Analysts Examine USA Gas Inventory

Prospects for a 4+ trillion cubic foot end of October U.S. gas inventory level have faded, according to a new BofA Global Research report, which was sent to Rigzone this week.

Storage is still likely to end the season at elevated levels, however, the report outlined, adding that this “has kept prices in check”.

According to the report, weather, not prices, has played the “main role in absorbing excess inventories”.

“During 2Q-3Q23, as wind underperformed, gas power burns averaged 39 billion cubic feet per day, up from 36.7 billion cubic feet per day over the same period in 2022 and 33.7 billion cubic feet per day in 2021,” the report noted.

“High power burns lifted gas demand despite soft industrial and res/com use. Meanwhile, supply rose in the face of low prices, topping 102 billion cubic feet per day this summer. The net of these dynamics was a tighter balance, with storage falling to +200 billion cubic feet vs the five-year average recently from +370 billion cubic feet in June,” it added.

U.S. gas inventories are likely to reach 3.81 trillion cubic deet at the end of October, the report outlined, highlighting that this would be “the highest level since 2020 (3.96 trillion cubic feet) and before that, 2016 (3.91 trillion cubic feet)”.

This winter, U.S. production should average 101.9 billion cubic feet per day, or +1.5 billion cubic feet per day year on year, due to Permian and Northeast growth, the report noted.

“Meanwhile, demand should rise three billion cubic feet per day year on year to 121.1 billion cubic feet per day due to higher LNG exports, which are set to average 1.8 billion cubic feet per day above 2022 levels thanks to Freeport’s return,” it added.

“Res/Com and industrial demand should rise one billion cubic feet per day, while power demand comes in 500 million cubic feet per day lower year on year on higher renewables generation. Exports to Mexico averaged +300 million cubic feet per day year on year year to date, and we see winter 2023/24 volumes up 400 million cubic feet per day year on year too,” it continued.

“Imports from Canada averaged nearly 300 million cubic feet per day lower year on year year to date, but we see this rebounding to +300 million cubic feet per day year on year this winter,” it went on to state.

In the report, BofA Global Research revealed that it expects inventories to exit winter 2023/24 at 1.77 trillion cubic feet per day, “near five-year highs”.

“If realized, this inventory path may cause Henry Hub gas to trade below our forecast of $3.50 million British thermal units (4Q23/1Q24) and below the current forward curve,” BofA Global Research warned in the report.

A mild winter would put inventories on a path to hit new seasonal record highs by March and could lead to a repeat of sub $2 per million British thermal unit prices at times early next year as high-end of winter inventories reignite the possibility of hitting storage constraints next summer,” the report added.

“True, supply growth is likely to slow next year year on year, but power burns, a big source of demand growth this year, should fall year on year next summer,” it continued.

“After all, a repeat of exceptional Southern heat and historically low wind speeds next summer seems unlikely, and 38GW of renewable capacity growth and 1.3GW of nuclear are likely to cushion against the 6.8GW of coal retirements next year,” it stated.

In its report, BofA Global Research noted that Henry Hub natural gas prices have been range bound in 2023, “trading in a $1 per million British thermal unit range since February and a $0.50 per million British thermal unit range since July”.

In its latest short term energy outlook (STEO) report, which was released earlier this month, the U.S. Energy Information Administration (EIA) projected that the Henry Hub spot price would average $2.95 per million British thermal units in the fourth quarter of this year and $3.32 per million British thermal units in the first quarter of next year.

The STEO forecast that the 2023 Henry Hub spot price would come in at $2.58 per million British thermal units overall in 2023 and $3.24 per million British thermal units overall in 2024.

In its previous STEO, which was released back in August, the EIA projected that the Henry Hub spot price would average the same figures laid out in the September STEO in the fourth quarter of 2023 and first quarter of 2024.

The August STEO predicted that the 2023 Henry Hub spot price would come in at $2.58 per million British thermal units overall in 2023 and $3.22 per million British thermal units overall in 2024.

According to the EIA’s latest weekly natural gas storage report, which was released on September 21 and which provides estimates of working natural gas volumes held at underground storage facilities in the Lower 48 states and in five regions, working gas in underground storage was 3.269 trillion cubic feet as of September 15

This figure marked a net change of +64 billion cubic feet compared to EIA figures from September 8, the report outlined.

To contact the author, email andreas.exarheas@rigzone.com