After some back and forth early in Wednesday’s trading session, natural gas futures landed in the green amid a continued pull on gas for power generation. Aided by continued supply worries in Europe that have fueled record gas prices on the continent, the September Nymex gas futures contract settled at $9.330/MMBtu, up 13.7 cents from Tuesday’s close. October futures climbed 14.5 cents to $9.300.
At A Glance:
- BREAKING: U.S. EIA reports an injection of 60 Bcf for the week ending August 19
- Freeport delay leaves backdrop less supportive
- Cash slides on waning summer demand
Spot gas prices retreated across the majority of the U.S. locations. Even with hot weather continuing on the West Coast, NGI’s Spot Gas National Avg. tumbled 31.0 cents to $8.935.
Against a backdrop of moderating weather elsewhere in the Lower 48, the upcoming fall shoulder season is unlikely to be the sleepy period the gas market has grown accustomed to over the past several years. Instead, market observers point to a concerning storage trajectory and sluggish production for potentially keeping prices propped up ahead of winter.
The Energy Information Administration (EIA) is set to provide its weekly inventory update on Thursday, with the market anticipating an above-average injection that may ease some worries.
Reuters polled 13 analysts, whose estimates ranged from injections of 17 Bcf to 67 Bcf, with a median forecast of 60 Bcf. A smaller Bloomberg survey had a slightly tighter range of estimates, with a median of 54 Bcf.
The EIA recorded a build of 32 Bcf in the same week last year, while the five-year average injection is 46 Bcf.
Inventories as of Aug. 12 stood at 2,519 Bcf, which is 296 Bcf below year-ago levels and 367 Bcf below the five-year average, according to EIA.
With Freeport LNG now expected to begin initial production in early to mid-November, and a higher 2 Bcf/d level of output not likely until the end of the month, the market appeared to breathe a collective sigh of relief when the export facility announced the news on Tuesday. Futures prices crumbled, with the September contract settling within a nickel of Monday’s intraday low.
“Interestingly, a two-week delay is all that should have been contemplated in our opinion, as previous statements targeted a mid-October restart,” Mobius Risk Group said. “This would theoretically add back 40 Bcf or so to pre-winter inventory expectations, or a relatively non-material change.”
It is possible the market assumes this could be the first of many delays for the liquefied natural gas export terminal, according to Mobius. Freeport earlier this month reached a consent agreement with federal regulators to keep the facility on track to come back to full service by the end of the year. However, with the latest update, the company said full operations would likely not occur until March.
While seen as at least somewhat beneficial for domestic storage inventories, the delayed restart for Freeport compounds supply concerns in Europe. Late last week, Russia’s Gazprom PJSC indicated it would take the Nord Stream 1 pipeline down for a three-day maintenance. The announcement sent shockwaves through gas supply chains and sent European gas prices surging to fresh highs.
The market shows no signs of finding a new equilibrium either, according to Rystad Energy.
“Russia for now sits at the heart of global gas markets – its ability to impact pricing and supplies beyond its regional market is becoming clearer and likely to solidify as demand picks up in the winter months,” said Rystad analyst Lu Ming Pang. “Market sentiment is a mixture of price record fatigue with quiet acceptance that this new normal is here to stay.”
Meanwhile, U.S. volatility remains high amid a mix of domestic and global influences. With the September Nymex contract’s expiration looming, the risk of outsized price swings is amplified given thin liquidity in the market.
EBW Analytics Group noted that on the supply front, production may end the month on strong footing. August-to-date natural gas output appears higher by 1.1-1.4 Bcf/d month/month from July – and as much as 4.0-4.5 Bcf/d higher year/year even after correcting for August 2021 hurricane-induced losses.
“Intramonth pipeline nomination trends often favor rising supply into the end of the month, with all-time record highs possible this weekend and into next week,” EBW senior analyst Eli Rubin said.
Temperatures also should slowly soften through Labor Day weekend, offering another bearish factor for the market to consider. EBW cited forecaster DTN’s long-range outlook for a 12 cooling degree day decline into the holiday. This could cut power burns by an incremental 1.2 Bcf/d. However, “exceptionally low” wind generation in Texas has helped to bolster near-term power sector gas demand.
“While volatility risks remain high with price-inelastic demand and supply curves in the short run, the fundamental outlook is far less supportive than when the September contract closed last Thursday close at $9.188 – within a penny of Tuesday’s close at $9.193,” Rubin said.
Big Cash Discounts
Spot gas prices cratered Wednesday as the nation’s hottest temperatures remained over the West and central Plains. NatGasWeather said a strong upper high pressure would result in highs reaching the 90s to 100s, with the strongest heat remaining in California.
Despite the unseasonably hot weather, cash prices throughout the state tumbled. PG&E Citygate was down 69.5 cents to $10.040, while the SoCal Border Avg. was down only 6.5 cents to $9.540.
Spot gas prices throughout the Desert Southwest and into the Rockies slid as much as 68.5 cents day/day, which was in line with losses seen farther inland in the Midcontinent and Midwest.
A handful of locations in Louisiana posted similarly steep price declines amid increasing cloud cover along the Gulf Coast. Pine Prairie next-day gas plunged 60.0 cents to $9.215, and Texas Eastern E. LA fell 66.5 cents to $8.735.
Other points farther downstream along the Texas Eastern Transmission system recorded similarly stout price decreases, while Boston’s Algonquin Citygate slid 46.0 cents to $9.155.
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