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US gas in storage posts second-largest weekly withdrawal on record at 338 Bcf

Highlights

Prices retreat following epic winter storm

Production rebounds quickly following freeze-offs

The US natural gas storage industry posted its second-largest draw on record last week, but the Henry Hub prompt-month contract continued to slip as the severe, country-wide cold retreated.

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Storage inventories decreased by 338 Bcf to 1.943 Tcf for the week ended Feb. 19, the US Energy Information Administration reported the morning of Feb. 25. The withdrawal was stronger than the 333 Bcf draw expected by an S&P Global Platts survey of analysts. The pull proved more than 200 Bcf stronger than the the five-year average.

It was only the second weekly storage withdrawal to measure more than 300 Bcf. The largest weekly storage decline on record stands at 359 Bcf, which was set for the week ended Jan. 5, 2018.

Unprecedented cold in parts of the country led to huge swings in daily supply and demand fundamentals, according to S&P Global Platts Analytics. US production fell about 9 Bcf/d versus the prior week, compared to a 3 Bcf/d decline during the polar vortex of January 2018.

Most of the losses were observed within Texas, Oklahoma and the Southeast. Such large losses in US production led to an aggregate increase of 2.6 Bcf/d in net Canadian imports and LNG sendouts week on week. Lower production, massive gains in spot gas prices, loss of power and port closures led to LNG feedgas and exports to Mexico falling by 5.1 Bcf/d and 1.3 Bcf/d, respectively, week on week.

Gas prices lost some ground this week, with the now prompt April NYMEX contract falling to near $2.80/MMBtu entering the EIA report -- well off the intraday high of $3.06/MMBtu established last week. A mild outlook over the next two weeks, coupled with a fast return of US production, likely caused some profit-taking.

Nevertheless, with the market likely to enter the summer near 1.5 Tcf -- the current summer NYMEX Henry Hub strip appears undervalued, according to Platts Analytics. Indeed, too much demand will be stimulated, and not enough gas will be available to replenish storage to adequate levels. After the EIA report, gas prices were relatively unchanged, with the April contract near $2.79/MMBtu.

Storage volumes now stand 298 Bcf, or 13.3%, less than the year-ago level of 2.281 Tcf, and 161 Bcf, or 7.7%, more than the five-year average of 2.104 Tcf.

Platts Analytics' supply and demand model currently forecasts a 137 Bcf withdrawal for the week ending Feb. 26, which is about 50 Bcf stronger than the five-year average draw. Rising temperatures aided a quick recovery in US production, increasing 5.6 Bcf/d week over week. Higher production pushed back on other sources of supply, with LNG sendouts and net Canadian imports falling by 1.2 Bcf/d and 1.5 Bcf/d, respectively.

More supply availability, the resumption of power and the return to more normalized port operations allowed LNG feedgas volumes to climb 2.4 Bcf/d week on week. In addition, exports to Mexico ticked up 600 MMcf/d week on week.