Natural gas futures finished higher Tuesday after a choppy session that began in the red, supported by a rebound in U.S. LNG exports and a blitz of pipeline maintenance that sent gas production estimates lower.
At A Glance:
- West Texas prices flip positive
- MVP pipeline ready to start in May
- Production falls below 97 Bcf/d
Coming off a nearly 4.0-cent gain Monday, the May Nymex contract added 2.1 cents day/day to settle at $1.812/MMBtu. The June contract, which is set to become the prompt month after Friday’s close, rose 2.9 cents to $2.094.
The overall trend for cash prices was also higher Tuesday, driven by sharp gains in West Texas that flipped its prices positive for the first time since early April. NGI’s Spot Gas National Avg. added 4.0 cents to $1.380.
With weeks left still in the Lower 48’s slow shoulder season demand period, a primary support for prices has come from producers’ discipline to keep in place output cuts made in recent weeks. Maintenance outages added to those cuts on Tuesday, sending daily dry gas production down by about 3 Bcf/d, according to pipeline flow estimates.
Bloomberg data showed gas production at 96.4 Bcf/d on Tuesday, down 2.9 Bcf/d day/day. Wood Mackenzie estimates similarly showed output at 96.9 Bcf/d, off from a revised 99.4 Bcf/d for Monday.
However, the question remains how long natural gas producers plan to hold down production. Answers could start to come this week as the earnings season picks up. EQT Corp., the largest natural gas producer in the United States, reports first quarter of 2024 earnings Wednesday morning. The company’s announced output cuts in March were some of several that moved futures markets during the last earnings season.
One factor for EQT in the coming months could be its ability to ship more gas out of the Appalachian region into higher-priced Southeast markets via the startup of the long-delayed 2 Bcf/d Mountain Valley Pipeline LLC (MVP). MVP told federal regulators on Monday that the pipeline was “nearing completion” and would be ready for service in May.
On the demand side, a cooler swing in spring weather has boosted demand this week. In addition, with the injection season underway, the storing and selling of gas forward is creating another outlet for gas in the near term.
U.S. liquefied natural gas feed gas flows remained elevated after the rebound over the weekend from the restart of Freeport LNG and reduced maintenance at other terminals. Feed gas flows for LNG exports increased to 12.87 million Dth Tuesday, up from a revised 12.73 million Dth Monday, according to NGI’s LNG Export Flow Tracker.
Maintenance Blitz
Maintenance on natural gas pipelines drove steep drops in output in the Appalachian and Permian basins Tuesday. Output in the East fell by about 1 Bcf/d day/day, with decreases concentrated on the Nexus Gas Transmission LLC system that is downstream of maintenance by Texas Eastern Transmission in Ohio, according to Wood Mackenzie analysts.
Permian gas output fell by 0.85 Bcf/d day/day to 15.7 Bcf/d, Bloomberg estimated. Intrastate pipelines have no federal reporting requirements, making their maintenance less visible, but Kinder Morgan Inc. (KMI) has confirmed some projects via its electronic bulletin board.
Gulf Coast Express Pipeline LLC would be overhauling compressor stations until May 2, with another round of similar work planned May 14-21, KMI said. The company also plans to inspect compressors on the 2 Bcf/d Permian Highway Pipeline May 7-12 that could reduce capacity to as low as 1.45 Bcf/d.
“Although another three to four weeks of pipeline maintenance are ahead, signs of falling output may steady over the next two months,” EBW Analytics Group analyst Eli Rubin said. The end of the pipeline maintenance season could add back around 2 Bcf/d of natural gas into the market, Rubin said.
Summer Demand
The coming demand of the summer season could soak up a lot of that returning supply, starting in the second half of May.
“We continue to expect there will be opportunity for surpluses to be considerably reduced when a sustained period of hotter/bullish weather patterns finally works in concert with tighter U.S. production, and the second half of May is the soonest for that to occur,” NatGasWeather said.
The higher demand could halt the increase in surpluses of gas in working storage, which stood 36% above the five-year average after the latest 50 Bcf injection. The surpluses could grow even more in the next government storage report on Thursday covering the week ended April 19.
NGI modeled an 86 Bcf build, higher than the five-year average build of 59 Bcf. But even bigger builds could follow. A forecasted drop in heating demand next week raises the “prospects of plus-100 Bcf injections in early May,” EBW’s Rubin said.
However, those hefty injections could quickly give way to more normal builds as summer’s cooling demand takes off.
“Summer is coming,” analysts with Constellation Energy Corp.’s Commodities Management Group said last week. “The forecast is for a top-five hot event. That means air-conditioning load moving into the picture in May and that means increasing amounts of excess gas get mopped up and placed into combined-cycle gas-fired electric power generation.”
Cash Markets Mixed
Spot gas prices were mixed across regions in Tuesday trade, with the overall trend higher on the back of sharp gains in West Texas.
The Permian’s benchmark, Waha, jumped $1.055 day/day to average 4.0 cents, its first time marking positive since April 1. Trade at the hub ranged between negative 50.0 cents and $1.400 Tuesday and was the most active in the region.
W. TX/SE NM Regional Avg. rose 79.0 cents to 15.0 cents.
Supporting West Texas prices, hotter weather was forecast for the Permian’s downstream markets in the West this week. Forecasts for highs in the 90s in the Southwest as well as West Texas were expected to boost cooling demand. In addition, the rebound in Gulf Coast LNG exports has increased feed gas demand to its highest levels in three weeks.
Running counter to the overall maintenance trend, MPLX LP’s Whistler Pipeline has increased flows of Permian gas south from Waha near Coyanosa, TX, to Agua Dulce. Wood Mackenzie pipeline data showed Whistler’s flows to three major interconnects increased by about 100 MMcf/d this week.
Elsewhere in the Lower 48, fresh cool shots across the Midwest and Northeast were expected to increase national demand Wednesday to Friday, NatGasWeather said. However, the uptick in demand would be limited by comfortable temperatures across most of the rest of the country with highs in the 50s to 80s, the forecaster said.
In California, PG&E Citygate moved up 11.0 cents to $2.325, and SoCal Citygate added 9.0 cents to $1.625.
In the Northeast, Algonquin Citygate rose 3.0 cents to $1.570. In Appalachia, Texas Eastern M-2, 30 Receipt lost 1.0 cent to $1.340.
