Storage Still Lags With Winter Fast Approaching

Gas storage levels on both sides of the Atlantic are still well below the five-year average with the winter heating season fast approaching. In the US, where inventories are starting to show a strong connection to LNG exports, traders will be watching to see how that affects the trajectory of storage builds ahead of the Nov. 1 start of the heating season. An implied build of 42 billion cubic feet for the week ended Aug. 13 -- in line with the five-year average -- surprised analysts, who had predicted a 31 Bcf build during what had been the hottest week of the year. But they also realize that the 2.882 trillion cubic feet (86.6 billion cubic meters) in underground caverns would be higher without pipeline exports to Mexico or LNG sales. US inventories are at a 174 Bcf deficit to the seasonal average and 547 Bcf below the year-ago level. Early models for the week ended Aug. 20 see a 38 Bcf build, compared to a 44 Bcf seasonal average. The US Energy Information Administration (EIA) forecasts that inventories will begin winter around 3.6 Tcf, 159 Bcf below the five-year average. But any drop in net exports could support greater inventory builds. That scenario may have contributed to the latest surprise build, according to analysts. They point to a 0.5 Bcf/d decline in LNG feed gas deliveries as maintenance on the Creole Trail pipeline cut flows to Sabine Pass LNG in Louisiana. Shipments have since bounced back. JP Morgan analysts estimate feed gas deliveries rose 0.9 Bcf/d last week to around 10.9 Bcf/d as pipeline outages ended. The increase is in line with EIA estimates pegging LNG pipeline receipts at 10.7 Bcf/d. The EIA reckons net exports will average 11 Bcf/d this year, nearly 50% higher than in 2020. That’s more than 4 Tcf of gas, making exports key to the fall storage carry as well as the spring carryout. But LNG trends can be fickle. Asian demand could dive as the Covid-19 Delta variant threatens economic recovery in key markets and could spawn energy-sapping lockdowns. Either could unexpectedly swell storage. Over in Europe, inventories were 64.3% full at 715 terawatt hours (67 Bcm) on Aug. 22, according to Gas Infrastructure Europe. That compares with 90.8% full this time last year and a five-year average of almost 80%. European storage began last winter at almost 95% full. In the main markets, stocks in Germany were 56.5% full (versus 92.5% full this time last year); in Italy 80.4% full (92.5%); in the Netherlands 44.1% full (83.1%); and in the UK 71% full (93.5%). A number of factors have combined to limit the normal pre-winter stockbuild. Russian flows via the Yamal-Europe pipeline to Germany have dropped, partly because of a fire earlier this month, and Gazprom has been restricting shipments via Ukraine. Some European LNG imports are being re-exported to Asia to take advantage of higher prices. Another factor, according to ABN Amro analysts, is that the Netherlands has been importing more gas as domestic production is being phased out more quickly. The start-up of Russia's controversial Nord Stream 2 pipeline in the fourth quarter could ease the supply tightness, taking some heat out of prices. Gazprom said last week the pipe could deliver as much as 5.6 Bcm this year (related). Tom Haywood, Houston, and Jane Collin, London