Expectations of cooler weather beginning this month along with stubbornly strong production and plump storage levels resulted in lower natural gas prices for September baseload delivery.
NGI’s September Bidweek National Avg. was down 32.0 cents month/month to $1.380/MMBtu. Last year, September Bidweek averaged $2.375/MMBtu.
Western markets led the move lower for North America despite forecasts calling for another round of blistering heat in the region. The National Weather Service (NWS) said daytime highs along the West Coast would likely reach the 90s to 100s, which is as much as 20 degrees above normal.
Along with the scorching temperatures, forecasters warned of increased fire risks across portions of the Central Great Basin and Northern Plains. Several wildfires have spread across California, Oregon, Colorado and other areas of the West this year.
On Monday, the California Department of Forestry and Fire Protection said the Bear Fire had burned around 800 acres in the Sierra Brooks area of the forest in Sierra County.
Despite the steamy short-term outlook for the region, robust supplies kept the pressure on Western bidweek prices. The U.S. Energy Information Administration (EIA) said stocks in the Pacific region as of Aug. 30 were at 287 Bcf, which is nearly 17% above year-earlier levels. Mountain stocks were at 266 Bcf, which is 26% above year-ago levels and approaching estimated capacity two months before the end of the injection season.
As for prices, the PG&E Citygate September bidweek price averaged $1.745 lower month/month at $2.270. SoCal Citygate prices dropped $1.385 to $1.805.
Rockies prices also fell more sharply than most other U.S. locations. El Paso San Juan September bidweek fell 67.0 cents on the month to average $1.355, while Northwest Rockies lost 58.5 cents to $1.420.
The hefty declines spread into upstream markets in the Permian Basin, a major gas supplier to the West. Waha September bidweek prices averaged $1.255 lower month/month at negative $1.030. Transwestern was down $1.550 to negative $1.400.
This was the first time since May that bidweek prices have averaged negative in the Permian, though it’s not surprising. With production in the oily basin continuing to rise, the lack of natural gas pipeline capacity continues to trap associated gas in the basin, leaving producers forced to pay to have excess supply taken away.
It’s been an issue in the Permian for more than five years, though several greenfield projects and brownfield expansions have at times slowed the bleeding for regional prices. The next major takeaway project – Matterhorn Express Pipeline – would add 2.5 Bcf/d of pipeline capacity in the region and provide a sustained lift in prices for a couple of years, according to some analyst estimates.
Another greenfield project, the Blackcomb Pipeline, was sanctioned last month. Enbridge Inc., MPLX LP and WhiteWater Midstream LLC, through the WPC joint venture that owns the Whistler Pipeline system, have partnered with an affiliate of Targa Resources Corp. to construct Blackcomb.
The 42-inch diameter system would traverse 365 miles from West Texas to the Agua Dulce hub in South Texas, near Corpus Christi. Blackcomb could be in service by the second half of 2026, pending regulatory approvals.
Weakening Macro Outlook
The steep losses for Western markets compared with modest increases at a handful of key locations elsewhere in the United States.
Benchmark Henry Hub September bidweek prices edged up 3.5 cents on the month to average $1.935. East Coast locations posted sharper price gains, with Eastern Gas South September bidweek up 10.5 cents month/month to $1.275 and Algonquin Citygate up 15.0 cents to $1.680.
Despite those gains, the macro environment for natural gas remains bearish heading into the fall shoulder season.
While record heat offered some support to prices this summer, the upcoming pattern isn’t quite hot enough to significantly bolster prices. NatGasWeather said national demand would be moderate through Friday as numerous weather systems impact large swaths of the country. “Comfortable” daytime temperatures in the 60s to 80s were expected, with heavy rain expected for much of the Gulf Coast, according to the forecaster. This would portend much lighter demand in Texas, given lesser coverage of highs into the 90s.
What’s more, although weather models differ for the mid-September period, “impressively hot” remains absent from the forecast, NatGasWeather said. As such, cooling degree days are forecast to be above normal for mid- and late September, but with heating degree days well below normal across the northern states.
Nevertheless, NatGasWeather said storage inventories should tighten this month. Total working gas in storage as of Aug. 23 was 3,334 Bcf, according to the EIA. This is 228 Bcf higher than the same time last year and 361 Bcf above the five-year average. The forecaster said it expects the surplus to the five-year average to decrease from around 300 Bcf after the next four EIA reports are tallied.
“Bears have sold every rally the past two to three months, aided by surpluses not declining as fast as the natural gas markets were expecting,” NatGasWeather said. “However, October 2024 prices tested $2 last week twice and bounced in both instances, giving bulls some momentum.”
October’s all-time low is $1.991.
The October Nymex gas futures contract settled Tuesday at $2.203, up from Friday’s $2.127 settlement.
As prices remain weak, market observers are closely monitoring for signs of production pullbacks.
Leading North American natural gas producers, including EQT Corp. and Chesapeake Energy Corp., have signaled intentions to curtail output until prices strengthen. Early September production readings indicate curtailments may be in place. Both the Haynesville and Marcellus shales dialed back, the latter by more than 1 Bcf/d, according to EBW Analytics Group.
However, any lost volumes could be made up from rising output elsewhere. BofA Global Research commodity and derivative strategist Francisco Blanch said Western Canada production is up roughly 0.4 Bcf/d year/year, while Bakken Shale output, just a pipeline flow away, is up 0.1 Bcf/d and reaching 1.2 Bcf/d even as it competes for pipeline space.
Production in the Rockies, which historically declines year/year, is up so far in 2024 by 0.4 Bcf/d from a year ago. Before Tuesday’s drop, the Marcellus had been up marginally at 25.5 Bcf/d, according to Blanch. Permian production is up another 1.9 Bcf/d year/year.
“While some producers have mentioned scaling back…it has not significantly materialized with U.S. production up nearly 600 MMcf/d year/year at 103 Bcf/d despite the limited additional outlets for the fuel,” he said.
Storm Watch
There are other challenges ongoing for the natural gas market. The Atlantic hurricane season is still underway, with about two-thirds of all Atlantic hurricane activity occurring between Aug. 20 and Oct. 10, according to Philip Klotzbach, a meteorologist at Colorado State University specializing in Atlantic basin seasonal hurricane forecasts.
He noted on X, formerly Twitter, that the Atlantic has had no named storm formations since Ernesto on Aug. 12. The last time the Atlantic had no named storm formations between Aug. 13 and Sept. 3 was 1968.
The National Hurricane Center on Tuesday was monitoring three disturbances, including one in the Caribbean Sea that had a 40% chance of cyclone formation in seven days. Another in the eastern Atlantic also had a 40% of development within the week.
AccuWeather forecasters, meanwhile, last month said they were projecting six to 10 named storms during what they called a “supercharged September.” The Atlantic hurricane season officially ends Nov. 30.
Hurricane Beryl, a Category 1 storm, hit the upper Texas coast in early July. The storm cut off power to millions, including Freeport LNG. The liquefied natural gas export facility has been offline for much of the year, mostly because of weather-related incidents. Most recently, though, all three trains were restarted late last week following a forced shutdown after a fire suppression system in the control room was unexpectedly activated during routine maintenance.
