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With The Economy Coming Back, Has Risk Of Filling Natural Gas Storage Been Averted?

Wednesday, May 27, 2020 at 10:44AM

The economic shutdowns due to the COVID-19 virus led to a huge hit on the demand side of the equation in the natural gas market, leading to supply / demand balances that would easily result in completely full storage this Fall, and with that, the risk of a massive price collapse. This came despite what has been a large decline in natural gas production.

natural gas production

Things could be changing now, as we are seeing a gradual re-opening of the economy, and signs that demand is coming back, not to pre-COVID levels yet, but still noteworthy, and more re-openings seem likely over the next few weeks. The big question is, will demand come back enough to eliminate the risk of filling storage? The market is unsure, indicated by what remains a very wide spread in October to January (V/F) pricing.

V/F through history

This week’s EIA report will shed some light on the situation, and we do expect it will show some tightening, or strengthening, of the supply / demand balance, if our estimate is correct.

last 10 gas weeks

This does little to settle the issue, however, unless we continue to see additional tightening over the next few weeks. That is something that is possible, given that the weather pattern is exhibiting signs of above normal demand into June.

GWDD forecasts

The other variable we have not mentioned yet is LNG. With global prices very low, there is the risk that LNG exports could take a huge hit, and we have already seen a decline in LNG feedgas.

US LNG Exports

With all of these variables in play, it is no wonder that prompt month natural gas prices have been stuck in a range for the last few months, one which has contained notable moves, but still signifying that there is a lot we do not yet know.

prompt month natural gas

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Originally Posted on May 27, 2020 – With The Economy Coming Back, Has Risk Of Filling Natural Gas Storage Been Averted?

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