Gas Reserves On Decline; Canadian Imports Unlikely To Help

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A harsh winter may finally be receding, but its effects will be felt throughout the year by tightening gas supplies. It’s not just that use goes up in such a cold winter, but well head freeze-off disrupts supply as well. The result is that gas reserves in the continental US are at their lowest level in five years, and production needs to increase dramatically to make up for the shortfall.

Northeast gas production needed to make up the shortfall

Citi analyst Anthony Yuen expects end-of-March storage to fall to 875 Bcf, less than half the five year average and 800 Bcf less than this time last year. “Eliminating these deficits requires excess gas to be made available for injection from,” he writes. “Strong production growth this year is critical.”

This requires excess production levels to hit 4.5 Bcf per day from April to October to get back to average levels and 3.7 Bcf per day just to get back to 2013 levels. Week on week production has improved with the weather (a product of having fewer freeze offs), but once the summer hits gas demand from industrials will start to increase.

Production in the Rockies region has recovered after a weak 2H13, but that’s not where people are hoping to find production growth. Northeastern production has increased more than 40% since this time last year, but it has also leveled off in recent months as a combination of local demand and logistics problems have prevented it from exporting more gas. There is a lot of infrastructure already under development in the Northeast, but it won’t be online in time to support much higher Northeastern exports this year even if the region is able to boost production that quickly.

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Canadian imports, hydropower won’t save the day

Normally the answer to falling gas stores would be to import more gas from Canada, but that may not be a feasible solution this year. Yuen expects gas imports from Canada to fall by 0.6 Bcf per day compared to the same period last year because Canada is also facing gas storage levels far below its normal range.

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Increased hydropower in the Northwest is expected to ease the pressure on gas reserves, reducing overall demand by 30 Bcf for the year, but this would have been an added bonus if storage levels were on track; it’s not enough to bring the gas market back in line on its own and gas prices are expected to rise as the market tightens further.

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