Natural gas futures floundered on Wednesday, continuing a topsy-turvy trading trend as market participants weighed continued strong supplies against robust – but varying – cooling demand and forecasts for more of the same.
At A Glance:
- Front month sheds 6.5 cents
- Analysts see smaller injection
- Weather forecasts ease some
Following a 4.5-cent gain for the prior session, the August Nymex gas futures contract on Wednesday settled at $2.665/MMBtu, down 6.5 cents day/day. September fell 5.4 cents to $2.693.
NGI’s Spot Gas National Avg. jumped 18.0 cents to $3.115, propelled by surging demand and price spikes on both seaboards.
To be sure, near-term weather is bullish. NatGasWeather said Wednesday the Lower 48 would see “the hottest pattern of the past 40-plus years” through the remainder of the trading week. Scorching highs in the triple-digits were expected to pepper a vast swath of the country, from California through the Southwest to Texas in that span. At the same time, parts of the Plains and Midwest were enduring highs in the upper 90s, with similar temperatures along with heavy humidity on the East Coast.
While weather data remains “impressively hot through Saturday,” the firm added, outlooks show “national demand becoming only slightly stronger than normal Aug. 1-8 as weather systems sweep across the Great Lakes and northeastern U.S.
“In addition, there’s the potential for tropical systems into the southern or eastern U.S. in August” that could usher in cooler winds, NatGasWeather added. “Essentially, there are many ways flaws in the hot upper ridge are exposed in August that could prevent widespread extreme heat. The August pattern is still likely to result in stronger-than-normal demand most days, just not exceptionally strong and why storage surpluses are likely to only decline slowly.”
Production, meanwhile, climbed to 99.8 Bcf/d on Wednesday, up nearly 1 Bcf/d from Bloomberg’s prior estimate. The increase followed Northeast maintenance events and put output back near the century mark. It has periodically dipped below that level amid repair events, sparking bulls’ interest, but each time this year it has bounced back and averaged around 101 Bcf/d – near record levels.
With August demand uncertain and production choppy, the market is likely to next fixate on Thursday’s Energy Information Administration (EIA) storage report.
For the week ended July 21, NGI modeled an increase of 14 Bcf. Estimates submitted to Reuters ranged from injections of 8 Bcf to 36 Bcf, with a median increase of 15 Bcf. A Bloomberg poll produced a narrower range but with a low of 6 Bcf, and it landed at a median of 14 Bcf. The Wall Street Journal’s survey found an average injection expectation of 20 Bcf.
The estimates compare with an increase of 18 Bcf during the same week last year and a five-year average injection of 31 Bcf.
EIA reported a build of 41 Bcf for the week ended July 14. It increased inventories to 2,971 Bcf and kept stocks well above the five-year average of 2,611 Bcf.
Expectations for Thursday’s 10:30 ET report vary in part because it has been difficult to gauge supply/demand balance amid uneven production and recently robust consumption to power air conditioners.
Power Burns, LNG
Goldman Sachs Group analysts led by Samantha Dart said gas burns in July have proven “exceptionally strong” – about 1.4 Bcf/d higher than a year earlier. “In particular, we note this month’s outperformance in burns has correlated well with the hottest days in the period and, in particular, with the hottest period in Texas,” Dart said. “With current Texas weather forecasts remaining above average, we believe gas burn outperformance is likely to extend into early August.”
Demand for LNG, meanwhile, proved lackluster to start the summer amid a spate of maintenance projects at liquefied natural gas facilities. It fell to a recent low around 11 Bcf/d but had climbed to around 13 Bcf/d to start this week – within 2 Bcf/d of 2023 highs.
However, as Wood Mackenzie analyst Kevin Ong noted Wednesday, a gas explosion in rural Virginia on Tuesday creates a new wildcard on the export front.
Columbia Gas Transmission declared a force majeure after an explosion and fire on a section of pipeline near Strasburg, VA. It remained in place on Wednesday until further notice. Ong said physical deliveries at the Loudoun LNG interconnect would be impacted because of pressure reductions and isolation of one line.
As such, he said, deliveries to the Cove Point LNG facility via the Loudoun interconnect declined on Wednesday by 604,060 MMBtu day/day. Rerouting was expected to provide meaningful offsets, but Cove Point receipts were down and could remain under pressure this week.
Spot prices at the Cove Point hub on Wednesday averaged about $3.650, up from the $1.900 level last week, according to NGI estimates.
Spot Prices Surge
National average cash prices pushed beyond the $3.00 level on Wednesday, bolstered by big gains in the volatile West Coast and Northeast regions.
SoCal Citygate soared $5.755 day/day to average $12.330, while SoCal Border Avg. jumped $1.625 to $7.095.
In New England, meanwhile, Algonquin Citygate rallied $1.870 to $6.310, and PNGTS advanced $1.805 to $7.000.
NatGasWeather said near-term conditions supported strong gas demand.
“High pressure continues over the southern, western and eastern U.S., with highs of upper 80s to 110s, hottest California to Texas,” the firm said. The Midwest, meanwhile, could experience highs in the upper 80s to high 90s. The Northern Plains were forecast to endure peak temperatures close to 100 before the trading week ends.
The latest 11- to 15-day forecast (Aug. 5-9) from Maxar’s Weather Desk Wednesday, meanwhile, advertised hotter-than-normal conditions stretching from the western Lower 48 to Texas.
“This comes with model support, as all ensembles project a shift in ridging back to the Southwest,” the forecaster said. “This is expected to also suppress the monsoon, keeping the region on the hotter side.
“Meanwhile, a weak trough is over the Eastern third, with temperatures forecast to be near normal in the Midwest and East.” The Northeast was expected to see “slightly below-normal temperatures early in the period.”