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Nevertheless, although many other factors could affect a particular storage number, this injection implies that demand is much higher than Barcalys' estimates.

13 Oct 2012

LONDON (Commodity Online): Natural gas prices rallied beyond previous yearly highs as the market received a higher than- expected storage injection. The prompt contract ran past $3.50/MMBtu, while calendar 2013 traded above $4 for the first time since the end of 2011 on Thursday morning after the release of the weekly storage report.

For the week ending on 5 October, storage added only 72 Bcf, 7 Bcf below the consensus of 79 Bcf.The East injected 42 Bcf, while the West added 3 Bcf. The Producing region injected 27 Bcf. The storage injection for the week in reference narrowed the storage overhang over last year’s level to 228 Bcf, which puts the trajectory of storage well on its path to achieve our expected 3.9 Tcf for the end of the injection season.

Furthermore, without any weather adjustment, the injection implies that the market was about 5 Bcf/d tighter than last year at the same time. For the week in reference, Barclays estimates that coal displacement was about 2 Bcf/d higher y/y, while both higher nuclear outages and cooling demand were parts of the equation.

Nevertheless, although many other factors could affect a particular storage number, this injection implies that demand is much higher than Barcalys' estimates.

The current rally is the third rally this injection season, with its two predecessors proving to be transient. Barclays maintains that the necessary amount of demand in the power sector could falter if cash prices confirm the prompt contract price in November, while latent supply remains in the backdrop as an upside risk for production expectations in Q4.

On a different note, many readers have wondered whether Canadian imports would represent a large upside risk to gas production. So far, despite Canadian storage almost reaching its working gas capacity, Canadian storage facilities continued to receive injections, while cold weather in Canada has kept the AECO basis relatively strong in recent days, keeping Canadian net exports at a relatively modest pace.

Bentek data showed that Canadian net exports to the lower-48 states month-to-date in October are down by 370 MMcf/d y/y. At the moment, Canadian net exports do not appear as a large upside to lower-48 natural gas supply.

Meanwhile, the European natural gas markets were one of the most volatile this week, as some supply outages helped move the market.

The main ones were the outages at Norwegian gas processing plants that led to low supplies onto the NBP, while more mid-term concerns about LNG availability came from an explosion at the Bonny LNG plant in Nigeria, a key supplier into the market.

The result of this, and a cool start to October, has lead M+1 gas prices to trade from about 61 p/therm to 64 p/therm – almost a 5% increase in value.


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