Fitch: Elevated Natural Gas Storage Pressures Prices, US Projects

NEW YORK--()--Natural gas storage levels remain elevated and are not expected to help natural gas prices or US natural gas midstream projects in the near term, according to Fitch Ratings.

Some midstream projects could be at risk if pricing does not improve as producers remain under financial pressure and are hesitant to commit to projects while end-users remain able to secure supply and pipeline capacity at reasonable prices.

Ongoing pressure on gas prices could lead to reduced production volumes, particularly in less economic regions. Lower production volumes and continued weakness in prices could result in natural gas projects becoming delayed or outright canceled. For example, Kinder Morgan Inc. has announced the suspension of its multibillion Northeast Energy Direct project due to economic reasons, driven largely by an inability to contract enough capacity on the proposed pipeline.

However, Fitch believes natural gas storage operators should benefit from increased storage demand.

The April 21 natural gas storage report from the US Energy Information Administration (EIA) continues to show high storage levels. Storage levels were 2,484 bcf, 811 bcf above the five-year average. While storage remains elevated, this week's data reflect a slight improvement from levels seen in recent weeks.

At this time of year, storage begins to fill during the injection season to build inventories for the upcoming winter. The build occurs at the beginning of April and continues through the end of October for the winter heating season, which extends from November until March. At the beginning of the injection season (April 1), storage was 874 bcf above the five-year average. The most recent level of storage fell to 811 bcf above the five-year average, an improvement since April 1 thanks to recent cooler temperatures.

High storage levels thus far in 2016 have resulted in natural gas prices hitting a 10-year low of $1.64 per mmbtu in February 2016. Since then, storage has slightly improved, causing natural gas prices to rise to $2.07. Mild winter weather, coupled with higher natural gas production, has put current storage levels near the highs recorded over the past five years. In addition, this winter began with inventories above the five-year average, and the warmer weather did not help bring storage to more normalized levels.

US production has not slowed; in fact, it has ramped up despite weak natural gas prices and declining rig counts. The latest natural gas production data available from the EIA are from January 2016, with production at 91.1 bcf/day, a 2% increase over production in January 2015 and an 8.9% increase from January 2014. These increases have occurred despite natural gas price weakness over the same time period. Natural gas averaged $2.23 per million btu in January 2016, down from $2.93 in January 2015 and $4.55 in January 2014.

Gas prices are likely to remain under pressure until supply and demand are more in balance. This could occur if natural gas demand increases or if gas production declines.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Contacts

Fitch Ratings
Kathleen Connelly
Director
Corporate Finance
+1 212-908-0290
Fitch Ratings
33 Whitehall Street
New York, NY
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212-908-9123
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Kathleen Connelly
Director
Corporate Finance
+1 212-908-0290
Fitch Ratings
33 Whitehall Street
New York, NY
or
Kellie Geressy-Nilsen
Senior Director
Fitch Wire
+1 212-908-9123
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com