Natural gas prices normally record their seasonal lows in the second half of the injection season, but prices this year may have bottomed out at the start -- setting in motion support as withdrawal season nears, according to BNP Paribas.
As cumulative gas storage builds over the summer, traders are able to extract a discount for less cooling demand, BNP's commodity markets strategy team said in a note Wednesday.
"However, an exception to this trend occurred in 2012, when the market pressed for a steeper discount at the start of the season to encourage sufficient demand-side balancing," said analysts.
This year, gas prices are expected to follow a similar path, "with the increased shoulder season demand likely to avert a seasonal collapse in prices."
Consensus earlier this month was that working gas in storage would top 4 Tcf by the end of October, supported by injections that were running 20% higher than the five-year average for the first four months of injections.
Electric power demand, however, should keep storage injections through the rest of the season to within 10% of the five-year average, "positioning the end-of-season storage target closer to 3.9 Tcf," said analysts.
"Based on our analysis, utility demand growth will more significantly offset the surplus domestic production, limiting net storage injections for the balance of the season."
BNP analysts and other energy prognosticators have noted the wave of older power plant retirements this year -- all to the good for gas. "Replacement demand" is expected to accelerate to the end of the year as more gas generation replaces aggregate lost plant capacity, said BNP analysts.
BNP is forecasting another 1.1 Bcf/d of incremental gas will be required this year "solely to replace the retiring plant capacity," with more replacement demand in heavy load months.
"Based on our expectation that rising utility demand will limit the net storage injections this season,” said analysts, “the downside for natural gas prices would appear to be limited."