Industrial demand for US natural gas may grow by 400 MMcf/d this year compared with the last year, with risks to this estimate skewed to the upside, stated London based Barclays in its recent market analysis.
Gas prices hovered near the $4 per MMBtu mark in the past week, pressured by a larger than- expected storage injection. Overall, prices moved very little compared to the previous week amid the current shoulder season stupor.
Both heating and cooling demand stayed very low, with weather forecasts suggesting that a slight pick-up in cooling demand may emerge in the next couple of weeks.
Last week featured yet another storage injection that was higher than consensus. Inventories grew by 99 Bcf, exceeding consensus estimates by 9 Bcf. With that, the deficit to last year’s storage level fell by 43 Bcf to stand at 694 Bcf.
This narrowing is partially attributable to very mild weather for the reference Week. However, the accelerating pace of injections also suggests that fundamentals have been looser on a weather-adjusted basis in the past three weeks, likely reflecting a drop in gas-fired generation as the displacement of coal wanes at current natural gas prices.
The market expects above-90 Bcf injections for the next couple of weeks, suggesting a continued narrowing of the storage deficit to last year’s levels.
Meanwhile, the most recent pipeline flow data estimates indicate that natural gas production has been flat m/m so far in May.
Although the estimates are subject to a lot of revisions, this indicates that production may have fully recovered from freeze-offs.
Furthermore, this could be an early sign of production flat-lining. According to Barclays, production should start to dip into declines in the second half of the year.
On the demand side last week, North Plains Nitrogen has announced an intention to build a nitrogen fertilizer production facility near Grand Forks, N.D. with the capacity to produce 2,200 tons per day (800 mtpa) of ammonia, targeting a start in 2017.
This represents a potential increase of 77 MMcf/d for natural gas demand. Although the time line of the project is uncertain, this illustrates that natural gas industrial demand growth could be very chunky when the planned projects come online.
Source: Barclays