US natural gas inventories decline 139 Bcf as withdrawal season enters final month

The latest weekly draw from US natural gas storage inventories once again outpaced the average rate as only one below-average pull has been seen year to date, widening the deficit as the withdrawal season enters its final month.

Storage fields withdrew 139 Bcf for the week ended Feb. 25, according to data released by the US Energy Information Administration March 3.

Working gas inventories decreased to 1.643 Tcf. US storage volumes now stand 216 Bcf, or 11.6%, less than the year-ago level of 1.859 Tcf and 255 Bcf, or 13.4%, less than the five-year average of 1.898 Tcf.

The withdrawal was just above the 137 Bcf draw expected by an S&P Global Commodity Insights survey of analysts. Responses to the survey ranged from a 130 to 150 Bcf withdrawal. It also outpaced the five-year average of 98 Bcf and last year's 132 Bcf pull in the corresponding week.

The NYMEX Henry Hub April contract fell 6 cents to $4.70/MMBtu following the EIA's storage report release. The prompt-month contract closed at $2.81/MMBtu on March 3, 2020. The summer strip, April through October, fell 5 cents to average $4.77/MMBtu.

A forecast by S&P Global calls for a 111 Bcf draw for the week ending March 4, which would increase the deficit to the five-year average further as demand slows during the shoulder season. Barring a late winter storm, it will likely be the final triple-digit drawdown of the heating season as demand lightens. Over the past five years, the final draw of the season typically occurred for the week ending March 25.

Although the injection season looks to begin with stocks at least 300 Bcf below average, sustained oil prices around $100/b could cause US associated gas production to increase more than expected. This would provide more supply to refill depleted storage reservoirs this summer.

While it is the view of S&P Global that operators will continue to maintain some amount of capital discipline, a fair amount of upside exists given historical crude price highs. To quantify the potential upside, S&P Global considered two scenarios. The first being a world in which WTI prices remain $80-$100/b and operators ease capital discipline marginally, to which there is 500 MMcf/d to 1.2 Bcf/d of potential upside. The second being an unconstrained scenario where operators throw capital discipline to the wind, which could amount to as much as 1.4 Bcf/d to 2.1 Bcf/d of potential upside among associated gas.