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Storage deficit would widen further to 320 Bcf

NYMEX gas futures rally, trading near $9/MMBtu

US natural gas in storage likely expanded at a below-average pace in the final week of May as blistering heat across Texas and the Midcontinent limited injections to inventory, lending further support to the rally in NYMEX gas futures.

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The US Energy Information Administration this week is expected to report an 87 Bcf injection to US gas storage for the week ended May 20, according to this week's survey of analysts by S&P Global Commodity Insights. Responses to the survey were reported in a much wider range this week, with expected injections ranging from just 76 Bcf to as much as 102 Bcf. The EIA plans to release its weekly storage report on May 26 at 10:30 am ET.

The expected build of 87 Bcf would be the sixth undersized injection reported in 2022, which comes as unseasonably hot temperatures boost gas-fired cooling demand Texas, the Midcontinent and the Western US, following an unusually cool weather last month in the Midwest and the Northeast.

An 87 Bcf build would come in well below the 2021 corresponding-week injection of 109 Bcf and fall short of the five-year average injection of 97 Bcf. Assuming the survey prediction is correct, US storage levels would climb to 1.819 Tcf, expanding the deficit to the five-year average to its widest yet this year at 320 Bcf while widening the shortfall to 2021 corresponding-week storage levels to 380 Bcf.

In pre-market trading May 24, prompt-month gas futures prices on the NYMEX hit highs tested only briefly earlier this month in the $8.90s/MMBtu, as the historic rally still showing no sign of slowing.

"Production is struggling, exports are high – the only thing that might save us is the weather," Phil Flynn, senior account executive at The Price Futures Group, said by telephone May 24. "Other than mother nature bailing us out, I think we're in a very tight situation. I think the market is reflecting not only where we are now but where we're going."

Over the past week, unseasonably hot weather has offered support to $8 gas prices as the market grows increasingly wary that strong cooling demand this summer will keep US spot gas in tight supply.

Last week, the potential market impact from extreme heat was on display across Texas, Oklahoma and the Central Plains where high temperatures soared into the 90s with some locations at over 100 degrees Fahrenheit, or about 20-30 degrees above normal.

In Texas, gas-fired power burns hit record highs for mid-May at nearly 5.6 Bcf/d. At Katy Hub, cash prices surged alongside Henry Hub to trade at over $8.40/MMBtu, while prices at NGPL Midcontinent in Oklahoma jumped to their highest yet this year at $8/MMBtu.

This summer, a minimum 33%-40% risk for above-average temperatures is expected in every US state in June, July and August, according to a seasonal forecast published May 19 by the US National Weather Service. The hottest weather is expected to hit the western one-third of the US including Texas, most of the Northeast Atlantic Seaboard and all of New England.

Short-term storage outlooks for the week ending May 27 are already predicting another below-average injection to inventory in the range of 60-70 Bcf – potentially widening the deficit as much as 40 Bcf. Longer term, many analysts are now projecting US season-ending inventories to finish below 3.5 Tcf by early November, potentially making for a bullish supply and pricing scenario heading into winter 2022-23.

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