Mercados / NGI Mexico GPI

Market Eyes Lean Storage as Natural Gas Futures Trade Near Even; Cash Down

  • April Settles at $2.683, down 0.3 cents, May up 0.1 cents to $2.712
  • Market finding support around $2.60 as lean inventories limit downside momentum, says Powerhouse’s Levin
  • Early estimates pointing to EIA withdrawal ~70-75 Bcf for week ending Feb. 23
  • EPNG force majeure affected about 100 MMcf/d of Permian volumes Tuesday, says Genscape

Natural gas futures finished near-even Tuesday as a less-than-impressive weather outlook and lean inventories yielded more sideways price action. In the spot market, most regions fell, including more price weakness in West Texas; the NGI National Spot Gas Average shed 7 cents to $2.36/MMBtu.

There are many ways to describe the natural gas futures market of late, but volatile wouldn’t be one. In its first trading day as the spot month, April finished near-even, settling at $2.683, down 0.3 cents. May settled at $2.712, up a whopping tenth of a penny from Monday’s settlement.

“Given the long period of consolidation, we’re trying to see if we’re establishing a new trend or remaining with $2.60 as a low,” Powerhouse President Elaine Levin told NGI. “Getting much below $2.50 has not been in the cards. Getting a whole lot below $2.60 has been a challenge.”

The current storage picture seems to be keeping prices from moving lower, Levin said.

“If we continue to match the five-year average for the remainder of the withdrawal season, you’re looking to be 24% below the five-year average...We haven’t had that situation in a while,” she said. “Given that we still have a few more weeks of withdrawals, it does seem like for the moment we’ve lost some momentum to the downside.”

Bespoke Weather Services similarly pointed to market tightness to explain the recent price action.

Futures initially “pulled back” on Tuesday overnight gas-weighted degree day (GWDD) losses. “However, our neutral sentiment was verified when the back of the strip began to perk up, pulling the entire natural gas strip back green through much of the morning,” the firm said. “Though weather was a bit less impressive, the market remains quite tight...The tightness both keeps us quite sensitive to weather (we would expect $2.75 resistance to easily be tested on any overnight GWDD additions) and helps firm up support.”

Estimates for Thursday’s Energy Information Administration (EIA) storage report have been pointing to a smaller withdrawal versus the five-year average but tighter than a year ago.

Stephen Smith Energy Associates said Tuesday it’s expecting a 74 Bcf withdrawal for the week ending Feb. 23. The Desk’s Early View survey, released last week, showed participants expecting on average a 70.9 Bcf withdrawal, with responses ranging from -60 Bcf to -86 Bcf.

Intercontinental Exchange futures for the upcoming report settled at -76 Bcf Monday.

In the year-ago period, 7 Bcf was withdrawn, while the five-year average withdrawal is -118 Bcf, according to EIA data.

Looking at the spot market, prices in West Texas weakened further Tuesday after Monday’s steep declines. Waha traded even, while El Paso Permian averaged $1.95, down a penny. This came a day after the West Texas/Southeast New Mexico regional average dropped 21 cents to average $2.03.

An equipment failure at one of its Permian Basin compressor stations led El Paso Natural Gas to declare a force majeure Monday affecting about 100 MMcf/d of volumes for Tuesday’s gas day, Genscape said.

“The corresponding throughput point...was expected to have its operational capacity reduced to zero effective” for Tuesday’s evening cycle “and continuing until further notice,” the firm said. “This point averaged a flow of 107 MMcf/d in the past month. Similar past maintenance events have sometimes corresponded with brief increases in Waha basis price.”

In the Southeast region, Transco Zone 5 shed 2 cents to $2.64, while Cove Point dropped 15 cents to $2.52.

A Royal Dutch Shell plc-owned liquefied natural gas (LNG) tanker that had been idling off the coast of Virginia entered the Chesapeake Bay Monday on approach to the Dominion Energy Cove Point LNG export facility in Maryland, according to PointLogic Energy. The tanker was expected to arrive at the terminal on Wednesday (Feb. 28), with the delay possibly contractual in nature, the analytics firm told clients.

“PointLogic calculates an implied feed gas activity at Cove Point based on daily pipeline imbalances resulting from all the data posted by Dominion Energy Cove Point” since the pipeline doesn’t report Cove Point feed gas deliveries, analyst Warren Waite said.

“Since. Jan. 31, when Dominion announced liquefaction had begun, PointLogic has estimated roughly 6.6 Bcf of feed gas deliveries,” Waite said. Since Monday (Feb. 26), “those implied feed gas deliveries have approached 0.8 Bcf/d.”

The Shell tanker is likely capable of handling about 2.8 Bcfe in LNG, with Cove Point estimated to have around two full cargoes worth of LNG based on PointLogic’s calculations using flow data, according to Waite.

“It is unknown how many pre-commissioning cargoes Shell will lift. It could be one or several. Nor do we know the entities behind the supply of the feed gas. It could be Shell and/or a mixture of activity,” he said, by Asia-Pacific operators for future exports that include Sumitomo Corp., Tokyo Gas Co. Ltd. and Gail (India) Ltd.

“What clearly matters is that Cove Point can quickly become a significant demand source within the Northeast, and if that happens, it will help solidify the role of the U.S. as a net exporter.”

Prices across the Midwest and Midcontinent fell by a nickel or more.

A one-day force majeure in NGPL’s Midcontinent zone is expected to restrict about 290 MMcf/d through the pipeline’s Segment 11 starting with Wednesday’s gas day, according to Genscape. A similar force majeure event in mid-February reduced Segment 11 capacity from 1.07 Bcf/d to 780 MMcf/d. The prior seven-day average at the time was 1.01 Bcf/d, according to the firm.

“In contrast, Segment 11 flows since” the earlier force majeure event ended have “averaged only 834 MMcf/d, with a minimum of 738 MMcf/d,” Genscape said. “This represents an average utilization of around 77% for northbound flow through Compressor Station 103. Coupled with exceedingly lower than normal population-weighted heating degree days for the Midwest region Wednesday as forecast by Genscape meteorologists, this event will likely have less impact.”

Genscape was calling for Midwest demand to fall from 13.73 Bcf/d Tuesday to 12.97 Bcf/d for Wednesday.

NGPL Midcontinent dropped 4 cents to $2.11, while OGT fell 10 cents to $1.86. Chicago Citygate gave up 7 cents to $2.35, while REX Zone 3 delivery points in the Midwest on average dropped around a nickel.

The Rockies Express Pipeline (REX) issued an update Tuesday notifying shippers that it expects to complete repairs this week on its Seneca Lateral in eastern Ohio, with the operator accepting receipt nominations on the line for Wednesday’s gas day. The Seneca Lateral has been out of service in February following a reported explosion on the line.

Recent Articles by Jeremiah Shelor