Houston, we have a NatGas problem

Rising U.S. production can either go to domestic consumption, being exported through pipelines to its neighbors or sold as LNG to the rest of the world. Underground storage facilities are used to soak up excess supplies during the injection season from April to November and vice versa during the high consumption winter months.

The latest obstacle to hit the market is the reduced demand from China while the virus disruption plays out. The above charts show production which has slowed in recent weeks and the flow to LNG export terminals which has more than doubled during the past year and which is now at risk of slowing. Also it highlights the compressed prices seen across the world with the Dutch and Japan-Korea benchmarks both trading at multi-year lows.

In the below chart we have projected last year’s weekly storage changes onto the current total. It shows that a repeat of last year’s strong injection season could bring the total in storage above capacity by November. The latest available data from 2018 on demonstrated peak capacity from the EIA was 4,263 Bcf.

If repeated this coming season there is an increased risk of further downside risks to global prices with the oversupply situation potentially worsening due to slowing demand growth in China.

Downside risks:

• Slowing demand growth in China pressurizing LNG prices and U.S. export economics
• Continued mild winter and spring across the Northern Hemisphere

Upside risks:

• Voluntary or involuntary cut in U.S. production through weak economics or bankruptcies
• Below average cold U.S. spring and above average hot summer.
• A record speculative short getting squeezed through a change in the technical or fundamental outlook.