Natural gas futures drifted lower for a third consecutive session on Friday as mild fall weather and a heaping of uncertainty created by an exceptionally bearish government inventory report countered optimism about export momentum and the trajectory of the U.S. economy.

corona cases

The April Nymex contract settled at $2.701/MMBtu, down 4.5 cents day/day. May fell 4.2 cents to $2.739.

NGI’s Spot Gas National Avg. shed 25.0 cents to $2.755.

Liquefied natural gas (LNG) export levels on Friday topped 11 Bcf, hanging near record levels after rebounding from the interruptions imposed by the Arctic storm and frigid temperatures that derailed the Texas energy sector in February. LNG feed gas volumes had plunged to near 1 Bcf at the mid-February low.

LNG exports have “fully recovered from freeze-off disruptions in February and remain priced to operate near capacity throughout 2021 and beyond,” Goldman Sachs analysts said Friday.

EBW Analytics Group noted that, from November through early February, U.S. net exports of natural gas had grown an average of 1.9 Bcf/d year/year – “representing almost 200 Bcf of incremental demand, led by growing LNG and pipeline exports to Mexico.”

In mid-February, “the Texas deep freeze led to soaring spot market prices and plunging net exports as LNG demand and pipeline exports to Mexico were curtailed,” the EBW analysts said Friday. Rising levels early in March, however, “suggest that net gas exports have recovered their former growth. By the 2021 injection season, sharply higher year/year LNG demand and exports to Mexico compared to last year’s weakness are likely to tighten the market, eventually lifting natural gas prices.”

New signs of stronger domestic economic growth could also fuel more commercial and industry activity – and, by extension, demand for natural gas from those sectors.

The U.S Department of Labor on Friday said employers ramped up hiring in February, adding 379,000 jobs. That more than doubled the revised figure for January and pointed to a strengthening economy as more Americans receive coronavirus vaccines, infection rates fall and more states reduce business restrictions, analysts said.

Mike Gibbs, a managing director at Raymond James & Associates, said following economic contraction in 2020 amid the pandemic, the combination of federal stimulus programs and vaccine rollouts should lead to strong growth in U.S. gross domestic product (GDP) in 2021.

U.S. GDP growth has not exceeded 5% since 1984, Gibbs noted Friday, “and we believe 2021 could be closer to 6% if our expectations on the economic reopening and fiscal stimulus come to fruition.”

He cited pent-up consumer demand for everything from routine entertainment to vacation travel as well as an expectation for Congress this month to pass a $1.9 trillion stimulus package that includes direct payments to American households.

‘Confusion in Play’

For any drivers of optimism, however, natural gas markets are currently getting little support from weather forecasts, and Thursday’s U.S. Energy Information Administration (EIA) storage report cast new doubt on demand heading into the spring shoulder season.

Bespoke Weather Services said comfortable weather and light heating demand are to permeate most of the Lower 48 in the coming week.

Friday forecasts included “incremental warmer changes, as mid to late next week moves even warmer, not far from record warm levels” in terms of gas-weighted degree days, the firm added. Conditions “should make it more difficult for weather to really move the needle” as far as “overall sentiment in the natural gas market.”

This will leave the traders “wrestling” with EIA’s latest inventory data, Bespoke said.

“There remains some confusion in play in the wake of that wild EIA report” on Thursday “as folks try to determine if such a huge bearish miss means something moving forward or was a random one-off,” the firm said.

[On March 1, 2021, NGI added three new points to its Forward Look data service, including an Agua Dulce point. Interested in adding affordable, robust natural gas forward curves to your business resources? Start a trial here.]

The EIA on Thursday reported a 98 Bcf withdrawal from U.S. gas stocks for the week ended Feb. 26. Analysts had estimated a pull well into the triple digits, given cooler conditions across much of the Midwest and East during the covered week.

Ahead of the EIA report, NGI’s model estimated a 135 Bcf withdrawal. A Bloomberg survey found a median decrease estimate of 140 Bcf, while a Reuters poll landed at a median estimate for a 135 Bcf decline in stocks.  

“Most data sets have a few outliers, and it appears the EIA delivered one on Thursday,” analysts at Tudor, Pickering, Holt & Co. (TPH) said Friday, noting that the covered week immediately followed the Texas freeze. “Some noise was expected given the storms in the U.S. and the knock-on impacts to supply, exports, and power generation.”

That noted, the TPH analysts said the EIA print indicates supply recovering more quickly than demand, with power generation “being the slowest to return to prior levels.”

Cash Clunks

Spot gas prices on Friday declined across the country as temperatures rose.

National Weather Service reports showed dry conditions and comfortably warm temperatures across most of the Lower 48 Friday, with highs of 50s in the Upper Midwest and 70s over much of the South and West.

The Northeast was the exception and was expected to remain so into the weekend, with highs in the 30s and lows in the teens for much of the region. However, after surges earlier in the week, Northeast prices also retreated Friday.

Algonquin Citygate, which serves the Boston area, shed $1.735 day/day to average $5.365. Prices on average were off more than $1.000 in the Northeast.

Prices were lower across all other regions as well, though most hubs were off only a few cents.

In the Midwest, Dawn lost 4.0 cents to $2.620, and in Texas, El Paso Permian fell 10.0 cents to $2.395.

Dominion Energy Cove Point in the Southeast declined 7.0 cents to $2.790.

Out West, Malin lost 6.5 cents to $2.575 and Kern Delivery gave back 13.0 cents to $2.755.

On the pipeline front, Cheniere Energy Inc.’s Corpus Christi LNG posted a notice for a one-day maintenance event on Monday. Wood Mackenzie analyst Dan Spangler said the work could limit flows to 2,142,000 MMBtu on Monday through Tuesday afternoon. Nominations for Friday’s gas day were 2,448,892 MMBtu, he said.

However, he added, “flows over the past few days are the highest ever seen at the facility.”