Natural Gas Fundamentals Continue To Improve
Natural gas prices are surging as of late as natural gas fundamentals continue to tighten. As we wrote earlier this week via a tweet, Lower 48 gas production is dropping meaningfully on the back of pipeline maintenance in Northeast and Texas. While the maintenance is expected to be concluded by the end of this week, low production levels have meaningfully tightened balances.
Looking at lower 48 gas production, we are seeing production fall below 2022 levels for this time of the year. Our expectation is for production to start rebounding back to ~99 Bcf/d by next week, but the market is now trying to figure out at what price level we start to see a response in production.
As we wrote in our NGF last week, natural gas producers currently have a lot of idled production sitting on the sidelines that could be quickly brought online (4 to 6 weeks) depending on natural gas prices.
July contracts are now trading above $2.5/MMBtu, so this will be the first test of discipline from producers.
Source: CME
Improvement in Fundamentals
If you look at our storage projections for the next 3-reports, you will see that we have an implied deficit of -1.9 Bcf/d.
Most of the deficit is coming from the low production levels we are seeing, but we are also seeing marginal improvement on the demand side.
Looking at the trailing 7-day average demand growth y-o-y, we are up ~1 Bcf/d, while total gas supplies are down 2.8 Bcf/d y-o-y (7-day average).
And over the past few months, we have seen a remarkable improvement in implied balance. We went from a surplus of ~4 Bcf/d in early February to a deficit of 3.8 Bcf/d. That's an improvement of 7.8 Bcf/d.