Natural gas prices for September bidweek were mostly higher as temperatures were forecast to remain above-normal in the final stretch of the summer season, keeping the call on natural gas for power generation elevated. With the supply outlook vastly improving in the Western United States, however, prices there posted massive losses month/month. NGI’s September Bidweek National Avg. ultimately dropped 22.0 cents to $2.375/MMBtu.
Reflecting natural gas traded Aug. 25 and Aug. 28-29 for September baseload delivery, that price is far lower than where bidweek prices averaged last September. Amid a strong influence from global pricing and domestic inventories lagging historically, September 2022 bidweek prices averaged $8.780.
The September Nymex gas futures contract, meanwhile, rolled off the board at $2.556.
Although several U.S. markets moved higher for September, price increases at those spots were modest.
At the Chicago Citygate, September bidweek prices averaged 7.5 cents higher on the month at $2.295. At the Midcontinent’s Panhandle Eastern location, September bidweek was up 10.0 cents to $2.135.
In Texas, where record heat has not budged since mid-June, Houston Ship Channel climbed 10.0 cents on the month to average $2.365. Similarly small gains were seen in South Texas.
In the western part of the state, meanwhile, prices for September baseload softened month/month. Waha tumbled 37.0 cents to average $1.925.
The loss is notable considering a major pipeline expansion is said to be entering service later this month. Whistler Pipeline is expanding takeaway capacity along the 450-mile, 42-inch diameter pipeline by 0.5 Bcf/d for a total capacity of 2.5 Bcf/d. Theoretically, this should prop up regional prices as gas flows are likely to increase once the additional capacity enters service.
However, given that one of the Permian Basin’s biggest demand markets is the West Coast, there are recent developments that may have resulted in the lower prices upstream.
More Aliso Canyon Capacity
In a deal largely expected by stakeholders, the California Public Utilities Commission (CPUC) on Thursday voted to expand the working capacity at the Aliso Canyon storage facility in a bid to protect consumers against high, volatile natural gas prices this winter.
The CPUC voted to boost the maximum storage level at Aliso Canyon to 68.8 Bcf, up from 41.16 Bcf. This is the highest amount deemed safe by the California Geologic Energy Management Division.
With hydroelectric power supplies also vastly improved year/year, the additional natural gas resources should help keep a lid on price spikes that may develop in the colder months. Last year, prices at the SoCal Citygate surged to around $50 in mid-December amid frigid conditions made worse by lagging supply. Other California markets also saw extreme prices throughout the winter.
For now, though a break from the unusually warm weather that has plagued the West sent gas prices for September bidweek tumbling.
The National Weather Service (NWS) showed cooler temperatures and heavy rains likely for the West Coast, through the Desert Southwest and into portions of the Rockies. The downspouts were likely to continue through the weekend, limiting daytime temperatures to the 60s and 70s.
The milder weather outlook sent prices plummeting throughout the region. In California, the SoCal Citygate plunged $3.445 month/month to average $6.150 for September bidweek.
In the Rockies, Northwest Sumas dropped $1.050 on the month to average $2.880.
Prices also fell sharply in the Northeast, even as hotter air was on the way for the Labor Day holiday weekend.
“Late-summer warmth with highs in the 80s will transition to highs in the 90s in many areas,” AccuWeather meteorologist Dave Dombek said. “It is possible that New York City and other locations that have not yet had a heat wave, finally check that off the list” in the coming week.
In New York’s Central Park, the temperature is forecast to flirt with the 90-degree mark from Monday to Wednesday. Central Park did not hit 90 at all in August.
Similar to New York City, the Pittsburgh metro area has not had an official heat wave yet this year, according to AccuWeather. Temperatures have only reached or exceeded 90 on two occasions this summer, once on June 3 and again on July 28. Temperatures are expected to peak within a couple of degrees of 90 in Pittsburgh each afternoon from Sunday through Wednesday, AccuWeather said.
With the projected rise in the mercury likely to be temporary, September bidweek prices across the Northeast and Appalachia softened month/month. Algonquin Citygate dropped 63.5 cents to $1.255, while Transco Zone 6 NY fell 22.5 cents to $1.060. Appalachia’s Eastern Gas South was down a modest 9.5 cents but averaged only 98.0 cents for September bidweek.
Futures Searching For Direction
The mixed bag for September bidweek prices comes amid some intraweek volatility for Nymex natural gas futures.
The October contract assumed the prompt-month position on Wednesday, debuting with a 13.4-cent gain that lifted the contract to $2.796. Prices then bounced around the rest of the week, as traders grappled with the possibility of late-season heat and storage inventories that have seen their surpluses whittle down in recent weeks.
On Thursday, the Energy Information Administration (EIA) said stocks for the week ending Aug. 25 rose by a net 32 Bcf, right in line with NGI’s model ahead of the report.
The injection lifted inventories to 3,115 Bcf, which is 484 Bcf above year-earlier levels and 249 Bcf above the five-year average, according to EIA.
Traders and market observers were left scratching their heads once again after the EIA reported a 12 Bcf withdrawal from non-salt facilities and an 11 Bcf pull from salts in the South Central region. One participant on energy chat Enelyst noted that on this track, the South Central could see its storage surplus to the five-year average completely erode by the end of October.
“I can’t reconcile that with my scrapes,” said Enelyst’s Het Shah, managing director.
Notably, much of the gas flowing to storage facilities in the South Central region are on intrastate pipelines not visible to the public.
Mobius Risk Group, meanwhile, said the overall South Central storage withdrawal of 22 Bcf tied for the second-largest weekly withdrawal on record for the third week of August, matching the total posted in 2021. Salt storage kept its streak of double-digit weekly withdrawals alive at six in a row, and the year-over-year storage surplus in salts fell to 64 Bcf.
Mobius pointed out, though, that it’s likely going to take much more to move prices meaningfully. The latest EIA data reflected a 29 Bcf drop in the year/year surplus, which is the lowest reading since the April 14 storage week. This illustrates that the market believes that 3.6 Tcf is an adequate pre-winter inventory level.
“Another healthy surplus reduction is on tap next week, and based on weather forecasts, the pace of deficit reduction should increase through mid-September,” Mobius senior analyst Zane Curry said. “However, an end-of-October inventory level between 3.8 and 3.9 Tcf is of no concern to a market which believes the upcoming winter withdrawal will fall between 1.75 and 2.0 Tcf.”
With wind generation coming in low over the past week, analysts are predicting another light storage injection in the next EIA report. However, estimates ranged widely from the 30s-50s Bcf, with the reference week preceding Labor Day.
“The scrapes I have are really tight this week with the low wind, suggesting sub-40 Bcf again next week,” Vortex Commodities CEO Brian Lovern said.
The latest weather forecasts, meanwhile, could throw cold water on any potential run-up in prices stemming from the otherwise supportive storage situation.
NatGasWeather said the near-term outlook trended a tad bit warmer in recent model runs, but slightly cooler for the 11- to 15-day period. With both the Global Forecast System and European models now cooler for Sept. 13-15, this period is now only near normal compared to solidly hotter than normal, according to the forecaster.
With futures traders rushing out for the long holiday weekend, the October Nymex gas futures contract settled Friday at $2.765, down only three-tenths of a cent on the day.
“We expected an exceptionally volatile week, and it hasn’t disappointed,” NatGasWeather said.
