As winter slowly retreats across North America, the decimated natural gas inventories in the western US and Canada continue their bullish declines. Canadian producers are taking advantage of the best export pricing in years to ship gas south.
The null point for east-west gas movement has shifted dramatically this winter, as production grows in the Marcellus & Utica and declines nearly everywhere else (except Eagle Ford). The western US has a storage deficit that will drive gas flows all summer. Last week inventories fell 27 BCF to a record low 190 BCF, and will likely fall further in each of the next two weeks:
Other supply side variables will compound the struggle to refill storage before winter:
- Expected low hydro output
- Increased exports to Mexico
- Decreased imports from Western Canada
- Falling gas production in mature western basins
- Higher market share for NG in electric generation
Looking at the great daily data from TC Nova in Alberta, we see that field production has yet to trend higher despite much higher Alberta rig counts YOY. Field receipts are current at or below last year:
As production struggles, domestic Canadian demand increases (from weather and fundamentals), and exports to the US rise, the storage situation is approaching critical. Daily withdrawals are still massively higher than last year.
The current storage picture shows that we have drained 180 BCF more than last winter, having pulled 302 BCF from storage thusfar, vs 122 BCF at this point last year.
If US gas inventories fall to about 900 BCF as they likely will by April 1, it puts the combined North American storage deficit to 2013 at over 1 TCF. The Canadian storage deficit will show up in US inventories later in the year, in the form of reduced imports. With a roughly 220 day injection season, the path to full storage recovery is therefore a Supply/Demand surplus of over 30 BCF per week through November. Shale gas, are you up to the challenge?
