- Nymex July settles 3.2 cents lower at $2.93; Balance of summer follows suit
- Risk is skewed lower for rest of week as cooler temperatures expected in medium term
- Storage deficit likely to expand this week; early estimate clustered in upper 80 Bcf range
- El Paso maintenance driving gains at Waha, EP-Permian
After a sluggish start to Monday trading, natural gas futures failed to get off the ground as weather outlooks trended slightly cooler in the medium term. Spot prices were mixed, and unusually so, as some southeastern pricing hubs weakened despite intense heat blanketing the region while Northeast points surged despite softer demand on tap beginning Tuesday. The NGI National Spot Gas Average rose 6.5 cents to $2.635/MMBtu.
July natural gas futures fell into the red by late morning and continued to trade near the bottom of its range for the last couple of hours of regular session trading. The prompt month eventually settled at $2.93, down 3.2 cents on the day.
Bullish seasonality and slightly tighter-than-expected storage data are keeping Bespoke Weather Services analysts from turning more bearish, especially as the winter strip holds some support. Indeed, balance of summer (August-October) prices fell about 3 cents to $2.93 as well, while winter 2018-2019 slipped only about 2 cents but remained well in the $3 range at $3.07.
But with less impressive short-term weather forecasts and risks that weather for the third week of June begins cooling, “we see risk still skewed lower this week, especially as balance data still does not appear tight,” Bespoke chief meteorologist Jacob Meisel said. Brief rallies off hotter weather models remain possible, but those continue to be opportunities to gain short exposure “as this market is not tight enough to sustain $3+ prices yet.”
Although the pattern is warmer-biased overall, the risk for cooler weather in the third week of June would leave demand “relatively unimpressive” for a period later in June, he added. Furthermore, the forecaster sees it as difficult for models to add that much more cooling demand this week, although above average gas-weighted degree days (GWDDs) remain likely into July.
Forecasters at NatGasWeather agreed, saying weather patterns are likely to be viewed as neutral for mid-June even though cooling degree days remain above normal. Regardless, the hot weather so far doesn’t appear to be impressive enough to “scare the summer contracts past $3 … the markets are essentially saying they want a hotter ridge than what the maps are showing going into the second half of June if another leg higher in prices is to be justified.”
One glimmer of hope for market bulls, however, is the current storage deficit, which is expected to expand with Thursday’s Energy Information Administration (EIA) storage report for the week ending June 1. Last week, the EIA reported a net 96 Bcf build into Lower 48 gas stocks for the week ending May 25, more than the 80 Bcf build recorded last year but less than the five-year average 97 Bcf injection. The year-on-year storage deficit week/week (w/w) shrank from 804 Bcf to 788 Bcf, while the year-on-five-year deficit increased slightly to 500 Bcf from 499 Bcf, EIA data show.
Despite the smaller-than-expected build, the injection was above the required average 90 Bcf that needs to be injected every week between now and October to meet last year’s levels, according to market analyst firm Drillinginfo. “The market may get a chance at a second triple-digit injection this week, but with power demand strong and temperatures starting to climb (later in June), the market will have to see some well-above average injections quickly,” it said.
Meanwhile, NatGasWeather expects deficits to increase by around 10-15 Bcf to near or more than 510 Bcf, with estimates clustered around a build of 88-98 Bcf versus the five-year average build of 104 Bcf. For its part, Bespoke is projecting a build of 89 Bcf, which reflects a market that has loosened with weaker weather-adjusted power burns during the past week. The forecaster cautioned, though, that the next two reports (for the weeks ending June 8 and June 15, respectively) could cause concern for a market facing already tight stockpiles. It has early projections of 78 Bcf and 67 Bcf, respectively.
“As a result, Thursday’s print itself is unlikely to be impressive, but concerns about the ensuing two prints with stockpiles still so limited could help keep prices bid in a market that is otherwise still dealing with massive year-over-year production growth,” Meisel said.
Genscape Inc. said production volumes during the weekend topped out at 78.59 Bcf/d and have remained below 79 Bcf/d after briefly touching that level for three days last week. “Production has not shown any notable sustained growth since mid-March,” Genscape senior natural gas analyst Rick Margolin said.
During the first quarter, production averaged about 78 MMcf/d of growth; since March 31, production has averaged -5 MMcf/d of contraction, although volumes did set another record high of 79.15 Bcf/d. Rover Pipeline receipts ticked up about 0.45 Bcf/d upon authorization to bring more facilities online, and the pipeline is flowing about 2.1 Bcf/d. Those volumes, however, are mostly re-routed molecules, Margolin said.
Last Thursday, FERC partially granted urgent requests submitted by Rover Pipeline LLC during the week, authorizing full service on the 3.25 Bcf/d, 713-mile project’s Mainline B, along with its Supply Connector B. The order paves the way for higher throughput on the highly anticipated Appalachian takeaway expansion, although Federal Energy Regulatory Commission staff said Thursday that they are still evaluating authorizations for a pair of completed supply laterals.
As for demand, Genscape said it is projecting power burns to average near 30 Bcf/d this week, similar to heat-induced levels at the start of the Memorial Day holiday week. This week’s heat will be concentrated in the Midcontinent region and Texas to start the week, then move northeast by week’s end. Out West, most of the action will be in the Rockies and Desert Southwest; California and Pacific North-west are forecast to see mild to cool temperatures, the analytics company said.
Over in Texas, the heat will continue unabated. Demand in ERCOT, the grid operator for most of the state, reached an all-time high for the month of May and is projected to increase this week. ERCOT was forecasting loads on Monday to top 63 gigawatts (GW), and near 63.8 GW on Tuesday.
Genscape noted that power prices in West Texas, where much of the state’s wind generation is located, are above $1,000/MWh on the combination of heat, structural load growth and recent congestion. It is this support for power prices that has been partially staving off the collapse of Waha gas prices.
In the last two weeks of May, NGI price data shows Waha basis averaged about minus 94 cents, or $1.89 cash. That is notably stronger than the mid-April basis price of minus $1.42, or $1.35 cash. Waha prices for Tuesday’s gas day were even stronger, jumping 24 cents to a basis of minus 63 cents, or a cash price of $2.28.
The increase comes as one of three forces majeure declared by El Paso Natural Gas (EPNG) last week remain in effect, according to Genscape. EPNG announced Sunday that the largest of the three, the L2000 force majeure that went into effect May 31, was ending effective Monday’s evening cycle.
The two new restrictions from Friday resulted from separate equipment failures at the Wink and Puckett compressor stations, and each cut about 100 MMcf/d of intra-Permian flows. The Wink event ended in early cycles for Monday’s gas day, and the Puckett event remains ongoing.
El Paso-Permian next-day gas traded in a wide range between $2.05 and $2.41 before ultimately averaging $2.19, up 31 cents.
Elsewhere across the country, spot prices were mixed but generally shifted less than a dime from the previous trading day. At the benchmark Henry Hub, spot gas edged up a penny to $2.91 even as demand is expected to taper off for the remainder of the week. Genscape shows demand topping out at 4.29 Bcf/d on Monday, then falling to around 3.36 Bcf/d for the remainder of the week.
A similar demand story was expected to play out in Texas despite the intense heat in the state. Genscape shows demand hitting 2.33 Bcf/d on Monday and then sliding to 2.19 Bcf/d by Friday. Houston Ship Channel slipped 2 cents to $3.00, while Katy was down 4 cents to $2.99.
Midcontinent prices were on the rise as temperatures for the remainder of the week were expected to increase to about 5 degrees above normal. AccuWeather outlooks show highs in Oklahoma City steadily climbing starting Tuesday and reaching the low 90s by midweek. Given the early-season heat, OGT next-day gas shot up 10 cents to $2.04.
Other regional pricing hubs increased as well, with Panhandle Eastern climbing 7 cents to $2.38 and NGPL Midcontinent edging up a nickel to $2.52.
Over in the East, prices bounced back from Friday's sell-off despite a downturn in demand expected on Tuesday. Transco Zone 6-NY shot up 33 cents to $2.80, while Tetco M3, delivery prices rose 12 cents to $2.57. In New England, Algonquin City-gate next-day gas traded at $2.63, up 15 cents on the day.
Genscape projected Appalachia demand to hit 8.55 Bcf/d on Monday but then fall to 6.16 Bcf/d by Tuesday. The rest of the week should see demand creep back up to around 7.18 Bcf/d by Friday. New England demand was expected to top out at 2.42 Bcf/d Monday, fall to 1.64 Bcf/d on Tuesday, and then hold around that level through Friday.
Supply area points also increased, although gains were far more muted. Dominion South gas for Tuesday delivery traded at $2.50, up 7 cents, while Tennessee zone 4 Marcellus averaged $2.63, also up 8 cents.