Natural gas futures on Tuesday recovered much of the ground lost the prior session as the market awaited the full force of an expected hurricane crashing into the southern United States.
At A Glance:
- Hurricane landfall Wednesday
- Production below 100 Bcf/d
- Varied gas demand outlook
After dropping 10.5 cents in the week’s first trading session, the October Nymex gas futures contract on Tuesday reversed course and gained 6.2 cents before closing at $2.232/MMBtu.
NGI’s Spot Gas National Avg. lost 3.0 cents to $1.660, dragged lower by a drop in volatile West Texas prices.
Tropical Storm Francine advanced northward across the Gulf of Mexico toward Louisiana, with the National Weather Service projecting it would make landfall as a hurricane on Wednesday. Several LNG facilities were potentially in its path, presenting the potential for export disruptions as well as power outages that could depress natural gas demand.
However, the storm’s anticipated path shifted eastward enough Tuesday that liquefied natural gas disruptions appeared likely to prove moderate – easing worries from the day before – while precautionary steps by producers dropped output estimates and tilted Francine’s anticipated fallout into more neutral territory. This enabled bulls to step in and drive fresh momentum after pushing the October contract upward 7% last week.
Feed gas headed to LNG export facilities on Tuesday stood at 12.5 Bcf/d, putting volumes about 0.5 Bcf/d lower than Monday and off a similar amount from the seven-day average, according to Wood Mackenzie’s estimates.
While demand impacts could still prove more pronounced than those on production – most gas is produced onshore – Wood Mackenzie on Tuesday noted that its output estimates were substantially lower as Francine approached. It pegged output at just below 99 Bcf/d – off more than 2 Bcf/d from the seven-day average and about 4 Bcf/d lower than summer highs.
The firm cited in part planned maintenance events in Appalachia as well as the Permian Basin. But Wood Mackenzie analyst Emma Weng also noted Gulf of Mexico production was down nearly 0.5 Bcf/d due to production pauses tied to Francine. Enbridge Inc., Shell plc and others had by Tuesday evacuated non-essential personnel, slowing activity. Further reductions were possible, depending on the storm’s path into Wednesday.
The Bureau of Safety and Environmental Enforcement estimated at midday Tuesday that 25.6% of the current natural gas production in the Gulf of Mexico had been shut-in.
“Francine is favored to miss a direct hit on key LNG export infrastructure while also sideswiping Gulf of Mexico production facilities to blunt fundamental bearish impacts,” EBW Analytics Group’s Eli Rubin, senior analyst, said Tuesday. “Even a slight shift in trajectory, however, could quickly elevate the magnitude of probable gas demand destruction.”
Sempra Infrastructure’s Cameron LNG, Venture Global LNG Inc.’s Calcasieu Pass LNG and Tellurian Inc.’s Driftwood LNG were still vulnerable based on the storm’s potential path.
Bears Lurk
NatGasWeather said “anticipated bearish impacts” from Francine could also include flooding and cooler air for several days along the Gulf Coast. The firm also noted a mixed weather outlook that included persistently lofty temperatures in western markets, but the gradual onset of autumn weather in other sections of the country.
RBN Energy LLC analyst Kristen Hays said she would be tracking word from the U.S. Coast Guard, which has four terms for port conditions based on the amount of time before hurricane-level winds arrive.
“The first two, Whiskey and X-Ray, involve removing and securing any potential flying debris and securing loose cargo 72 and 48 hours ahead of the arrival of gale force winds, respectively,” Hays said. “When Yankee is declared 24 hours ahead of those winds arriving, outgoing traffic can depart but ports are closed to incoming traffic. A port is completely closed if Zulu is declared 12 hours ahead of gale force winds.”
Looking ahead to the next U.S. Energy Information Administration (EIA) report on Thursday, covering the week ended Sept. 6, NGI modeled a build of 49 Bcf. The average of preliminary estimates submitted to Reuters landed at the same figure. That compared with a five-year average build of 67 Bcf.
EIA most recently reported an injection of 13 Bcf for the week ended Aug. 30. It proved bullish relative to the five-year average increase of 51 Bcf. It lifted inventories to 3,347 Bcf and put stocks above the five-year average of 3,024 Bcf. Yet the surplus narrowed from 12% the prior week to just below 11% at the close of August. It declined from about 40% early this year, when it reached a 2024 peak after a mild winter.
“While progress may temporarily stall amid mild weather and Tropical Storm Francine this week, the surplus could halve from the end of August to the end of October – with the most likely storage trajectory suggesting an approximately 175 Bcf decline over the next two months in a normal-October weather scenario,” Rubin said.
Carley Garner, senior broker at DeCarley Trading, said that hurricane impacts this week and into the fall were of course the collective major wild card for natural gas. Absent major storm impacts, however, prompt month futures could trade in a relatively narrow range within $2.00-3.00.
“This could be a boring market,” once autumn weather settles in, Garner told NGI. “We are still relatively well supplied ahead of winter.”
Physical Market
Next-day cash prices largely traded near even across much of the country amid the tug-of-war between bulls and bears. But, with ample supply and maintenance in the Permian Basin, as well as demand from the Gulf Coast temporarily lower, West Texas prices nosedived.
Waha dropped $1.265 day/day to average negative $1.975, and El Paso Permian slumped $1.205 to negative $1.955.
In addition to flooding and structural damage worries, AccuWeather said Francine’s cooling winds could dampen temperatures across swaths of the South on either side of its anticipated landfall in Louisiana.
“Near all-time record high sea surface temperatures and ocean heat content could allow for rapid strengthening into a strong hurricane prior to landfall,” said AccuWeather meteorologist Alyssa Glenny.
AccuWeather said Francine could become a Category 2 hurricane, with sustained winds greater than 96 mph, prior to moving ashore.
Yet Henry Hub in Louisiana rose 9.0 cents to $2.125 on Tuesday, while Southern Natural advanced 9.0 cents to $2.260.
In East Texas, Katy declined 3.0 cents to $1.865.
NatGasWeather said conditions would vary by region this week, with Francine defining the week along the Gulf Coast, moderate temperatures across much of the East and strong heat in the West. The Southwest and Southern California, in particular, were expected to sizzle under triple-digit highs.
Next week, NatGasWeather said the western heat is expected to endure. Above average temperatures are also in the cards for vast expanses of the North, the firm added, though by mid-September this could result in comfortable high temperatures in the 70s and low 80s and cool overnight lows.
On the maintenance front, aside from Francine, El Paso Natural Gas Co. on Tuesday declared a force majeure on its Line 1600 near Phoenix. Capacity was reduced by 422,000 MMBtu/d and would remain so until further notice, according to Wood Mackenzie.
El Paso S. Mainline/N. Baja in the Southwest slipped a half-cent to $1.870 on Tuesday.
