CIBC NotesEQUITY RESEARCH
January 17, 2025 Industry Update
Natural Gas Guide: U.S. Output Expected To
Decline Materially With Freeze-offs
European Inventories Continue To Deplete Above Five-year
Average
A Few Things We Are Watching
Western Canadian benchmarks unlikely to participate in price rally until
storage overhang clears. As demonstrated in Exhibit 1 herein, Canadian
benchmarks remain the most discounted molecules in North America.
Western Canadian field receipts remained relatively flat, averaging 18.5
Bcf/d over the past week while demand declined by 0.8 Bcf/d, averaging 9.2
Bcf/d. Above-average temperatures have reduced heating demand in
Western Canada, and lowered storage draws, which in turn has widened
local benchmarks versus NYMEX. We estimate that Western Canadian
storage decreased by 9 Bcf over the past week, moving to 647 Bcf, which
sits 144 Bcf above the five-year average. NYMEX closed Wednesday at
US$4.32/MMBtu (up US$0.57/MMBtu W/W). The AECO basis to NYMEX
widened to -US$2.90/MMBtu (-US$2.47/MMBtu last week) and the Station 2
basis to NYMEX widened to -US$3.47/MMBtu (-US$2.86/MMBtu last week).
U.S. production is expected to drop materially as arctic blast
approaching: Market participants are estimating the freeze-off could result
in 10 Bcf/d to 20 Bcf/d in lost production. This is expected to drive a surge in
Res/Comm demand and has supported NYMEX in recent days. Depending
on the magnitude of the draw, U.S. inventory levels could drop below the
five-year average for the first time in more than a year. U.S. gas in storage
decreased by 258 Bcf last week, in line with consensus expectations for a
257 Bcf draw. At 3,115 Bcf, stocks were 111 Bcf below the same period in
2024 and 77 Bcf above the five-year average.
Europe to consider import ban of Russian LNG as a part of newly
imposed sanction package: European inventories decreased by 154 Bcf,
widening the deficit versus the five-year average by 28 Bcf to 195 Bcf.
European inventories are currently 64% full, versus 78% last month and 79%
the year prior. NBP closed Wednesday at US$14.13/MMBtu (down
US$0.09/MMBtu W/W), while Netherlands TTF closed at US$14.20/MMBtu
(down US$0.40/MMBtu W/W) and JKM modestly declined to
US$14.13/MMBtu (down US$0.10/MMBtu W/W). According to Bloomberg,
Europe is considering an import ban on Russian LNG as part of a new
package of sanctions against the country. We do not expect the import ban
to become effective immediately and believe the continent will look to reduce
its reliance on Russian LNG imports gradually, particularly as additional
export capacity becomes operational in North America and Qatar through
2028.