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The May natural gas wholesale exchange contract rallied once again as the President of the United States made a speech proposing a one third cut of foreign imported oil in the next ten years. The natural gas market would be a huge part of the puzzle as the replacement for that one third of foreign oil imports (as we discussed in yesterday’s commentary called the NAT GAS ACT). In the wholesale market, the amount of volume that buyers and sellers exchanged yesterday was not overly significant but the open interest (amount of purchases or sales of wholesale contracts without offsets at the exchange) continued to fall as we dropped another 6,000 contracts and are a 100,000 plus contracts lower now than the all time high. The estimates for today’s EIA storage change are PIRA and Bentek calling for a build of 10 bcf, BNP Paribas survey calling for a build of 5 bcf and Reuter’s (see below) is forecasting a withdrawal of 1 bcf while last year for this same week, we had a build of 12 bcf. The weather forecast has not changed, so the below average temperatures will remain into the weekend and then the weather should begin to warm up. One other point to note is that early estimates for next weeks storage change are showing withdrawals in the mid 50’s while last year, the EIA storage report was a build of 29 bcf.
On the demand side of the business, the United States had RECORD NATURAL GAS CONSUMPTION (had to put that in bold to emphasize it) of 24.13 Tcf in 2010, the highest since the Energy Information Administration (EIA) started keeping records in 1973, according to trade data released by the EIA in its March energy review (where do you think natural gas prices would be if the economy was back at pre-2007 levels). The only other years when demand came close were 2007 (23.10 Tcf) and 2008 (23.27 Tcf). Natural gas demand in 2009 fell off to 22.84 Tcf, the agency said. U.S. natural gas imports, both liquefied natural gas and pipeline gas from Canada fell to 2.56 Tcf in 2010 from 2.68 Tcf in the prior year, according to the EIA. Imports made up only 11% of U.S. consumption in 2010, significantly off the peak in 2007 when imports supplied 16.4% of U.S. consumption. In 2007 liquefied natural gas (LNG) imports hit 771 Bcf while pipeline deliveries from Canada were 4.7 Tcf while in 2010 only 431 Bcf of LNG was imported and a little over 2 Tcf came in through pipelines from Canada.
As we do on most Thursday’s, we’ll focus the rest of the commentary on the natural gas storage levels. U.S. natural gas inventories should fall 1 billion cubic feet last week, a Reuter’s poll of industry traders and analysts forecast for storage data due this morning. Estimates in the poll ranged from a build of 15 bcf to a draw of 24 bcf. Storage rose an adjusted 12 bcf for the same week last year. The five-year average decline for that week is 22 bcf.
In last week's report, for the week ended March 18, overall storage fell 6 bcf to 1.612 trillion cubic feet. The draw matched the Reuters estimate of 6 bcf but fell short of the five-year average decline for that week of 17 bcf. Storage stocks gained 7 bcf for the same year-ago week. The weekly decline turned a 1 bcf inventory surplus to last year into a 12 bcf deficit, but widened the five-year average surplus by 11 bcf to 34 bcf, or 2 percent.
In the past four reports, total stocks fell 218 bcf, or 55 bcf per week, versus a 254 bcf adjusted drop for the same one-month period last year and a 313-bcf five-year average decline for that period. Early estimates for next week's EIA report range from a build of 5 bcf to a draw of 68 bcf versus a year-ago build of 29 bcf and a five-year average gain for that week of 13 bcf. Inventories hit an all-time high of 3.84 tcf in early November but dropped sharply this winter as frigid weather spiked heating demand and profitable cash premiums to wholesale exchange contracts prompted strong withdrawals from storage. March looks set to finish the withdrawal season very near the five-year average of about 1.567 tcf.
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