The April natural gas exchange contract continued to rally further yesterday settling up at $4.335, up $0.081 on the day on higher than average volume and with meteorologists calling for below to much below average temperatures predicted for the next 10 days for the eastern half of the country. Estimates for today’s EIA storage change number are PIRA calling for a draw of 11 bcf, Bentek and the BNP Paribas survey calling for a draw of 9 BCF while Reuter’s (see below) is calling for a 6 bcf withdrawal. Last year at this time we saw a build of 7 bcf. If we see a draw this morning of anything higher than predicted, the rally should continue without a problem. Any number between 0 and a draw of 9 bcf will probably equate to a sideways day while any build should cause a sellers to come into this market.
Yesterday, the following news hit the internet and added additional buying pressure to the natural gas market when the U.S. Department of Environmental Protection (DE) ordered Chesapeake Energy to stop work on a natural gas drilling well pad in Pennsylvania for failure to comply with regulations and contaminating a water source. The drilling well pad which was in the site-preparation phase, failed to implement the required erosion and sediment controls resulting in sediment and silt being discharged into a water stream. The site-preparation phase is a process that occurs before well construction or drilling activities take place. The Galeton Borough Water Authority which serves a population of about 1,400 through about 600 metered connections has been now forced to use another permitted water source to serve its customers. The DEP said Chesapeake must correct the existing violations at the site by March 29, until which it will not permit Chesapeake to resume construction there.
As we do on every Thursday, we’ll discuss the storage levels on the rest of the commentary. U.S. natural gas inventories are expected to have fallen by 6 billion cubic feet as indicated by a Reuter’s poll of industry traders and analysts surveyed on Wednesday, with estimates in the poll ranging from a build of 6 bcf to a draw of 14 bcf. Only one of the 27 poll participants expected a build, with two predicting that stocks stayed unchanged for the week. Storage rose an adjusted 7 bcf for the same week last year, while the five-year average decline for that week is 17 bcf.
In last week's report, for the week ended March 11, overall storage fell 56 bcf to 1.618 trillion cubic feet. The draw was well above the Reuters poll estimate of 45 bcf and the year-earlier drop of 25 bcf but in line with the five-year average decline for that week of 58 bcf. The weekly decline trimmed the surplus to a year earlier by 31 bcf to just 1 bcf but widened the five-year average surplus by 2 bcf, or 1.4 percent, to 23 bcf.
In the past four reports, total stocks fell 293 bcf, or 73 bcf per week, versus a 435-bcf adjusted drop for the same one-month period last year and a 444-bcf five-year average decline for that period. Early estimates for next week's EIA report range from a draw of 5 bcf to a build of 13 bcf versus a year-earlier gain f 12 bcf and a five-year average decline for that week of 22 bcf. Inventories hit an all-time high of 3.84 tcf in early November but dropped sharply this winter as frigid weather increased heating demand and profitable cash premiums to futures prompted strong draws from storage. More than 2 tcf was pulled from storage from December through February, nearly 340 bcf, or 19 percent, above the five-year average for that three-month period.
Some industry traders and analysts, eyeing cool forecasts ahead, expect to see three more weekly stock draws. If weekly withdrawals through March match the five-year average, inventories will end the heating season at 1.59 tcf, about 1.5 percent above average and a comfortable level to start rebuilding stocks for next season.