US Natural Gas Winter Outlook

Current working gas inventories are historically low compared to the 5 and 10-year averages, and especially so when expressed as months of forward demand cover. We do not expect t he market’s assumption that growing production volumes can offset the low storage volume to be tested this winter, given: 1) Our expectations that temperatures will come in above average due to the de velopment of El Nino conditions. 2) I ncreasing production in the north-east (NE) as new pipelines and supply laterals are brought online in the coming months. We therefore expect winter prices to average $3.24/MMBtu, with a 2019 average price of $3.16/MMBtu, drifting to $3.20/MMBtu in 2020. Although supply will continue to expand, we expect disposition to continue to rise in lockstep, which will support prices. However, this does not mean the market is immune to short term spikes this winter. This is especially the case if weather forecasts turn more bullish or if NE infrastructure is not delivered to schedule. Given that a greater proportion of natural gas demand will be supplied by production rather than storage: 1) Extreme cold resulting in production freeze- offs would exacerbate the price impact of colder weather. 2) Issues with deliverability may result in volatile basis pricing. If prices do spike higher this winter and LNG feedgas is unable to be bid back into the domestic market at “acceptable” prices, we would not rule out criticism of gas exports domestically . However , President Trump has been a strong advocate for LNG exports as part of his desire to lessen the US trade deficit and to promote the “US Energy Dominance” agenda. As such, we consider he would instead use higher gas prices to argue for coal’s continued role in the US energy mix .