Natural gas futures powered forward on Thursday, bolstered by anemic government inventory data and lighter production readings that could further support supply/demand balances.
At A Glance:
- EIA prints 13 Bcf storage increase
- Inventory surplus stands at 11%
- Estimates peg output at 101 Bcf/d
The October Nymex gas futures contract settled at $2.254/MMBtu, up 10.9 cents day/day, after the U.S. Energy Information Administration (EIA) reported an injection of 13 Bcf into storage for the week ended Aug. 30. The result fell far short of historical norms as well as expectations.
NGI’s Spot Gas National Avg. ticked down 1.5 cents to $1.735 after strong gains earlier in the week.
“The smallish injection was certainly a surprise and certainly has helped the price sentiment” in the futures market, Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI.
Prior to the EIA data crossing the wire, NGI modeled a 20 Bcf build. Injection estimates submitted to Reuters landed at a median of 28 Bcf, while Bloomberg’s poll produced a median of 27 Bcf. The actual result also proved anemic relative to the prior five-year average increase of 51 Bcf.
Robust gas consumption in the South Central region resulted in a steep 14 Bcf withdrawal for the latest period, the biggest driver of the bullish result. The Midwest and East regions led with injections of 13 Bcf and 7 Bcf, respectively, according to EIA. Mountain region stocks increased by 4 Bcf, while Pacific inventories rose by 2 Bcf.
Production at the national level also tapered some during the covered period – from around 102 Bcf/d to slightly below that threshold – and helped to keep injections light.
The increase for last week lifted inventories to 3,347 Bcf, putting stocks 323 Bcf above the five-year average of 3,024 Bcf. However, the surplus relative to the prior five years declined by more than a percentage point to about 11%. This extended a summer-long trend of lowering the surfeit.
Still, “the storage surplus to the five-year average remains large, despite a rapid decline in the past few months,” Gelber & Associates analysts said.
Looking ahead to the next EIA report, covering the first week of September, analysts were generally expecting a seasonally light increase.
Criterion Research analyst James Bevan cited a continued downward trend in production – it fell further this week – and steady LNG demand. He noted milder weather in the North, though expectations for continued intense heat in the South.
“Plenty of things to keep an eye on,” Bevan said on Enelyst.
Early injection estimates submitted to Reuters for the Sept. 6 EIA period averaged 49 Bcf. That compares with a five-year average build of 67 Bcf.
Supply/Demand
Looking at fundamentals, Wood Mackenzie estimated total demand at around 101 Bcf/d for the seven days leading up to Thursday trading. This included 7.1 Bcf/d of Mexican demand for U.S. exports and 12.6 Bcf/d of feed gas calls from liquefied natural gas facilities. The rest was domestic consumption.
After a spate of maintenance events at LNG terminals, demand from export terminals steadied at strong levels in August. That continued into this month.
“The U.S. exported a total 8 million tons of LNG in August this year, a monthly high and some 6% up on August 2023 levels and 13% higher than in July 2024,” said Rystad Energy analyst Masanori Odaka.
Wood Mackenzie this week pegged production at about 101 Bcf/d, down from summer highs near 103 Bcf/d and about 1 Bcf/d lower than the 30-day average. Major producers such as EQT Corp. had vowed to curtail output gradually heading toward autumn if prices were in bearish territory. Analysts said early September output estimates indicated producers were following through in an effort to align supply/demand and support prices.
Following a mild 2023-24 winter, natural gas futures have struggled to stay above the $2.00 level for months. At this level, prices are far from the current decade’s peak near $10 – reached in 2022. This has cut into producers’ profits, RBN Energy LLC analyst Nick Cacchione said.
Gas-weighted producers “are bearing the brunt of the impact from rock-bottom” prices, he said.
NatGasWeather noted that, with production decreases, steady LNG demand and summer weather persisting in the South, the surplus of inventories is expected to decline further this month, yet it could still top 300 Bcf by the end of September.
Looking at weather details, the firm said the intense heat that permeated swaths of the South and West this week would extend into next week, driving strong regional cooling demand. This includes high temperatures in the triple digits across much of California.
Updated weather data on Thursday “favors a very warm to hot ridge building over much of the U.S.” next week, “resulting in highs of mid-80s to 100s over the southern half” of the country, the firm said. However, this is projected to be countered by “perfect 70s-80s across the northern U.S.,” creating an uncertain outlook in terms of national demand levels.
Cash Prices
After a buying spree the two prior sessions, the physical market sold off modestly on Thursday.
Chicago Citygate fell 4.0 cents day/day to average $1.785, while SoCal Citygate shed 5.0 cents to $2.055, and Northwest Sumas slipped 6.5 cents to $1.635.
In the East, Algonquin Citygate near Boston shed 6.0 cents to $1.820.
Notably, West Texas prices, long mired in negative territory because of a supply glut, crawled back into the green. Permian Basin benchmark Waha gained 26.0 cents to 16.0 cents.
Tropical storm activity remains the wildcard on the weather front.
AccuWeather forecasters said that, while the start of September proved unusually quiet in the Atlantic Basin, they still expect the remainder of the hurricane season to be more active than average. It may also last longer than normal.
Labor Day weekend was the first in 27 years without a named storm in the Atlantic, AccuWeather said. It cited an abundance of dry air, dust from the Saharan Desert and disruptive winds that hampered tropical development. The lack of tropical development came despite record warm water across the Atlantic that is conducive for hurricanes.
As such, the firm reduced its forecast for the year to 16-20 named storms (down from 20-25) and six-to-10 hurricanes (down from eight-to-12). Still, if proven accurate, activity would exceed the historical average of 14 named storms.
“We don’t want anyone to let their guard down even though we are now forecasting fewer storms in total,” AccuWeather chief meteorologist Jonathan Porter said. “We expect two to four more direct impacts to the United States this season. It only takes one powerful hurricane or slow-moving tropical storm to threaten lives and cause devastation.”
There have been five named storms and three hurricanes so far in 2024.
While the hurricane season officially ends at the end of November, Porter said tropical threats could extend into December because it could take longer for extremely warm water temperatures to cool.
