With so many moving parts in the U.S. natural gas market, the price direction and environment can often simply boil down to underground storage inventory levels. 2016 saw two records established in that regard: the end-of-winter bottom of 2,468 Bcf was the highest ever, as was the end-of-summer peak of 4,047 Bcf. What often gets lost in that story is that the 1,579 Bcf that was added in between represented the second slowest injection season ever. Sliding domestic production combined with rising exports and record usage from the power generation sector to cap off the availability of excess supply available for injection. This dynamic helped fuel an impressive price recovery throughout the year.
Last year&rsquo;s market is in the rearview, but it does help color expectations for the coming injection season. As of March 24, storage inventories were 2,049 Bcf, most likely the 2016 seasonal bottom. That is a very healthy end-of-winter level&mdash;fourth highest on record, and far north of the more bullish pre-winter projections. However, the deficit to year-ago levels cannot be ignored. There are real questions going into the summer about the market&rsquo;s ability to refill inventories back near recent peaks.
Rising exports&mdash;both via pipeline to Mexico and from the nation&rsquo;s growing LNG export capacity&mdash;will provide the most prominent headwind for storage injections. Compared to last year, we can reasonably expect to be exporting additional volumes averaging 1.5 to 2.0 Bcf per day. That essentially represents natural gas supply that was in excess of demand in 2016 and stored. Increased exports put the pressure squarely on domestic production and the power generation sector to &ldquo;loosen&rdquo; up the market throughout the season. Higher prices in 2017 should play a part in continuing to spur activity in the production space and limit the fuel switching that led to such high levels of consumption from power generators last summer.
If the market isn&rsquo;t comfortable with the pace of injection once cooling demand kicks in, upside risk could be realized by the natural gas market. Rising production and relatively light demand from power generators would assuage bullish concerns, but they still carry more questions than answers.
<table border="0" cellspacing="0" cellpadding="0" width="508">
<tbody>
<tr>
<td colspan="2" width="229" valign="bottom">
Natural Gas Prices ($/MMBtu)
</td>
<td width="153" valign="bottom"> </td>
<td width="127" valign="bottom"> </td>
</tr>
<tr>
<td width="107" valign="bottom">
LOCATION
</td>
<td width="122" valign="bottom">
March 30, 2017
</td>
<td width="153" valign="bottom">
March 6, 2017
</td>
<td width="127" valign="bottom">
March 31, 2016
</td>
</tr>
<tr>
<td width="107" valign="bottom">
NYMEX
</td>
<td width="122" valign="bottom">
3.191
</td>
<td width="153" valign="bottom">
2.901
</td>
<td width="127" valign="bottom">
1.959
</td>
</tr>
<tr>
<td width="107" valign="bottom">
NNG Ventura
</td>
<td width="122" valign="bottom">
2.825
</td>
<td width="153" valign="bottom">
2.460
</td>
<td width="127" valign="bottom">
1.805
</td>
</tr>
<tr>
<td width="107" valign="bottom">
Calif. Citygate
</td>
<td width="122" valign="bottom">
3.015
</td>
<td width="153" valign="bottom">
2.905
</td>
<td width="127" valign="bottom">
1.990
</td>
</tr>
</tbody>
</table>
&nbsp;

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Commodity report: Sliding domestic production combined with rising exports and record usage for power result in the second slowest injection season and an impressive price recovery.

Summer comes into focus as natural gas inventories find bottom

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