A mixed week of natural gas forwards price action brought strengthening in the south central Lower 48, countered by shoulder season moderation for the Northeast and out West, an analysis of NGI’s Forward Look data for the Sept. 14-20 trading period shows.
With nary a hint of intimidating early season cold, at least for now, and with annual maintenance cutting demand at the Cove Point LNG terminal, forward prices sagged at hubs throughout Appalachia, the Mid-Atlantic and the Northeast.
Cove Point prices for October delivery tumbled 14.2 cents to $2.786/MMBtu, while October prices at Eastern Gas South finished the period at $1.059, off 13.7 cents.
As of Thursday, annual maintenance work was seen cutting receipts flowing to the Cove Point liquefied natural gas terminal by 1,130,522 MMBtu/d overall, according to Wood Mackenzie estimates.
“Cove Point’s maintenance this year is scheduled to last eight days, much shorter than the 20-day duration of last year’s annual maintenance,” Wood Mackenzie analyst Kevin Ong said.
For the western Lower 48, the Sept. 14-20 trading period brought moderating premiums for fall and winter contracts at numerous hubs.
Most winter contracts at Opal shed more than 50 cents week/week, with prices at Northwest Rockies following a similar pattern.
SoCal Citygate sold off 64.9 cents to end at $4.467 for October delivery. January ended the period at $8.689, down 36.4 cents.
After exiting the 2022/23 winter well below historical norms, storage inventories in the Pacific region had closed to within a few percentage points of the five-year average as of the week ending Sept. 15, according to the latest U.S. Energy Information Administration (EIA) data.
Regional inventories increased 3 Bcf in the most recent week to reach 263 Bcf, versus a 265 Bcf five-year average.
Pacific region inventories bottomed out at 72 Bcf in March, which was less than half of the five-year average for the time of year, EIA data show.
South Central Strengthening
Perhaps a sign of incentive to refill inventories after a sweltering summer cooling season, forwards in and around the Gulf Coast displayed a mix of modest gains for October countered by moderation along the winter strip.
Fixed prices at Henry Hub added 5.9 cents for October, while January slid 12.1 cents week/week. It was a similar story at Houston Ship Channel, where October climbed 13.1 cents, with January fixed prices giving up 12.0 cents for the Sept. 14-20 period.
Nymex futures similarly displayed some divergence between the front month and contracts further along the strip. A 12.0-cent rally in Tuesday’s session notably coincided with modest declines for winter contracts.
October Nymex prices sold off Thursday after an on-target 64 Bcf injection in the latest EIA storage report. The front month settled at $2.610, off 12.3 cents. November lost 8.1 cents to settle at $2.840.
Updated weather maps as of Thursday continued to show an “exceptionally comfortable/bearish pattern” through the first week of October, according to NatGasWeather.
“Long-range weather maps maintain strong high pressure over most of the U.S. Oct. 7-14,” which would translate into “widespread above normal temperatures,” including comfortable high temperatures for northern portions of the country and warm highs in the 70s to low 90s for southern regions, the firm said.
Moving forward, bullish weather sentiment will likely depend on more intense cold arriving for the northern Lower 48, NatGasWeather said.
Larger Injections Ahead?
The latest EIA storage report marked the eleventh straight weekly injection to narrow the surplus to the five-year average, which had ballooned to more than 350 Bcf as of the end of June. But milder temperatures could reverse the long-running trend of tightening versus the five-year in the coming weeks.
“Particularly bearish weather into the end of September and first half of October could sap early-season heating demand — allowing weekly injections to rise towards triple digits and reverse the trend of a narrowing storage surplus,” EBW Analytics Group analyst Eli Rubin said in a recent note. “Still, the medium-term outlook could see record production begin to roll over. If late October weather similarly turns in a bullish direction, it could provide a brief bullish tailwind for the market heading into the early heating season.”
Even so, the combination of production strength and plentiful storage could continue to put downward pressure on winter contracts without “sustained, severe cold weather,” Rubin added.
The moderating shoulder season temperatures have removed a key supportive fundamental factor from the equation for natural gas prices as markets now wait for heating demand to ramp up.
Power Burns to the Rescue
Still, summer cooling demand may have rescued the natural gas markets from some potentially dire scenarios. That’s according to RBN Energy LLC analyst Sheetal Nasta, who in a recent blog post described the first quarter of 2023 as “one of the most bearish in over a decade,” RBN Energy LLC analyst Sheetal Nasta said in a recent blog post.
Bearish factors in the first quarter included mild winter weather and record-level production, all as LNG export demand stagnated, the analyst noted.
“Without a supply pullback or demand response, storage was at risk of exceeding the ominous 4 Tcf level and hitting the capacity wall by the end of injection season, which would crush prices,” Nasta said. “Since early injection season, however, that danger has largely passed.”
Temperatures this summer were hot, but not as hot as 2022, and yet natural gas power burns have still managed to outperform year-earlier levels throughout the injection season, according to Nasta.
“The incremental power burn this year boiled down to increased market share of gas-fired generation,” Nasta said, highlighting coal retirements and weaker wind generation as the key factors behind this increased share of the power stack.
As a consequence of the robust power burns, the Lower 48 end-of-injections carryout figure has now fallen to a much more manageable 3.8 Tcf, the analyst estimated.
“That would still be 200 Bcf or more above the 2022 and five-year average season-ending inventories, but not nearly as oppressive as 4 Tcf or more would have been for the gas market had demand — namely record power burn — not shown up,” Nasta said.
