Seasonally normal weekly natural gas storage build seen, fueling supply woes: survey

Analysts expect a seasonally normal weekly injection into US gas storage for the week ended May 13, which will do little to assuage supply concerns as Henry Hub climbs back above $8/MMBtu.

The US Energy Information Administration is expected to report an 87 Bcf injection, according to a survey of analysts by S&P Global Commodity Insights. Responses to the survey were reported in a narrower range than the last survey, with expected injections ranging from 79 Bcf to 90 Bcf.

The anticipated 87 Bcf injection would come in higher than the corresponding week last year's 71 Bcf but would be perfectly in line with the five-year average of 87 Bcf. US storage levels would climb to 1.73 Tcf, reducing the deficit to the five-year average by just 2 Bcf to 312 Bcf.

"The last four injections have all been solid, they've been right in line with seasonal norms, given the fundamentals," Stephen Schork, principal at the Schork Report, told S&P Global in a phone interview.

"There's nothing bearish about these numbers, gas is getting into the ground, but we had such a large drawdown last winter that good seasonal numbers are not good enough, we need higher-than-average numbers to get back to where we should be," Schork said.

NYMEX Henry Hub buoyancy

The NYMEX Henry Hub June contract climbed 35 cents to settle at $8.30/MMBtu on May 17, preliminary settlement data from CME Group shows, as the prompt-month makes another pass at the $8/MMBtu level after a week of moving in the $7/MMBtu range May 9-16.

The prospect of another weekly build of middling size could be fueling some of the NYMEX Henry Hub prompt-month contract's recent rally, analysts told S&P Global.

"The market is becoming more concerned about storage levels," Phil Flynn, senior market analyst at Price Futures Group, said. "We're below average and the weather has gotten demand above average, and we're trying to export every molecule of natural gas we can to Europe, so there is upward potential in the market that will keep us moving,"

Above-average weekly storage builds will be needed to close the deficit before the onset of the winter 2022-23 demand season, which has been thwarted by higher-than-normal demand so far this injection season.

"Demand has been impressively strong this month to date, averaging roughly 4.3 Bcf/d higher year on year, while supplies have struggled to keep up, growing by only about 1 Bcf/d," Eric Brooks, senior natural gas analyst at S&P Global, said.

"Unless something changes, this tightness in the market is expected to persist through summer, raising the potential for inventories to enter the winter at uncomfortably low levels," Brooks said.

Outlook

Looking ahead, S&P Global's supply-demand model expects a net injection of 83 Bcf for the week ending May 20, which would materially undershoot the five-year average injection of 97 Bcf, potentially giving additional support to futures prices.

Unseasonably hot weather in Texas and the Midcontinent has led to elevated gas-fired power demand for the week in progress. Total US gas-fired demand has averaged 31.2 Bcf/d so far this week (May 14-17), up from averaging 28.9 Bcf/d during the seven days prior (May 7-13) and 25.2 Bcf/d for the same days in 2021.

US gas production has weakened during the week in progress, averaging 93.6 Bcf/d for May 14-17, compared to the 94 Bcf/d averaged during the prior week.