Natural gas draw of 178 Bcf for the week ended January 15

The Energy Information Administration (EIA) released its natural gas data for the week ended January 15, showing a draw of 178 Bcf, bringing gas-in-storage levels to 3,297 Bcf. Despite the draw last week, natural gas storage remains 660 Bcf higher than the same time last year.

The week’s draw of 178 Bcf was 3.3 Bcf/d tighter versus last year on a weather-adjusted basis, according to research from Raymond James. An El Nino weather pattern damped the need for heating early in the winter, but the weather has started to cool, and is expected to continue to do so through February and March.

The withdrawal last week was the largest so far this winter, but the future for natural gas remains bearish. Even as the weather continues to cool, forecasts anticipate that it will remain warmer than last year on the back of the El Nino.

Supply and demand give bearish outlook

Raymond James Weather Adjusted Gas Supply and DemandNatural gas production was down sequentially in October, the latest estimates from the EIA show. Production fell 1.1 Bcf/d from September to October, but remains 2.5 Bcf/d on a year-over-year basis. The decreases will likely driven by Texas and the Gulf of Mexico, but increases in Ohio, North Dakota, and Colorado offset the lower production, said Raymond James.

Raymond James expects total gas supply to increase in 2016 by about 2.4% due to increasing Northeast pipeline takeaway capacity, but does not believe that demand will be able to keep pace. While some factors such as growing exports to Mexico, LNG and power plants substitution coal for gas will help demand, they will be more than offset by weak industrial gas demand, and the warmer than usual weather.

Assuming normal weather moving forward, Raymond James projects Henry Hub gas prices to average $2.00 per MMcf in 2016, down from $2.35, $2.65 in 2017, and $2.50 over the long-term.

Winter Storm Jonas pushes demand higher temporarily

Jonas Storm Map

Jonas Storm Map

Winter Storm Jonas has caused a temporary spike in natural gas prices along the East Coast, where natural gas prices rose above $5 per MMBtu today, reports The Wall Street Journal. The storm itself could reduce demand if it knocks out power in any major city, but it is hoped that colder temperatures will prompt consumers to use more of the gas in storage.

While the temporary boost in natural gas prices will help Appalachian drillers, it is not expected to have a broad effect on the market. Cold weather would need to continue until early March “to get a semblance of balance back in the market,” said Bill Costello, portfolio manager Westwood Holdings Group.

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