In a week that saw July natural gas prices surge past $3 only to plunge 12 cents during the next two days, the Nymex prompt-month contract ultimately wound up shedding a single penny between June 14 and 19 to end at $2.964, according to NGI’s Forward Look.
In fact, even with the front of the Nymex futures strip seeing notable peaks and valleys during that time, prices barely budged overall. The exception was the calendar 2021 strip, which slid 3 cents to $2.30.
Still, it was a wild week for Nymex July futures, one that got under way on Friday (June 15) when weather forecasts first turned warmer for the end of June and early July. During a trading session that typically sees little activity ahead of the weekend, the Nymex prompt month settled 5.7 cents higher on the day, surpassing the long sought after $3 mark.
But then traders returned from the weekend with news that production had begun clawing back from recent maintenance-induced declines. On top of that, weather outlooks began hinting of slightly cooler weather in the near term. That was enough to send the Nymex July contract down 7.1 cents to $2.95. The losses extended for a second day before recovering a bit on Wednesday and early Thursday, when the most recent weather models indicated even hotter weather trends for the end of June and early July.
“Weather remains quite supportive, and heat looks to remain at least through July 10 across key demand regions in the East,” Bespoke Weather Services said. The weather forecaster sees bullish weather as the driving factor for prices short term, and “although models may waffle on the exact intensity of heat through the first third of July, the atmospheric signals are strong enough for significant heat that we expect on balance, weather to continue buoying the front of the natural gas strip,” Bespoke chief meteorologist Jacob Meisel said.
Weather-adjusted power burns improved modestly Wednesday at the lower prices, and production fell from recent highs. Bespoke also noted declines in liquefied natural gas (LNG) and Mexican exports that had the weather forecaster expecting resistance to hold.
Indeed, Genscape Inc. reported that just days after production climbed to near 79.4 Bcf/d, volumes sunk again to an estimated 77.65 Bcf/d on Wednesday. The analytics company expected production to continue climbing for the remainder of the week. Meanwhile, the Energy Information Administration’s (EIA) newest monthlyDrilling Productivity Reportpredicted that production of natural gas would surge in July, rising by 1.1 Bcf/d.
Any production growth could limit additional rallying, Bespoke said, and the market needs to see LNG exports return for prices to really get a bid. On Thursday, Genscape reported that delivery nominations to the Sabine Pass LNG export facility rebounded to 2.9 Bcf/d for Thursday’s gas day. Late Wednesday afternoon, Genscape monitors and LNG clients were alerted of the operational change at Train 1, which showed decreased nominated deliveries for Wednesday’s gas day. The alert was issued before evening cycle nominations data was published and confirmed its observations.
Meanwhile, the EIA delivered another bearish surprise to the market on Thursday. In its weekly storage inventory report, the EIA reported a 91 Bcf buildinto storage stocks for the week ending June 15, once again well above market consensus of an 85 Bcf build.
Working gas in storage climbed to 2,004 Bcf, which is still 757 Bcf below year-ago levels and 499 Bcf below the five-year average of 2,503 Bcf. The East and Midwest regions each injected 29 Bcf into storage, while the South Central injected 24 Bcf.
“This is the second bearish miss from our expectation in a row, showing the impact of loosening power burns we had observed” through June 15, Bespoke Weather Services said following the report’s 10:30 a.m. ET release. Balances in the natural gas market continue to remain loose, especially as the past gas week included what were significant maintenance-related production declines.
Ahead of the report, market consensus had built around a storage injection in the mid-80s Bcf range. IAF Advisors’ Kyle Cooper projected an implied build of 86 Bcf and a headline build of 82 Bcf, while Bespoke estimated an 84 Bcf build. A Bloomberg survey had a range of 76-91 Bcf, with a median of 86 Bcf. A Reuters poll pointed to an 85 Bcf injection, with estimates ranging from 80-91 Bcf and a median build of 85 Bcf.
For the comparable week a year ago, EIA reported a 63 Bcf; the five-year average build stands at 83 Bcf for the corresponding period.
When news of the storage injection hit the market, Nymex July futures immediately pulled back 2.5 cents. Just before 11 a.m. ET, the prompt month was trading at $2.983, an increase of about 2 cents from Wednesday’s settle. July prices that had climbed as high as $3.012 before the storage report, fell as low as $2.947 after the report and then eventually bounced back to settle 1.1 cents higher on the day at $2.975.
The recent rally in natural gas prices have moved closer in line with Barclays Commodities Research forecasts. In a commodity market outlook released Wednesday, Barclays researchers said the price move higher has occurred “despite increases in production and marginally lackluster power burn. Yet the market continues to focus on the storage deficit to the five-year range, which has improved only marginally,” Barclays analyst Michael Cohen said.
Given the upcoming summer cooling season, forecasts for warmer-than-normal weather helped raise market expectations to Barclays’ forecast range. Those forecasts were predicated on normal weather assumptions in order to replenish stocks, “so we expect even further appreciation in natural gas prices in the summer months ahead,” he said.
Sharp Gain at SoCal Citygate
While the large majority of pricing locations across the United States posted minute changes across their forward curves that were similar to that of Nymex futures, there were a handful that posted much larger increases.
One market was SoCal Citygate, which saw July forward prices jump 24 cents from June 14 to 19 to reach $3.802. The rest of the summer months also put up substantial, double-digit gains, with August climbing 15 cents to $4.09 and the balance of summer (August-October) rising 15 cents to $3.73, according to Forward Look.
This week’s increases have occurred on the heels of three straight days of gains for SoCal Citygate spot gas prices, which surged as high as $4.10 in intraday trading on Wednesday before eventually averaging $3.79.
The strength in both the spot and forward markets come as slightly warmer-than-normal weather was expected to hit the region for the remainder of the week. This boosted Southern California Gas (SoCalGas) system demand to 2,346 MMcf/d on Wednesday, the third highest demand day since the start of May, according to Genscape.
Overall California demand, meanwhile, was projected by Genscape to reach 6.14 Bcf/d on Thursday, 6.12 Bcf/d on Friday and then edge up slightly to an average 6.146 Bcf/d for the June 25-29 work week.
It is possible some of the recent SoCal spot gas strength is a product of upstream fundamentals as well, the company noted. Demand in the Pacific Northwest was also strong, and production is down in the West Texas Permian.
To meet the demand gains, SoCalGas has had to rely on flowing supply from pipelines due to low system storage inventories. Yet, many of the import paths are operating under reduced capacities, pushing utilization rates high.
SoCalGas’ Line 3000 has been out of service since July 2016 and is currently expected to return to service this September. Additionally, the Line 235-2 has been out of service since an explosion on Oct. 1, 2017, and SoCalGas has not publicly provided any expectation for when those repairs will be complete.
These two events represent a combined operational capacity reduction of over 1 Bcf/d. Additional maintenance events are further reducing the pipe’s import capacity,” Genscape analyst Joe Bernardi said.
This stress on inbound pipes was a major factor in the California Public Utility Commission’s (CPUC)decisionto allow SoCalGas to increase the Aliso Canyon storage facilities inventory from 24.6 Bcf to 34 Bcf. The CPUC has also requested additional information from SoCalGas about the prolonged maintenance events that have been severely limiting its import capacity. The CPUC has requested that SoCal provide more information on these outages by June 29.
After the Aliso Canyon leak was stopped in early 2016, state law granted the CPUC the authority to set working capacity limits for the facility. Before the leak, the working capacity was 86.2 Bcf; it has been set at 24.6 Bcf since last fall. SoCalGas’ current overall storage inventory is 60.1 Bcf. The three non-Aliso storage facilities have a combined working capacity of 49.1 Bcf, which is estimated to be 72% full at 35.5 Bcf, Genscape said.
In unrelated, but timely news, the CPUC on Thursday denied the request of San Diego Gas and Electric and SoCalGas to build a new natural gas transmission pipeline, finding it is not needed for safety or reliability.
The utilities were seeking CPUC approval to build a 47-mile long, 36-inch diameter natural gas transmission pipeline from Rainbow Station to Miramar, at a loaded cost of $639 million. The pipeline would have replaced a 16-inch natural gas transmission pipeline, Line 1600, which presently provides service from Rainbow Station to Miramar.
The CPUC determined that the utilities’ most recent natural gas supply forecast and the CPUC’s reliability standard for gas planning do not demonstrate that there is a need for the proposed pipeline.
Permian Basin Prices Lifted
Like spot gas prices in the region, forward prices in the Permian Basin also strengthened this week as production cuts remain in place as maintenance season winds down. As of Wednesday, production in the Permian was running 0.5 Bcf/d below Monday’s levels.
El Paso-Permian July forward prices climbed 9 cents from June 14-19 to reach $1.965, while August rose 11 cents to $1.931 and the balance of summer (August-October) edged up 12 cents to $1.73. The winter 2018-2019 also rose, climbing a nickel to $1.70, Forward Lookshowed.
Waha July rose 10 cents during that time to $2.006, as did August, which hit $1.973. The balance of summer (August-October) was up 11 cents to $1.78, and the winter 2018-2019 was up a nickel to $1.76.© ISSN 1532-1266 | ISSN 2577-9877 | ISSN 2577-9915