Natural Gas Outlook: Storage levels at all-time high for March

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Thursday's release of the Energy Information Administration's (EIA) Weekly Natural Gas Storage Report (WNGSR) represented the last full week of the winter heating season (November 1 – March 31). Although traditionally net withdrawals of working natural gas in storage occur during these months, this year net injections began the week ending March 16. Because the latest WNGSR represents inventory levels as of March 30, it excludes the last day of the winter heating season; official end-of-month levels will not be reported until the May Natural Gas Monthly is released.

Working natural gas in storage as of March 30 totaled 2,479, which is 816 billion cubic feet (Bcf) greater than the 5-year (2007-2011) maximum for that date. Inventories for each week ending in March have been greater than 2,300 Bcf; the next highest March inventory level of any year for the 18 years for which EIA has data is 1,887 Bcf, recorded for the week ending March 3, 2006. The high levels of storage this winter have been the result of abundant supplies as well as a very mild winter that has reduced demand for natural gas.

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Prices:

Consistent with increasing natural gas prices across much of the country, the Henry Hub day ahead price rose 1.0 percent during the report week, from $2.04 per MMBtu the previous Wednesday to $2.06 per MMBtu yesterday. Prices fell consistently through Monday, dropping to $1.89 per MMBtu (dipping below $2.00 per MMBtu for the first time since September 2009) before rebounding on Tuesday and Wednesday.

At the NYMEX, the May 2012 contract fell from $2.282 per MMBtu last Wednesday to $2.141 per MMBtu yesterday, a decrease of 14.1 cents (6.2 percent). Prices reached a low of $2.126 on Friday, before climbing to $2.187 on Tuesday, then falling back again yesterday.

Natural gas prices rose at most downstream trading locations over the week as temperatures generally dropped from last month's record-highs. Spot price increases were particularly pronounced on Tuesday in the Northeast. At the Algonquin Citygate trading point for delivery into Boston, the spot price rose by 45 cents, and at the Transcontinental Pipeline's Zone 6 trading point (which serves New York City markets), the spot price increased by 21 cents. Spot prices in the Pacific Northwest (represented by the Sumas trading point located in Washington State) rose daily after dipping modestly on Thursday, ending the week up 24 cents (12.9 percent).

After daily decreases from Thursday through Sunday, U.S. demand rebounded on Monday and Tuesday, registering an overall increase for the week. According to estimates from BENTEK Energy LLC (Bentek), domestic natural gas consumption rose by 3.7 percent from the previous week. The residential/commercial sector posted the largest increase, z5.8 percent, while power and industrial sector demand ended the week up 3.8 percent and 1.4 percent, respectively.

U.S. imports from Canada were up 10.6 percent for the week, driven by increases in all reporting regions. Shipments to the Northeast and Midwest rose by 15.1 and 12.6 percent, respectively, reflecting colder weather in each of those regions. In combination with essentially flat dry gas production and an overall drop in LNG sendout, this resulted in virtually no change in overall supply over the week. According to Bentek estimates, the week's average total natural gas supply declined 0.4 percent from last week's average. Domestic weekly dry gas production dipped slightly, down 0.8 percent from last week, although it is over 4.0 percent higher compared with the same period last year. Despite the week-over-week increase, total weekly imports from Canada fell 4.6 percent from year-ago volumes due largely to a significant decrease in imports into the Northeast region. Reflecting still warmer-than-normal temperatures in the Northeast, U.S. LNG sendout declined 42.0 percent over the week; volumes were 68.2 percent below year-ago levels.

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Storage

Working natural gas in storage increased to 2,479 Bcf as of Friday, March 30, according to EIA's WNGSR. This represents a net injection of 42 Bcf from the previous week. The implied net injection is greater than both the five-year (2007-2011) average injection for the week of 8 Bcf and last year's storage change, which was a net withdrawal of 29 Bcf. (Frosty temperatures at the end of March last year likely led to the net withdrawal.) Inventories increased this week in all three regions. The East posted an 11 Bcf injection; the West, 5 Bcf; and the Producing Region, 26 Bcf.

Stocks this week are currently 887 Bcf greater than their year-ago levels of 1,592 Bcf, and 934 Bcf greater than the 5-year average of 1,545. Inventories in the East and Producing regions are more than 60 percent greater than their respective 5-year average levels, and working inventories in all three regions are well above historical levels.

Working inventories in the Producing Region increased in both salt caverns and non-salt facilities. Stocks in salt caverns increased on the week by 11 Bcf, to total 260 Bcf, while non-salt cavern storage facilities posted a net injection of 16 Bcf to total 1,045 Bcf. (Because of independent rounding, non-salt and salt totals do not add to the overall total for the region.)

Temperatures across most of the country were unseasonably warm. The overall temperature in the lower 48 states averaged 55.1 degrees, 7.7 degrees warmer than the 30-year normal and 13.9 degrees warmer than the same week the previous year. All Census divisions were warmer than last year, with the East North Central and West North Central the warmest in comparison to last year and the 30-year normal, with average temperatures more than 20 degrees greater than last year. Averaging 51.1 degrees during the week ending March 29, the Pacific Northwest was the only region with temperatures that were colder relative to normal.

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