdrawal

Highlights

LNG feedgas hit record high last week

Futures not responding to tighter market

Denver — US working gas in storage likely plummeted at a rate well above the five-year average last week on colder weather and record-high LNG demand, but Henry Hub's balance-of-winter prices continue to decline as forecasts call for below-average withdrawals in the week ahead.

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The US Energy Information Administration is expected to report a 153 Bcf withdrawal for the week ended December 20, according to an S&P Global Platts survey of analysts. Responses to the survey ranged from draws between 145 Bcf to 165 Bcf. The EIA plans to release its weekly storage report at 10:30 am EST Friday, one day later than usual because of the Christmas holiday.

A 153 Bcf withdrawal would be much more than the 61 Bcf pulled in the corresponding week last year as well as the five-year average draw of 101 Bcf.

A pull within expectations would decrease stocks to 3.258 Tcf, which would increase the deficit to the five-year average to 61 Bcf and decrease the surplus to last year significantly to 526 Bcf.

The oversupplied US gas market tightened significantly for the week ended December 20, driven by colder weather across the US, record-high LNG feedgas demand and softening production out of the Northeast and Texas, according to S&P Global Platts Analytics.

As a result, Friday's Weekly Natural Gas Storage Report is expected to announce a drawdown on inventories of more than 150 Bcf, handily exceeding the five-year average withdrawal. Temperatures fell between 4 and 5 degrees in every storage region except the East, which only fell about 2 degrees week over week.

While the recent weather-driven tightness is not expected to last through the end of 2019, strong LNG exports and weaker production are expected to support prices at Henry Hub through this winter. But there remain downside risks for this spring and summer prices, when global LNG demand softens.

Total LNG feedgas deliveries reached a record high for the week ended December 20, averaging 8.02 Bcf/d, according to Platts Analytics. December LNG exports have come in higher than initially expected, and global demand is likely to support these levels through most of the winter. It was a new single-day record of 8.6 Bcf on December 20. During the same week last December, LNG feedgas demand averaged a mere 4.1 Bcf/d.

Despite tightening and the potential for higher prices, NYMEX Henry Hub futures continued to decline this week. The January contract closed at $2.21/MMBtu Monday and fell 3 cents more during trading Tuesday. This is the lowest the January contract as the prompt month has traded during December since 2015 when it dipped below $2 for nearly two weeks.

An early Platts Analytics forecast shows a net withdrawal of only 74 Bcf for the week ending December 27, which is 15 Bcf below the five-year average.

-- Brandon Evans, bevans@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com