The price premium held by the benchmark Henry Hub natural gas spot index over the NYMEX prompt-month gas activity thus far in the withdrawal season indicates more incentive to draw natural gas from inventories in the current heating season than in the comparable period in the year earlier and in the frigid winter of 2013-14, as market participants avoid exposure to the physical markets.
From Nov. 1, 2017, to Feb. 9, the average Henry Hub natural gas spot price was $3.205/MMBtu, or about 23 cents higher than the average NYMEX prompt-month gas futures pricing of $2.976/MMBtu, a pattern described by the U.S. Energy Information Administration as conducive for storage withdrawals as market participants avoid the spot market. The spot gas index was more than 10 cents lower than the front-month gas activity in the year prior and just roughly 10 cents higher in the same period in 2013-14.
Cumulatively, however, net storage draws have mixed comparisons to recent years. Fifteen weeks into the withdrawal season, spanning the week ended Nov. 3, 2017, to the week ended Feb. 9, net draws from storage have totaled 1,891 Bcf, exceeding both the 1,494-Bcf pull during the same period in the prior year and the 1,499-Bcf average drawdown during the corresponding weeks for the years 2013-17. The first 15 weeks of the 2013-14 heating season saw a net drawdown of 2,086 Bcf.
The spot and prompt-month gas spread in the current heating season spiked in January, coinciding with reports of record-setting inventory withdrawals. The Henry Hub spot gas index was as much as $4.658/MMBtu higher than the prompt-month contract on Jan. 4, and $2.228/MMBtu higher on Jan. 17, as natural gas inventories notched an all-time high drawdown of 359 Bcf in the week ended Jan. 5 and the 288-Bcf pull in the week to Jan. 19 that tied as the second largest draw ever recorded.
Analysts from the EIA and Barclays attribute robust storage draws in the current heating season to the combination of elevated heating demand amid frigid weather, exports of natural gas to Mexico and LNG feedstock gas.
Natural gas consumption opened 2018 on a new single-day record of 150.7 Bcf on Jan. 1, as the daily temperature reached a maximum departure from normal of 18 degrees Fahrenheit below normal, besting the previous record of 143.3 Bcf reached on Jan. 7, 2014, the EIA said in its Jan. 4 "Natural Gas Weekly Update."
Although warmer-than-normal weather prevailed in November 2017 through the latest available climate report period of January 2018, an outbreak of bitter cold impacted most of the country in late December 2017 and lingered into early 2018, according to the National Oceanic and Atmospheric Administration's "State of the Climate" reports.
Sitting at 1,884 Bcf as of the week ended Feb. 9, or 577 Bcf below the year-ago level and 433 Bcf below the five-year average of 2,317 Bcf, total working gas stocks are on pace to end the heating season significantly diminished.
The EIA expects inventory draws matching the five-year average through the remainder of the withdrawal season to leave working gas stocks at 1,269 Bcf on March 31, a level 25% lower than the five-year average of 1,697 Bcf and the second lowest end-of-season level reported since 2010. Barclays assumes an end-of-March storage of 1,350 Bcf.
By comparison, working gas storage ended the 2016-17 heating season at the third highest level seen in the last 10 years at 2,051 Bcf, while the frigid 2013-14 heating season saw drawdowns of 2,958 Bcf leave total inventories at a record low of 837 Bcf.
S&P Global Market Intelligence estimates show that inventories will total 1,086 Bcf in the week ending March 30 in the tight-supply scenario, applying the average 26-Bcf/week overdraw relative to the norm witnessed thus far in the heating season to the seven remaining weeks of the traditional withdrawal period.
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