- April Nymex futures down 1.5 cents to $2.740; May off 2.3 cents to $2.751
- “We expect once this bearish pattern sets up it will likely last into mid-April”: NatGasWeather
- Lower 48 dry gas production averaging 87.8 Bcf/d since Saturday, ~2.4 Bcf/d above MTD low: Genscape
- West Texas prices gain after Monday’s historic lows, but negative trades abound
Forecasts showing comfortable temperatures taking hold next month helped pressure natural gas futures prices lower Tuesday. In the spot market, large gains in West Texas still couldn’t lift the region completely out of negative territory following Monday’s unprecedented lows; the NGI Spot Gas National Avg. climbed 2.5 cents to $2.470/MMBtu.
The April Nymex futures contract, set to expire Wednesday, slid 1.5 cents to settle at $2.740 Tuesday, while the May contract fell 2.3 cents to $2.751. Further along the strip, June settled at $2.803, off 2.2 cents. Prices traded in a narrow range on the day, with the May contract sticking between $2.747 and $2.788.
NatGasWeather reported only small changes in the midday weather data Tuesday. The overall timeline for major weather features over the next 15 days remained the same, according to the forecaster, with guidance showing a neutral pattern through next Tuesday (April 2) and a “solidly bearish” pattern April 4-10 as “high pressure builds across the country with very comfortable temperatures.”
“We expect once this bearish pattern sets up it will likely last into mid-April, thereby providing opportunity for hefty deficits to improve,” NatGasWeather said.
In its latest 11-15 day forecast Tuesday, Radiant Solutions noted a mix of changes, including cooler trends in the South and warmer trends along the northern tier of the Lower 48.
“It remains a warm pattern with widespread aboves across the Central and Eastern U.S. as the Alaska ridge responsible for cold intrusions in the latter part of March/early April is undercut by a strengthened Pacific jet,” Radiant said. Both American and European models favor a warm outlook but “strongly disagree on the details,” with American guidance “much warmer across the western half and cooler in the South and East.”
The six- to 10-day period, meanwhile, covering Sunday (March 31) through April 4, underwent cooler changes compared to Monday, according to the forecaster. These changes occurred “within the details of a modest shot of cold air into the Midcontinent and to a lesser extent the East,” Radiant said.
“The first half of the period features widespread much belows across the Midcontinent focused in particular from the Mid-South to Texas. The East lingers warm at the onset as a cold front pushes through, with some belows now in the forecast in its wake on Days 7-8. Moderation is expected late in the period with the East warming above normal on Day 10.”
Looking at the supply picture, Lower 48 dry gas production reached 87.99 Bcf/d this past weekend, its highest level since late December, according to Genscape Inc.
“Production since Saturday has been averaging 87.8 Bcf/d and is now running nearly 2.4 Bcf/d greater than the month-to-date low of 85.4 Bcf/d hit March 5,” Genscape senior natural gas analyst Rick Margolin said. “Since that time, Permian Basin production has increased by more than 1 Bcf/d despite unplanned pipeline maintenance tightening takeaway constraints.
“Texas production since early March is also up nearly 1 Bcf/d. The recovery of Rockies production from freeze-offs has output there running more than 0.3 Bcf/d higher, and Gulf of Mexico production is up more than 0.35 Bcf/d with the conclusion of offshore maintenance.
After reaching a new nadir the day before, on Tuesday West Texas spot prices strengthened -- a relative term given that even after widespread double-digit day/day gains much of the region still averaged in the negatives. Waha gained 62.0 cents to average negative 2.0 cents. El Paso Permian, meanwhile, flipped back into positive territory, averaging a meager 17.5 cents after gaining 49.0 cents on the day.
Citing NGI’s spot price data, Genscape analyst Joe Bernardi said early Tuesday “the only U.S. hubs that have ever averaged a negative spot cash price are all in the Permian, and all have done so within the last three days of trading.”
Bernardi attributed the steep drop in West Texas cash prices to a “combination of unprecedented levels of Permian production and unplanned constraints moving gas out of the region. This weekend, our total Permian production estimate reached the 10.8 Bcf/d mark for the first time ever, representing an increase of about 700 MMcf/d versus the prior year-to-date average.
“Two ongoing force majeure events on El Paso Natural Gas (EPNG) have been cutting Permian outflows by over 200 MMcf/d,” Bernardi added. “The largest and more recent of the two affects the ‘LINE2000’ meter in West Texas. This meter flows full, meaning that the operating capacity decrease of 195 MMcf/d that went into effect last Tuesday (March 19) has had a virtually identical impact on flows.”
This event is expected to continue impacting capacity until April 8, the analyst said. The second force majeure has been in effect since late December and is impacting flows through EPNG’s “LINCOLN N” meter in central New Mexico. “In the last week, flows through there have averaged 68 MMcf/d less than the average in the week before the force majeure,” Bernardi said.
Mobius Risk Group natural gas analyst Zane Curry said although the EPNG restrictions are relatively small in nature, “when utilization is high, that small amount can be the straw that breaks the camel’s back.”
However, the largest impact on recent price action may be linked to one of the Permian’s intrastate pipelines, according to RBN Energy, as volumes between the interstate pipelines and Oasis Pipeline made some dramatic shifts on March 19. EPNG was delivering an average of 75 MMcf/d to Oasis over the first 18 days of March. However, deliveries stopped abruptly and switched to an averaged receipt of 56 MMcf/d from March 19-22. “Flows between Oasis and Northern Natural Gas also shifted on the same day, moving from an average delivery of 35 MMcf/d to start March to an average receipt of 159 MMcf/d from March 19-22,” RBN analyst Jason Ferguson said.
The event appears to have ended on Saturday (March 23), but record production in the Permian over the weekend also weighed on prices. Meanwhile, the latest data from DrillingInfo led RBN to update its production model, resulting in a 0.17 Bcf/d increase in the balance-of-2019 production forecast and a 0.33 Bcf/d increase in its 2020 outlook.
“The higher production led to lower basis forecasts in our flow model of Waha,” Ferguson said. “We now see the balance of 2019 Waha basis strip averaging $1.80 under Henry Hub, versus $1.42 in last week’s outlook.”
The weakening natural gas basis in West Texas has also roughly coincided with strengthening crude differentials for Permian producers. After trading at a wide differential to prices at hubs in Cushing and Houston in mid-2018, West Texas Intermediate (WTI) Midland crude prices have since closed the gap thanks to the addition of pipeline takeaway capacity, a trend that started last September, according to the Energy Information Administration (EIA).
“WTI Midland prices are now similar to WTI Cushing, suggesting the previous pipeline capacity constraints from the Permian region to Cushing have been largely removed,” EIA said. “Conversely, WTI Midland prices still trade lower than Houston crude oil prices, suggesting that the region still faces some takeaway constraints in shipping Permian crude oil to the U.S. Gulf Coast. Most recently, the difference has been about $7/bbl, which is less of a discount than in the middle of 2018.”
Daily GPI first recorded negative natural gas spot trades in West Texas this past November.
It’s likely to be a rocky road for Permian pricing ahead as the gas market is barely on the cusp of the shoulder season. Power burn last week remained well below the estimated summer peak levels near 0.55 Bcf/d “despite essentially free natural gas supply,” Ferguson said.
Adding to the volatility is that the recent cratering of Permian prices has occurred during bidweek, when the bulk of gas is purchased. NGI Bidweek Alert data for April is already showing negative Permian prices, with individual trades as low as negative 50 cents.
Elsewhere in the Lower 48, Northeast prices sank back lower after the arrival of some chilly temperatures in the region this week helped inspire gains on Monday. Algonquin Citygate fell 53.5 cents to $2.930.
A chilly late-season system was expected to sweep through the Northeast Tuesday into Wednesday, dropping overnight lows into the teens to 30s and boosting demand in the region, according to NatGasWeather.
“A warm break will quickly follow across the Ohio Valley and East Thursday through Saturday for a swing back to lighter national demand as highs warm into the 50s to 70s,” the forecaster said. “The southern U.S. will be comfortable the next couple of days with highs of upper 60s to 80s but easing this weekend into the 50s and 60s as a cold front sweeps across the central, southern and east-central U.S.”
With Radiant Solutions calling for near to slightly above-normal temperatures for most of the Midwest and Midcontinent in its latest one- to five-day outlook Tuesday, spot prices ground lower in those regions.
Further west, Northwest Sumas dropped 14.5 cents to average $2.575, a far cry from the extreme price spikes recorded at the location earlier this month. In Canada, Westcoast Station 2 dropped C13.0 cents to average C51.0 cents/GJ.
Maintenance on Westcoast Energy Inc. that began Tuesday and continues through Sunday (March 26-31) could limit up to around 200 MMcf/d of southbound flows on the pipeline, restricting capacity through Station 4B South to roughly 1,250-1,350 MMcf/d versus a month-to-date average of around 1,450 MMcf/d, according to Genscape’s Bernardi.
“Past flow cuts of this magnitude have resulted in price spikes at Sumas, but the difference between those historical events and the outlook for this week is that temperatures are expected to be quite a bit warmer in southern British Columbia and the Pacific Northwest,” Bernardi said. “Last week saw weather come in much warmer than seasonal norms, which translated to year-to-date demand lows. Although we expect to see slightly colder weather this week compared to last, temperatures are still forecasted to come in above climatological norms.”