Natural gas futures found further momentum on Monday, rallying a second consecutive session amid bargain buying, hints of a potential pullback in U.S. production and wildfires that interrupted output in Canada and boosted cash markets.
At A Glance:
- Wildfires crimp Canadian output
- U.S. rig count hints at slowdown
- Cooling demand further softens
The June Nymex gas futures contract gained 10.1 cents day/day and settled at $2.238/MMBtu. July rose 9.1 cents to $2.412. The prompt month picked up 3.6 cents on Friday. That followed a four-day losing streak that ultimately left June futures down 11% last week.
NGI’s Spot Gas National Avg., meanwhile, gained 19.5 cents to $1.815, bolstered by gains in the West impacted by the fires. The average had shed 9.5 cents on Friday.
Lower 48 production hovered near 101 Bcf/d on Monday, according to Bloomberg’s estimate, just shy of record levels. The number of rigs drilling for gas totaled 157 during the week ended May 5, according to Baker Hughes Co. data. That was 11 more than the comparable week a year earlier. However, the latest tally noted the loss of four gas-directed rigs last week, and the rig count matched the lowest level in eight weeks.
Analysts said the recent pullback could mark the start of a trend, given it arrived on the heels of earnings season commentary from several executives saying they expected to ease output this year in response to low prices.
With prices struggling to stay above the $2 level – down more than half from the start of winter – “drilling activity in gas-directed basins such as the Haynesville [Shale] could see a slowdown” soon that could come atop the recent Permian Basin-led declines, said Rystad Energy’s Kaushal Ramesh, vice president.
Additionally, as trading got underway Monday, more than 100 active wildfires that had spread rapidly over the weekend continued to rage across the Western Canadian province of Alberta. Nova Gas Transmission Line (NGTL) field receipts had dropped from roughly 13.3 Bcf/d on May 3 to around 10.8 Bcf/d over the weekend, according to Wood Mackenzie estimates.
NGTL began a planned maintenance event on the Western Alberta System Mainline Loop on Friday. The project, expected to conclude by the end of this week, was estimated to impact only 210 MMcf/d, said Wood Mackenzie analyst Laura Munder. “The severe decline is likely associated with the wildfires,” she said.
The supply interruption boosted Canadian spot prices – Westcoast Station 2 jumped 87.5 cents to average C$2.150. It also affected prices at hubs in the western United States that accept gas deliveries from Canada, such as Northwest Sumas, which gained 77.5 cents to $1.845.
Recent modest gains aside, bears have plenty of ammunition. Weather models continued to point to comfortable conditions across the country from this week through the end of May. NatGasWeather said this creates the potential for several government triple-digit storage prints, potentially keeping surpluses relative to the five-year average well above 300 Bcf into early June.
EBW Analytics Group’s Eli Rubin, senior analyst, said spring maintenance events that have curbed LNG feed gas volumes further increased the likelihood of stout storage builds. Early-cycle liquefied natural gas nominations for export on Monday reached a six-week low at 12.4 Bcf/d. This could amplify supply/demand imbalance concerns through May and into next month, he said.
“We remain wary of rapidly swelling inventories,” Rubin said.
The Energy Information Administration’s (EIA) posted an injection of 54 Bcf natural gas into storage for the final full week of April. It pushed stocks up to 2,063 Bcf, far above the year-earlier level of 1,556 Bcf and the five-year average of 1,722 Bcf.
Early estimates for the EIA inventory report covering the week ended May 5 submitted to Reuters ranged from injections of 62 Bcf to 89 Bcf, with an average increase of 67 Bcf. NGI modeled an increase of 79 Bcf. The estimates compare with an increase of 76 Bcf during the same week last year and a five-year average injection of 87 Bcf.
There were just enough chilly rain showers in northern markets during the first few days of May to potentially keep injections relatively modest in the Midwest and Northeast. Still, the mild weather forecast for the rest of May could drive a surge in storage.
“Repeated triple-digit injections over the next six weeks may not be fully priced-in; we caution nascent bullish momentum may prove short-lived,” Rubin said.
Cash Prices Cruise
Spot gas prices varied by region but advanced overall on strength in some southern markets and the outsized advances at hubs affected by the Canadian fires.
NatGasWeather said near-term conditions this week would prove mostly benign in terms of cooling demand. The firm expects “an active pattern this week as numerous weather systems track across the U.S. with showers and thunderstorms, although comfortable with highs of 60s to 80s.” This is likely to result in “light national demand.”
The forecaster is looking for highs in the 90s in parts of Texas and the Southwest this week and farther into May. Temperatures elsewhere this month were likely to be “very nice.”
Early desert heat was enough to send prices higher Monday in the Southwest. El Paso S. Mainline/N. Baja gained 12.0 cents to $1.715 and KRGT Del Pool added 38.0 cents to $1.940.
Meanwhile, on Monday, hubs in the West were propped up by the Canadian wildfires. Alberta Premier Danielle Smith said at a news briefing the province has experienced “a hot, dry spring.” With “so much kindling, all it takes is a few sparks to ignite some truly frightening wildfires,” Smith said.
The fires as of midday Monday had burned more than 300,000 acres – necessitating more than a dozen local states of emergency and forcing several companies to temporarily pause natural gas production and idle processing plants in Alberta, according to BMO Capital Markets.
“We note that there has yet to be reports of significant damage to infrastructure, so production is expected to be restored when the wildfires are brought under control,” BMO analyst Mike Murphy said Monday.
In the Northwest United States, Malin gained 53.0 cents to $2.095, while Kingsgate rose 47.5 cents to $2.000.
