A report by RBC Capital Markets indicated that U.S. prices have remained supported due to cold weather conditions and an increased pull for liquefied natural gas (LNG) feedgas.
The recent 8-14 day forecast suggests the cold snap will persist, mainly affecting the eastern United States. This has led investors to turn their attention to how the supply side will react to potential price spikes.
The current demand for natural gas is strengthening, and although higher prices might prompt some supply response, particularly from drilled but uncompleted wells (DUCs) and previously curtailed production, the trend of producer consolidation is expected to temper any large production increases.
Public companies, showing a stronger commitment to capital discipline, are likely to avoid significant production surges even if prices rise. This trend is evident in the reduction of rig counts over the past five years in key regions such as the Marcellus, Utica, and Haynesville, where 20 rigs have been cut, 19 of which were by public companies.
In the latest weekly storage inventory data, a withdrawal of 116 billion cubic feet (Bcf) was recorded, which RBC deemed bearish as it fell short of the consensus median expectation of a 128 Bcf withdrawal. However, this withdrawal was still larger than both the five-year average of 104 Bcf and the withdrawal of 35 Bcf during the same week last year.
Looking ahead, RBC anticipates the next report could show a withdrawal in the range of 65-70 Bcf, which is slightly below the typical seasonal norm of 70-90 Bcf. The firm also notes that holiday timing may influence these figures.
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