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US natural gas in storage likely rose by below-average volumes as Henry Hub futures surge

Highlights

Henry Hub prompt climbs more than 30 cents

LNG, power burn demand make gains

Denver — US natural gas stocks likely increased at a below-average rate once again last week as the return of LNG demand combined with sustained lower domestic production trims the storage surplus, providing significant uplift to futures at the benchmark Henry Hub, a survey of analysts showed.

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The US Energy Information Administration is expected to report a 27 Bcf injection for the week-ended July 31, according to a survey of analysts by S&P Global Platts. Responses to the survey were tight and ranged from an injection of 20 Bcf to 33 Bcf. The EIA plans to release its weekly storage report on Thursday at 10:30 am ET.

A 27 Bcf injection would be much less than the 58 Bcf addition in the corresponding week last year and the five-year average build of 33 Bcf. A build within expectations would increase stocks to 3.268 Tcf. The surplus to the five-year average would slide to 423 Bcf, and the overhang to 2019 would contract to 595 Bcf. The injection looks to be nearly in line with the 26 Bcf build reported for the week prior.

Inventories received support for the final week of July from slightly cooler weather, which curbed US gas-fired power generation demand by about 1.7 Bcf/d, primarily in the Southeast, according to S&P Global Platts Analytics. Production declines in the early days of August, combined with a warm outlook for the rest of the month, have pushed up Henry Hub prompt-month contracts by about 30 cents/MMBtu this week.

The NYMEX Henry Hub September contract added 8 cents to $2.18/MMBtu during afternoon trading on Aug. 4. The prompt-month contract surged 30 cents the day prior while the winter strip climbed 12 cents and the summer 2021 strip was up 5 cents. Forecasts for warmer weather in August combined with flagging production and a bump in LNG feedgas demand prompted the gains.

LNG feedgas has broken above 4 Bcf/d in August, suggesting July marked the bottom point for feedgas deliveries and a recovery is on the horizon, according to Platts Analytics. It was the first time LNG feedgas demand climbed above 4 Bcf/d since June 30, an increase of over 800 MMcf/d from the prior week's average. Although total US liquefaction utilization remains under 40%, the expectations for stronger feedgas demand in September and October, when US Gulf Coast netbacks are in positive territory, becomes more of a reality.

Platts Analytics' supply and demand model currently expects an injection of 45 Bcf for the week ending August 7. This would increase the surplus to the five-year average by 1 Bcf. US production has averaged 87 Bcf/d to start August, 300 MMcf/d lower than July.

Roughly half of the production losses are maintenance driven, and expected to return by Aug. 7, but the overall risks to the remainder of the summer skew bullish due to strong power burn demand and the recovery in LNG feedgas demand.

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