Revisiting the Storage Threat for Bal ’20

July 24, 2020
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Gas storage may BARELY stay under capacity limits

It’s not a certainty, but gas storage is on track to be near capacity limits, but not much over, for the end of the injection season. If this plays out as we describe below, severe price discounts for gas may be avoided.

The chart below shows each week’s injection (or withdrawal as negative) reported by the EIA. We map each value to the average nationwide temperature that week. Dots higher in the chart are more bearish, while dots below the trend lines are more bullish compared to history.

Through early summer, the supply-minus-demand balance (gas forced into storage) was trending above the 2019 line
The last four-to-six stats have been much more similar to the less bearish 2018 trend

While most of this spring produced injections that were large (Covid-19 demand losses pushed gas into storage), recent figures show the the injections are very similar to what they were in 2018.

Therefore, if we look back to 2018’s injection path for July through November, we can estimate the final storage level in mid-November. That number appears to be near 4,200 Bcf, as shown in the chart below. If storage had followed the 2019 trend (as it was earlier this summer), there would not be enough storage available to hold the extra gas. Now, the market may avoid that very bearish situation.

If storage levels threaten 4,200 Bcf, the market would respond with lower prices due to fewer “rescue” bids from storage operators
The 2018 (and five-year average) path would take storage to near AEGIS estimates of market-based storage capacity

We’re not out of the woods. Consider a few things that could still happen to upset prices:

  • Weather turns mild, reducing demand
  • More social-distancing measures affect demand
  • Supply rises as some shut-in gas returns to market
  • LNG cancellations continue into late September and October

Therefore, we still advise swaps as the first choice for most clients who still need to add Bal ’20 gas hedges. The downside for September-November could be acute, and December will still be dealing with an XXXL-sized inventory level to start winter.

We continue to monitor oil, gas, NGLs, and regional markets for hedging opportunities. To learn more and see AEGIS opinion and recommendations, go to AEGIS View publications, or contact info@aegis-energy.com. Like what you see? Share this article with the button on the bottom right of your desktop. Market questions or comments? Contact us at view@aegis-energy.com

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