Nat Gas has now dropped below its third technical range support level in the last several weeks. The market is now moved into a new lower trading range of $3.82/mmbtu on the high end and about $3.63/mmbtu on the lower, support level. The market is still lacking any new fundamental support as prices continue to drift lower ahead of what is likely to be another bearish weekly inventory injection report.
Today the EIA released their latest Short Term Energy Outlook (STEO) which does not provide any fundamental support as the EIA has increased their US production growth forecast by 0.8 BCF/d or by 1.2 percent compared to 2012. This represents an increase in production growth of 0.2 percent compared to the May STEO report. They have also lowered their forecast for consumption to 0.5 percent (year over year) versus a 0.7 percent growth projection in the previous STEO report. Overall we are moving back into a supply driven model for Nat Gas and one that will need to see a strong bump up in consumption to push prices significantly higher from current trading levels. Following are the main Nat Gas highlights from the report.
• EIA expects that natural gas consumption, which averaged 69.7 Bcf/d in 2012, will average 70.0 Bcf/d and 69.6 Bcf/d in 2013 and 2014, respectively. Colder winter temperatures forecast for 2013 and 2014 (compared with the record-warm temperatures in 2012) are expected to increase the amount of natural gas used for residential and commercial space heating. However, the projected year-over-year increases in natural gas prices contribute to declines in natural gas used for electric power generation from 25.0 Bcf/d in 2012 to 22.5 Bcf/d in 2013 and 22.1 Bcf/d in 2014, although these forecast levels are still high by historical standards.
• Natural gas marketed production is projected to increase from 69.2 Bcf/d in 2012 to 70.0 Bcf/d in 2013, and to 70.4 Bcf/d in 2014. Onshore production increases over the forecast period, while federal Gulf of Mexico production declines. Natural gas pipeline gross imports, which have fallen over the past five years, are projected to remain near their 2012 level over the forecast. LNG imports are expected to remain at minimal levels of around 0.4 Bcf/d in both 2013 and 2014.
• Mexico's domestic natural gas consumption is rising faster than domestic production, leading to both record pipeline gas imports from the United States and growth in the country's imports of liquefied natural gas (LNG). Natural gas trade between Mexico and the United States has been growing; daily net exports from the United States to Mexico so far in 2013 (January 1-May 6) are estimated to average 1.6 billion cubic feet per day (Bcf/d), up almost 29 percent over the same period in 2012.
• As of May 31, 2013, working gas stocks totaled 2,252 Bcf, which is 616 Bcf less than at the same time last year, but only 69 Bcf below the five-year (2008-12) average for the end of May. EIA projects working gas stocks at the end of this summer's stock-build season (end of October) will reach 3,813 Bcf, about 117 Bcf below the level at the same time last year.
• The NOAA Atlantic predicts that the Atlantic Basin likely will experience above-normal tropical weather activity during the current hurricane season. EIA estimates that the median outcome for shut-in natural gas production in the federally administered Gulf of Mexico as a result of disruptions during the 2013 hurricane season is 46 Bcf (see the 2013 Outlook for Hurricane-Related Production Outages in the Gulf of Mexico). EIA's simulation results indicate a 58-percent probability of offshore natural gas production experiencing outages during the current hurricane season that are equal to or larger than the 32 Bcf of production shut in during the 2012 hurricane season. Hurricane Season Outlook predicts that the Atlantic Basin likely will experience above-normal tropical weather activity during the current hurricane season. EIA estimates that the median outcome for shut-in natural gas production in the federally administered Gulf of Mexico as a result of disruptions during the 2013 hurricane season is 46 Bcf (see the 2013 Outlook for Hurricane-Related Production Outages in the Gulf of Mexico). EIA's simulation results indicate a 58-percent probability of offshore natural gas production experiencing outages during the current hurricane season that are equal to or larger than the 32 Bcf of production shut in during the 2012 hurricane season.
This week the EIA will release its inventory on its normal schedule and time... Thursday June 13th at 10:30 AM. This week I am projecting the ninth injection of the season of 94 BCF into inventory. My projection for this week is shown in the following table and is based on a week that experienced some above normal temperatures during the report period. My projection compares to last year's net injection of 66 BCF and the normal five year net injection for the same week of 84 BCF. Bottom line the inventory deficit will narrow this week versus both last year and the so called more normal five year average if the actual numbers are in sync with my projections. This week's net injection will be slightly bearish when compared to the historical data. If the actual EIA data is in line with my projections the year over year deficit will come in at about 588 BCF. The deficit versus the five year average for the same week remain the same at around 59 BCF. The early market consensus is projecting the ninth injection of the season in the range of 85 BCF to 105 BCF with the consensus still forming