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2019 Summer Outlook

With winter in the rear view mirror, an interesting summer season lays ahead. Inventories to start the summer injection season are just slightly above 1.1 Tcf, the lowest on record in relevant history with the exception of the polar vortex winter of 2013/14. Meanwhile, producers — many of which have committed to targeting free-cash-flow, over production growth, stand to be a drag on further upward momentum. At the same time, long-awaited new LNG export facilities are set to come online and additional infrastructure completions should allow for a significant bump in piped gas to Mexico. Power burn will maintain its position as the primary balancing agent, providing support to the market in low-price periods and a relief valve in high price environments.

All told, the summer outlook calls for a loose start to the season, before US balances should progressively tighten, resulting in an injection of ~2.1 Tcf. Given that is close to the five-year average net build, the deficit on hand to the start the season will not be eliminated, and as a result, underlying fundamentals should support a summer price closer to $3/MMBtu as opposed to the more recent NYMEX levels of ~$2.80/MMBtu. However, the market’s reluctance to get excited that higher prices are in the offing this early in the season is understandable. This summer’s fundamentals are to make some fairly dramatic changes and each of them bring their own brand of risk to the outlook.

Winter 2018/19 featured massive production growth along with strong demand-side support, both structurally in exports and power but also in rescomm. On balance, it was demand that outperformed pre-winter expectations the most, resulting in a pull from storage of 2.0 Tcf — 400 Bcf greater than pre-winter assertions. Weather played a role, where nationally temperatures were modestly colder than normal, but timing and concentration of warm and cold periods contributed to significant volatility in demand, as is often the case. Should injections only equal 2.1 Tcf, the entry into winter 2019/20 with stocks measuring only 3.25 Tcf feels pretty tight.

  • This summer US demand is expected to grow by 3.3 Bcf/d relative to 2018. The gains this year are made from expansions in US exports equalling 3.7 Bcf/d while domestic demand is set to decline slightly Y/Y. Risks in demand for power burn skew bullish in a low price environment.
  • Total US supply will grow to average 92.4 Bcf/d — an increase of 5.6 Bcf/d over last year. Gains in US production are behind the increase, while imports from Canada are forecast to drop by about 0.5 Bcf/d. Risks to the supply picture lean bearish, where growth out of the Haynesville and associated plays outside of the Permian could surprise to the upside. Also, the announced maintenance on Westcoast Pipeline’s system could potentially have outlined the worst case scenario resulting in greater supply availability into the Pacific Northwest than announced.
  • Platts Analytics price forecast for summer 2019 is $3.02/MMBtu, above the current NYMEX strip at ~$2.80/MMBtu. However, since the release of the summer forecast, mild temperatures both in the US and globally have contributed to softening in price. NYMEX Henry Hub settlement on the day of the forecast release was $2.94/MMBtu. While the weather impact to price has pulled back the baseline price, Platts Analytics is affirming its position that the market is undervalued.
  • Contributing to the Platts Analytics price outlook is the current end-October inventory forecast at 3.25 Tcf, within reach of last year’s paltry level — the lowest carry since 2005. With the key differences between winter 2019/20 and 2018/19 being, 1) next winter won’t have the benefit of record-setting production growth to stave off prospective shortfalls and 2) significant additional export demand growth will increase overall demand, making it important that price this summer supports early and regular injections.

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