Spotlight: US East injection rates far exceed historical averages, bringing stocks closer in line with normal

A version of this Spotlight from S&P Global Platts Analytics was first published Oct. 27.

Storage inventory levels in the Northeast lag the five-year average, but injection rates are higher and decreasing at a slower pace than seen over the past five years as the end of the 2021 injection season nears.

The Northeast made incredible strides in the back half of the summer building storage levels after lagging five-year inventory volumes since late April this year. Injection rates this September and October, averaging 4.1 Bcf/d, have far outdone the five-year average of 3 Bcf/d for the same months. While the region has made up for lost time with high injection rates, inventory levels are still below the five-year average and will most likely not catch up to them before withdrawal season begins.

Storage inventory levels in the EIA's East storage region, which largely overlaps with the Northeast cell region, were at 862 Bcf for the week ended Oct. 15, putting this year's stocks 30 Bcf below the five-year average for the week. While that may seem like a sizable inventory deficit current stocks are sitting only 3% lower than normal for this time of year, a number that will potentially be reduced should the trend of above-average injection rates continue in the coming weeks (which we expect they will).

Consistent withdrawals in the region (ignoring a few random early withdrawal dates followed by another period of injection) have begun anywhere between Nov. 6-Nov. 15 in the past five years. If this year follows trend, that leaves two to three weeks of somewhat consistent injection time remaining. Typically, injection rates slow in the last few weeks as demand increases and injection into nearly full storage facilities become more difficult.

And while that same trend holds true for this year, rates have decreased much slower than previous years. For example, since Sept. 1 this year injections into storage in the East region have averaged 3.76 Bcf/d, compared with the five-year average of 3.14 Bcf/d over that same time period. This means that injections have come in nearly 600 MMcf/d higher than "normal" in the last two months, a time that typically coincides with limited storage injection capabilities resulting from injection ratcheting. Ratcheting is the mechanism whereby storage operators gradually reduce shippers' daily injection entitlements, typically as a function of storage inventory utilization. So, as inventories go up, injection capabilities go down, generally.

The strength in storage injections this year is likely also playing a role in the relative strength in Northeast basis prices, which typically fall sharply in the late shoulder season due to the above-mentioned limitations on storage injection capabilities' coinciding with weak seasonal demand. Last year, for example, cash basis prices at Dominion South (now Eastern Gas South) were trading more than $2/MMBtu lower than Henry Hub cash prices.

This year, however, Eastern Gas South prices settled at a mere 30-cent discount for gas day Oct. 27. And the fact that Henry Hub prices have increased more than twofold year over year means that Eastern Gas South fixed-price settlements are coming in well north of $5/MMBtu, a price level that would have been practically unthinkable for the Northeast just a few months ago.

Platts Analytics is forecasting winter demand for the Northeast will remain flat compared to last winter, right around 25.5 Bcf/d. However, NOAA's most recent long-term weather forecast released Oct. 21 states the Northeast has a 40-50% chance of being warmer than last winter, indicating more downside risk to the current res/comm forecast.

Platts is forecasting an uplift in production of almost 600 MMcf/d from last winter, landing at 34 Bcf/d for the 2021-22 winter. And storage inventories are anticipated to enter the winter just below 1 Tcf, with a forecast draw stocks down to roughly 400 Bcf by summer, in line with historical norms and limiting the upside to basis at Eastern Gas South. Henry Hub winter strip remains over $5/MMBtu Northeast forward prices are doing the same.

Eastern Gas South is trading near $4.75/MMBtu for the winter strip, with forward basis roughly 53 cents behind Henry Hub compared to an average of roughly 90 cents behind Hub last winter. This strength in basis may be slightly overdone given fundamental changes anticipated this coming winter.