BofAML: El gas natural vive una primavera adelantada (Global Energy Weekly)

Redacción - Lunes, 26 de Octubre

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 Global Energy Weekly: Already Springtime for US gas • US nat gas prices are trading at the third lowest in a decade, due to excessive stocks, soft end-user demand and mild weather •  Hence, we lower our year-end target from $3.50 to $3.00/MMBtu and our average 4Q15 forecast from $3.20 to $2.70/MMBtu
•   Still, lower spot prices will also lead to less output in the future, likely to provide support to prices in 2H16

US nat gas prices have crashed on three micro factors

US nat gas prices are breaking down. Front-month futures are trading at $2.29/MMBtu, the third lowest in a decade, while long-dated prices have also come off sharply. We can point to three short-term negative dynamics. (1) the US market suffers from excessive inventories, (2) end-user demand is soft due to sluggish industrial growth and mild weather, (3) production, although flat-lining lately, remains high. A rising storage surplus may keep prices at the bottom of the seasonal range in coming months and we lower our year-end target from $3.50/MMBtu to $3/MMBtu and our average 4Q15 forecast from $3.20 to $2.70/MMBtu. Still, as previously mentioned (seeNortheastern gas rules) we fail to find any structural causes behind the decline in longer-dated prices.

Inventories are set to break previous record

True, injections in the last three months have averaged 8 bcf/d above the 5-year trend and stocks could peak at a record 4 tcf in early November. Salt dome reservoirs in the producing region only have 55 bcf of spare capacity and are approaching theoretical capacity. Yet, we find concerns over storage congestion on a national level misplaced, as containment would be reached if the next 4 injections average 130 bcf, compared to 36 bcf on the 5-year average, a highly unlikely scenario. The market is also focused on the risk of an El Nino (warm) winter. According to our analysis, under a 1-std. dev. warmer-than-normal winter, stocks would draw only to 2.09 tcf, 470 bcf above the 5y avg, and under a 2-std. dev. warm winter, the surplus could reach 780 bcf by the end of March. In the past though, El Nino winters were just 0.4 std. dev. warmer-than-normal on average.

Yet, expectations of tighter balances imply higher prices

Lower prices this winter also imply less production in the future. In fact, output in the Northeast has already failed to keep up with growth seen over the past four years, a function of local basis prices trading in a weak $0.80-2.00/MMBtu range since end of March. Surely Northeast production is set to increase again near-term on new take-away capacity. Yet, even Appalachian producers in the most prolific areas have been forced to produce within cash flow and begun to cut back more sharply on drilling, implying muted growth going forward. Hence, we continue to believe that anticipation of lower lower 48 output in 2016, combined with an excessively large amount of net short spec positions should allow for a price rebound to $3.00/MMBtu by year-end.

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