As the United States approaches storage nadir for the winter, the focus is shifting toward autumn storage fill levels. The qualitative changes in supply/demand variables that are anticipated this season include:
Import/Export
Canada - Much lower Canadian inventories this winter should reduce exports to the US by 1-2 BCFD
Mexico - expanded infrastructure and power demand should increase exports, with a summer peak
Production
Output growth in the Northeast, and infrastructure expansions in both the Marcellus/Utica and the Eagle Ford should drive national production several BCFD above 2013
Demand
Gas power burn demand should be structurally up, but face price competition from coal at current strip
Industrial demand should be marginally higher as new construction and expansions are commissioned
Normal weather would be bearish for cooling demand relative to the last 3 hot summers
Storage Projection
Here is a framework for thinking about the November 2014 storage peak estimate, using the following assumptions:
- Production averages 3.2 BCFD above 2013
- Canadian imports decline 0.2 BCFD (they were well above '13 in Jan and Feb this year, raising the average)
- Electric Generation comparable to 2013
- Mexican exports rising 0.2 BCFD
- Normal weather
- No year to year change in weather normalized Residential/Commercial natural gas demand
This would take storage back to an intramonth high above 3.6 TCF in November, probably sufficient to keep a tight lid on prices if production remained strong and in a positive trend.
Among the assumptions listed above for this scenario, the most aggressive is the production growth. With a 220 day injection season, each BCFD in the production growth assumption obviously translates into +/-220 BCF in ending storage, which results in a wide confidence interval around the 3,600 BCF projection.
Plenty of ink will be spilled on this question in the next month, with tighter estimates around each variable.
