US natural gas production is expected to recover to above 65 Bcf/d levels in May before starting to decline in the second half of this year, according to recent market analysis by London based Barclays.The prompt natural gas prices gained 3.5% on the week as the near-term weather forecast turned incrementally colder. As the back of the curve came off, pressured by producer selling, the forward curve performed a twist this week.
Although calendar 2014 has only edged lower by two cents, calendars 2015 and 2016 are down by 10 and 15 cents respectively w/w.
Currently, the calendar 2014 and calendar 2015 spread has narrowed to just a penny, a level that Barclays doesn't believe is sustainable in the long run from a fundamental perspective.
According to Barclays view, 2015 is much better supported by fundamentals than what the market is currently pricing in.
The market rallied on Thursday morning despite a very neutral storage withdrawal report, as the 1-15 day weather forecast turned colder. Storage withdrew 14 Bcf, about two Bcf smaller than consensus.
The storage deficit to the five-year average widened further to 66 Bcf, from last week’s 37 Bcf. Given the colder-than-normal weather for this week and cold expectations for next week, Barclays see a couple more minor withdrawals.
Pipeline scrape data indicate that production has recovered significantly; however, it has not passed the record monthly average reached in November 2012.
On the power demand side, the recent April-to-September forecast for the river run off of the Dalles Dam on Oregon’s Columbia River has grown by 4% compared with the average forecast of 93% in March.
Higher hydro generation during the summer could put downward pressure on natural gas power burn in the Pacific Northwest, more so than previously expected.
Source: Barclays