Substantial production curtailments will be required in the upcoming months as U.S. storage inventories approach operational capacity

Thursday, May 10, 2012

The U.S. natural gas market faces a summer of extremes after higher-than-average winter temperatures propelled the March-ending natural gas storage inventory to a five-year high of 2,479 Bcf, 60% above the five-year average. BENTEK’s new Market Alert, Gas Tank Full: Henry Hub Will Re-Test Price Floor, projects $1.00-handle Henry Hub natural gas cash prices this fall as storage approaches operational capacity. While substantial year-on-year demand growth may decrease the rate of injections this summer, BENTEK expects U.S. storage fields to remain near full. As a result, BENTEK anticipates dry gas production to undergo substantial curtailments by the end of summer.

Some producers have announced curtailments in dry gas plays and a demand response to low gas prices is beginning to gain momentum, but will it be enough to avoid extreme gas infrastructure constraints by the end of the summer? BENTEK’s Gas Tank Full projects total demand from power will need to average 6.3 Bcf/d higher than the five-year summer average while gas production will need to be curtailed 0.9 Bcf/d in non-Northeast basins for these constraints to be avoided.

Key takeaways from BENTEK’s new Gas Tank Full Market Alert:

• The April-ending 0.9-Tcf storage surplus will force the U.S. natural gas market to test operational storage constraints by the end of the injection season.

• These constraints will lead the market to extremes in several key fundamentals, including injection rates, power demand and production curtailments.

• Extreme year-on-year demand growth will help diminish constraints, with total demand forecast to average 6.3 Bcf/d stronger than 5-year average summer burn.

• Up to 0.9 Bcf/d of production curtailment from non-Northeast basins also is necessary to lessen storage inventories.

• The market will elicit the needed behavior through low pricing, averaging in the $2.00-$2.75 range during the peak of the cooling season, with a $1.00-handle monthly average at the end of the summer.

This Market Alert includes dynamic graphs and charts that allow you to click through to an Analytical Storyboard, where you can watch these market developments unfold over time. When you see the "hand" icon next to a chart or graph, click on the link and you will be connected to BENport to view the dynamic data. This feature is for clients only. You must have a BENport account and use Internet Explorer to access this feature. Click on the "hand" icon to learn more.


The Market Call is BENTEK's monthly publication that pulls together the fundamental natural gas market dynamics to provide a comprehensive, forward-looking view of the U.S. market, including a sector-by-sector analysis of the underlying factors that drive prices.

BENTEK's Natural Gas Storage Outlook is published every Tuesday and offers a running U.S. storage estimate, forecasts the weekly EIA number using activity reported by more than 75% of all storage operators, and includes the previous year and five-year averages as well as regional fill analysis.

To learn more, please contact your BENTEK sales representative or call BENTEK Sales at 1-888-251-1264.