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Analysts call for bullish 79 Bcf injection to US working gas in storage: survey

Highlights

Generator demand limits injections into mid-June

Weak LNG feedgas, strong production weigh on balances

NYMEX prompt gas futures settle to 9-week low

Denver — The volume of natural gas injected into underground US storage facilities last week was likely the smallest addition to stocks since late April as gas demand from power generators continues rising with the early arrival of summer-like temperatures across the Lower 48 states.

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The US Energy Information Administration is expected to report a 79 Bcf injection for the week that ended June 12, according to the consensus expectations of a survey of analysts by S&P Global Platts. Responses to the survey ranged from an injection of 70 Bcf to one of 86 Bcf. The EIA plans to release its weekly storage report on June 18 at 10:30 am ET (1430 GMT).

A 79 Bcf injection would be less than the 111 Bcf addition in the corresponding week last year and less than the five-year average build of 87 Bcf. A build within expectations would increase stocks to 2.886 Tcf. The surplus to the five-year average would slide slightly to 413 Bcf, and the overhang to 2019 would decrease to 716 Bcf.

Demand

Strong power burn demand through mid-June likely limited gas storage injections last week. During the first 12 days of June, gas demand from power generators averaged over 35.3 Bcf/d, outpacing consumption in the year-ago period by 3.1 Bcf/d or nearly 10%, S&P Global Platts Analytics data shows.

While warmer temperatures and low prices have bolstered gas demand from generators this month, pandemic-related demand destruction from other sectors has weighed the US supply-demand balance.

Through mid-June, LNG feedgas demand has averaged just 4.1 Bcf/d this month, down from a June 2019 average at over 5.5 Bcf/d – despite a significant expansion in export capacity over the past 12 months. With additional cargo-lifting cancellations now expected from portfolio players and overseas end-users in July and August, it appears increasingly likely that LNG feedgas demand will remain lower for longer.

As gas consumption at US refineries and chemicals facilities continues to falter, total demand from the industrial sector has also lagged year-ago levels by roughly 2.1 Bcf/d this month. Demand now appears to have stabilized in the mid-19 Bcf/d range. Still, Platts Analytics expects consumption to face a slow road to recovery in the months ahead as a global recession limits consumption of industry outputs like petroleum, petrochemicals and steel.

Supply

On the supply side, recent production estimates suggest a nascent recovery in associated gas supply could already be underway this month, led by recent output growth from the Permian Basin. In June, modeled US production is averaging over 86.8 Bcf/d, up from a second-half May average at 86.5 Bcf/d, Platts Analytics data shows.

In the Permian, modeled output has rebounded recently to levels over 11 Bcf/d, up from a 16-month low at just 9.8 Bcf/d on May 20. Over the next two months, current forecasts show US production to continuing to rise, hitting an annual high around 90 Bcf/d in August, before easing to the upper 88 Bcf/d range in the fourth quarter and into early 2021.

Futures, forwards

On June 16, the NYMEX July gas futures contract traded down for a fourth consecutive session settling at $1.614/MMBtu – the prompt contract's lowest since mid-April.

Forwards markets are increasingly pricing-in similar bearishness through the summer months as recent supply gains and a slow-than-expected recovery in gas demand weighs on the US market balances.

On June 15, the balance-June, July and August Henry Hub forward strip price settled at an average $1.66/MMBtu. An expectation for tighter supply by late fourth quarter, though, has continued to support winter gas prices, with the January calendar-month contract most recently settling at $2.94/MMBtu.