Goldman Sachs: maintain bullish $4.50/MMBtu Sum26 Henry Hub view and see risks to our forecast skewed to upside on potential delays in producer investment

Goldman Sachs: maintain bullish $4.50/MMBtu Sum26 Henry Hub view and see risks to our forecast skewed to upside on potential delays in producer investment

U.S. natural gas markets have shown significant movements recently, with storage levels rising amidst increasing summer temperatures and stable consumer demand. The U.S. Energy Information Administration (EIA) reported a rise in gas storage, with inventories climbing by 46 billion cubic feet (Bcf) for the week ending July 11, surpassing analysts' forecasts [1]. This brought the total gas in storage within the Lower 48 states to 3.052 trillion cubic feet (Tcf), which is 178 Bcf above the five-year average but still 156 Bcf below last year’s figures. The rise in stockpiles comes despite high production levels allowing for above-normal storage additions, even as temperatures soar across the U.S., heightening power demand.

Natural gas prices at the Henry Hub showed a slight decrease upon the release of the storage report, with values dropping $0.02 to $3.54 per MMBtu by July 17 [1]. This modest decline reflects the market’s response to the stability in storage volumes amidst ongoing bullish trends driven by forecasts of intensifying summer heat upping power demand across the country. Currently, U.S. natural gas futures are trading near their highest point in two weeks as the weather sustains high usage rates for gas in power generation, needed to maintain air conditioning outputs amid the heatwave. Front-month futures for August delivery rose slightly, putting the contract on track for its highest close since late June [1].

The increased storage alongside the prevailing hotter-than-normal temperatures expected through at least early August suggests that electric power sector demand will remain robust. Temperatures are predicted to peak next week, posing a challenge in matching production levels with escalating consumption needs [1]. Analysts predict average temperatures across the country to reach similar or higher levels compared to historical peaks, with July 24 expected to possibly be one of the hottest days yet this summer [1].

In synchronization with production, the natural gas market is receiving support from strong LNG exports. Feedgas to LNG export plants rose steadily, driven by resumed operations post-maintenance outages [1]. While figures for gas flow to significant LNG export facilities experienced a fluctuation due to brief disruptions, indications from energy traders suggest a swift recovery in output levels [1].

Regionally analyzed injections into storage reveal disparities, with the Midwest leading the build scenario by adding 20 Bcf, followed by the East with 12 Bcf. The South Central region's modest increase is noteworthy, driven by withdrawals from salt cavern storage [1]. This pattern potentially indicates an emerging shift in power demand dynamics amidst peak air-conditioning usage driven by regional heat intensity [1].

Looking ahead, the U.S. National Hurricane Center adjusted the chances of tropical activity off the Gulf Coast downwards, reducing the immediate risks of disruptions to gas production [1]. Historically, storms in the Gulf of Mexico can impact gas operations, but they are more likely demand-destructive by leaving homes and businesses without power or affecting exports due to facility shut-downs [1].

Market participants are advised to gauge the impacts of persistent high temperatures and stable export demands on future storage figures. The next EIA report will play a crucial role in determining whether the current balance can be effectively sustained amidst these demanding conditions. If these trends continue unchanged, increased consumption may create tighter supply dynamics heading into August [1].

Moreover, industry experts will be closely monitoring the situation as imports from Canada have risen slightly week-over-week. Simultaneously, exports to Mexico have decreased, reflecting broader trade patterns and the interconnectedness between domestic storage stability and international gas transactions [1].

As the sector transitions through these complex scenarios, stakeholders must align operational strategies with emerging market signals that potentially alter the course of natural gas prices and storage metrics. Such adjustments may offer insightful perspectives for recalibrating energy portfolios or refining logistical approaches in response to prevailing environmental conditions and production figures [1].

References:
[1] https://www.ainvest.com/news/natural-gas-storage-surges-rising-temperatures-slight-price-drop-observed-2507/