The near-term colder-than-normal weather is forecasted for the next two weeks of March, Barclays expect the end-of-March storage to come in at the lower end of 1.9 Tcf, or the higher end of 1.8 Tcf, if colder weather continues. For the week in reference, the storage deficit to last year widened another 54 Bcf to 361 Bcf.
Gas prices broke out of the recent $3-3.50/MMBtu range, as the market received a very bullish storage withdrawal. The prompt contract rallied by 11 cents on Thursday morning, while time spreads mostly collapsed and narrowed significantly as the front of the curve moved up more than the back. The storage withdrawal for the week in reference came in at 146 Bcf, about 15 Bcf larger than market consensus. Since analyst storage expectations are largely formed by storage-related pipeline scrapes, any kind of change in storage and pipeline configurations could derail estimates significantly from the underlying supply and demand factors behind the withdrawals.
Natural gas production has yet to recover from November levels. However, Q2 is likely to see several processing capacity come online in the Eagle Ford, the Marcellus and the Uticato debottleneck some wells. The market would need further confirmation of natural gas production declines following several months of production affected by freeze-offs and processing plant turnarounds to move significantly higher from current prices.
In terms of demand factors, power demand dropped y/y in December for the first time since September 2011, by almost 1 Bcf/d, as warm weather and higher y/y prices lowered electric heating demand and coal displacement. Overall for 2012, power demand grew by 4 Bcf y/y. Industrial demand exhibited robust growth of 0.5 Bcf/d y/y in 2012, the highest level of growth since the recessionary recovery of 2010.
Pipeline imports dropped by as much as 2 Bcf/d y/y in December, including a decline of 1.7 Bcf/d from net Canadian imports and a 0.3 Bcf/d increase in net Mexican exports. Overall, 2012 saw net pipeline imports drop by 0.8 Bcf/d y/y. We expect net pipeline imports to continue to decline in 2013 and 2014, by 0.6 and 0.5 Bcf/d, respectively.
Source: Barclays