Natural gas futures forged ahead on Monday, building on the modest momentum gathered late last week after supportive government inventory data and price jumps in Europe. Following a 2.7-cent gain on Friday, the October Nymex gas futures contract settled at $2.639/MMBtu, up two-tenths of a cent to start the new week. November rose 2.7 cents to $2.906.
At A Glance:
- Weather support weakens
- Producers remain active
- NGI models 88 Bcf injection
NGI’s Spot Gas National Avg. gained 17.5 cents to $2.170.
U.S. prices followed a rally in Europe, where the benchmark November Title Transfer Facility contract rose 7% on Monday as traders mulled ongoing global supply risks amid the war in Ukraine and declining domestic production on the continent.
Analysts cautioned that, in the Lower 48, waning weather demand could cut short any rallies this fall. Forecasts as of Monday pointed to “exceptionally comfortable” temperatures over the next two weeks, translating into “light to very light” natural gas consumption, according to NatGasWeather.
“The result will be a string of larger-than-normal builds lining up three to four weeks deep, with the potential for a few to be near or over 100 Bcf,” the firm said of storage injections.
An exceptionally hot summer in Texas and other parts of the South helped to lower the U.S. storage surplus to the five-year average to 183 Bcf as of Sept. 15, according to Energy Information Administration (EIA) data. That marked a notable improvement from well over 350 Bcf earlier in the summer.
EIA reported a 64 Bcf injection into domestic storage facilities for its latest coverage period. The print was in line with market expectations and tighter than the five-year average 84 Bcf injection.
Still, Lower 48 working gas in underground storage ended the Sept. 15 period at 3,269 Bcf and remained 6% higher than the five-year average, according to EIA. That surplus could widen anew this fall, potentially back to around 210 Bcf through the first week of October, NatGasWeather said. There is “the potential to increase a little further if weather patterns for Oct. 8-21 remain warmer versus normal, as is currently expected,” the firm said.
Preliminary estimates submitted to Reuters for the week ended Sept. 22 ranged from injections of 70 Bcf to 106 Bcf, with an average increase of 88 Bcf. NGI modeled an increase of 88 Bcf. That compares with a five-year average of 84 Bcf.
EBW Analytics Group analyst Eli Rubin also noted forecasts that showed warmer-than-normal temperatures in October. Projections from forecaster DTN were showing a most-likely outcome of heating demand falling below 30-year norms for the month as a whole, according to Rubin.
“A warm start to October – prolonging shoulder season weakness and postponing the start of the heating season – is unlikely to help matters,” Rubin said. “Weather forecasts extended a run of warmer-than-normal temperatures into early October, with the Upper Midwest anticipated to average 11 degrees above normal next week. From now through the end of October, DTN's most-likely forecast features 51 heating degree days below 30-year norms.”
He also said LNG feed gas demand was lower amid maintenance work at the Cove Point liquefied natural gas export terminal in Maryland.
“Further light maintenance” at the Sabine Pass and Cameron LNG plants on the Gulf Coast this fall could also dampen volumes, Rubin said.
Wood Mackenzie on Monday estimated LNG demand at 11.7 Bcf/d, down from a recent seven-day average of 12.0 Bcf/d.
On the production front, meanwhile, Wood Mackenzie estimates showed output increasing over the weekend and holding above 101 Bcf/d on Monday. Production was within roughly 1.5 Bcf/d of 2023 highs.
Jacob Thompson, managing director at Samco Capital Markets, told NGI that higher oil prices in recent weeks could motivate crude producers to remain active in the Permian Basin through the fall. Associated gas – produced alongside oil – is likely to further contribute to strong natural gas volumes as a result, he said. Brent crude – the international benchmark – topped $90/bbl on Monday, up more than 20% since the start of June.
“Price gains like that tend to motivate producers,” Thompson said.
Analysts at Mizuho Securities USA LLC noted that, through mid-September, natural gas production above 101 Bcf/d this year has averaged 4.6 Bcf/d higher than 2022. At the same time, gas demand was up just 0.2 Bcf/d in the same span, with strong power generation offsetting lighter industrial, commercial and residential demand.
Cash Prices Cruise
Spot gas prices rallied throughout the country, bouncing back from a slump last week amid bargain buying. Prices on both coasts propelled the national average higher.
Algonquin Citygate near Boston surged 56.5 cents from Friday to average $1.485, while Niagara in New York gained 36.5 cents to $1.370.
Out West, prices at the volatile SoCal Citygate spiked $1.920 to $5.465, and elsewhere in California, PG&E Citygate climbed 30.0 cents to $3.530.
NatGasWeather said the southern United States would remain quite warm this week, with high temperatures ranging from the 80s to the mid-90s. However, “the rest of the U.S. will be very nice with highs of 60s to 80s for light demand besides cooler 50s across the wet Northwest.”
Remnants of Ophelia, a tropical cyclone that impacted the East Coast over the weekend, continued to affect several major markets on Monday. It was expected to fade by Tuesday, but before then, heavy rains threatened flooding across the Mid-Atlantic into southern New England, according to the National Hurricane Center.
Brandon Buckingham, AccuWeather meteorologist, said Monday the storm was “drenching” cities such as Philadelphia, New York City and Washington, D.C. With the rain came cold air and early hints of natural gas demand to power furnaces.
Prices also advanced in the nation’s midsection, with Chicago Citygate up 7.0 cents to $2.180 and Waha in Texas ahead 15.5 cents to $1.800.
