Despite the decline, the contract remained up about 29 percent over an eight-month low of $2.522 in February on the possibility prices could spike later this year if stagnant production and rising exports leave inventories unusually low before next winter. US production, which was revised higher after the release of federal production data showing the biggest monthly increase in nearly three year in February, was still at its lowest since 2014.
Over the past 30 days, output averaged 70.6 billion cubic feet per day (bcfd), down from 72.1 bcfd during the same period a year earlier, 73.6 bcfd in 2015 and 67.7 bcfd in 2014, according to Reuters data. Before the revision, output over the past month was projected at 70.1 bcfd. US exports were expected to reach 7.8 bcfd this week, up more than 30 percent from a year earlier, according to Reuters data.
US gas consumption is projected to slide from 70.4 bcfd this week to 67.2 bcfd next week as the weather warms enough to cut heating demand without resulting in much cooling demand, according to Reuters data. Analysts said utilities likely added a near-normal 66 billion cubic feet of gas into storage during the week ended April 28. That compares with an increase of 68 bcf during the same week a year ago and a five-year average build of 63 bcf for that period.
That increase would keep inventories about 15 percent above-normal for this time of year. Looking ahead, meteorologists forecast this summer would be hotter-than-normal, but would not be quite as hot as last year, sparking expectations power generators will use more gas than usual to keep air conditioners humming. That is so long as gas prices remain cheaper than coal. Increases in gas futures in recent weeks narrowed the premium of coal over gas to its lowest level since early April. That coal premium includes the higher cost to transport coal and lower efficiency of coal power plants.
Regardless of whether power generators use more gas or coal this summer, analysts forecast stagnant gas output and higher foreign sales will cause inventories to rise by just 1.7 trillion cubic feet during the April-October injection season, much less than the five-year average of 2.1 tcf. If that forecast proves correct, storage at the end of October would reach just 3.7 tcf, well below the year-earlier record high of 4.0 tcf and the five-year average of 3.9 tcf.
Copyright Reuters, 2017