Low storage, winter and new exports to Mexico are to converge, beginning in November.
Speculators in U.S. natural-gas prices remain reluctant to dial up the thermostat on their expectations for gas futures as three supply-and-demand events are to converge in November: the onset of winter demand, new exports to Mexico and the prospect of starting the heating season without a full tank.
--An additional 0.93 billion cubic feet of daily U.S. gas production will be taken off the market beginning this winter as midstream operator Energy Transfer Partners LP connects South Texas supply into pipe at the Mexican border at McAllen.
--Privately held, Houston-based midstreamer Net Mexico Pipeline Partners LLC is to begin shipping 2.1 Bcf a day of Eagle Ford, associated-gas production to Mexico this winter at Rio Grande City.
--Kinder Morgan Energy Partners LP’s Rockies-gas-to-Mexico project, Sierrita, is to begin exporting some 0.2 Bcf a day this fall at a connection at the Arizona border.
Meanwhile, U.S. working gas in storage was 1,055 Bcf as of May 2, according to the U.S. Energy Information Administration, the lowest May level since 2003. In comparison, May 2003 daily demand averaged 50.5 Bcf; daily demand in May 2013 was 58.1 Bcf. If assuming demand into this fall is unchanged from 2013, producers need to make an extra 13.9 Bcf a day to refill storage to its normal level of about 3,500 Bcf entering November.
At that time, putting further pressure on supply, export of some 3.2 Bcf a day into Mexico will commence via the Net Midstream, Energy Transfer Partners and Kinder Morgan pipeline connections.
Simmons & Co. International Inc. securities analysts reported upon the EIA gas-storage news last week, “…The pace of bigger-than-expected builds remains significantly below any trend-line…(to) reach normal storage by the end of the (injection) season.”
The 1,055-Bcf level on May 2 “decreases the storage deficit to the five-year average to 982 Bcf…leaving storage 48% below the five-year average,” they added.
Natural-gas futures on Nymex are currently in the $4s leading up to the winter of 2019-2020, pushing into the $5s and high $4s thereafter.
–Nissa Darbonne, Author, The American Shales; Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.
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