With September here, there are officially two months left in the natural gas summer injection season. Rumors are that the US could hit 4 Tcf come November, setting a new record for the amount of natural gas in the ground at the start of the winter demand season.
Currently, lower 48 natural gas storage sits at 3,099 Bcf as of August 21st, 88 Bcf above the 5-year average and 480 Bcf higher than the same time last year. Meanwhile, the EIA East storage region (fields are largely located in Illinois, Michigan, Kentucky, Ohio, Pennsylvania, West Virginia, and New York) actually sits at a 59 Bcf deficit to the 5-year average. This is interesting as the Northeast is largely responsible for the production gains that the US has noted over the past few years. Last year, natural gas output from April-August averaged 15.8 Bcf/d. So far this summer, Northeast production has averaged 18.7 Bcf/d, a gain of 2.9 Bcf/d.
The increased production output is being absorbed by power plants and has helped stabilize prices in the region even in the low price environment experienced this summer in the Northeast. In PJM, natural gas has represented 24% of the generation stack so far this summer compared to 18% last year. The sample of deliveries of natural gas to power facilities, based on Genscape pipeline flow data, is up in the Northeast by 0.5 Bcf/d or 21% compared to last summer. The Atlantic Seaboard noted a 0.4 Bcf/d increase representing a 28% gain.
These power gains are thanks in part to favorable pricing. Last summer (April 1 – September 1) cash prices at Leidy and Dominion South averaged $2.51 and $3.03, respectively. Over the same time this year, they have both averaged $1.35. Meanwhile, Transco Zone 6 non New York averaged $3.16 last summer and has declined to $2.30 this summer.
Injections in the East region have averaged 50 Bcf/w so far this season, 4 Bcf/w less than last year. As the shoulder season hits and cooling demand dissipates, injection rates can increase to similar rates to 2014 and storage in the region could easily hit the 5-year maximum and top out above 2 Tcf. But with lower demand also comes lower pricing. It is unlikely that the supply hubs feel much more pain, but Northeast demand markets such as Transco Zone 6 Non New York, which has averaged $2.30 thus far this injection season, could see further pressure. Is a sub $1 handle unreasonable to fathom or will power burn save the day? This is one of the many dynamics analyzed as a part of our Northeast Gas Quarterly service. Click HERE to learn more.