Ignoring the potential short-term spikes caused by weather, natural gas prices will be largely range-bound around the price forecasts as the market is heading into the colder months, a report by Barclays said. “Production growth provides comfort to the market as we head towards the end of October with relatively low storage levels. This cushion provided by production growth has allowed storage to build more quickly than in the past and should remain a feature of the market for the foreseeable future,” the report said.

The near-term weather forecast shows the end of September will be warmer than expected; the prompt contract rose 9c w/w, while calendar years 2015 and 2016 rose 6c and 3c, respectively. Overall, prices have remained subdued versus the highs of last winter as overall weather has been cool and storage injections have been stronger than in years prior – the latter of which is largely expected to continue.

In addition to the cool weather, growing production has been critical to the strong injection season and has allowed storage recover more quickly than in years prior. This strength in production growth is set to continue as Q4 14 will see a chunky collection of pipeline and processing capacity additions coming online in the Northeast.

REX’s Seneca Lateral, Markwest’s Seneca III plant, TETCO’s Team 2014 project, and Transco’s Northeast Connector should all help towards relieving some of the constraints in the northeast and achieving the target forecast of 4 Bcf/d production growth for the Northeast this year.

Given the production-constrained nature of the Northeast, recent capacity additions have been filled quickly (Bentek), this trend is unlikely to falter. Overall, this continued production growth is emblematic of the larger trend in US natural gas markets in which production growth is set to provide an increasing cushion during the peak demand season despite lower-than-normal seasonal storage levels.
Source: Barclays