- Demand increases in weather outlooks not enough to stop natural gas futures slide
- Production falls again as maintenance impacts supplies; analysts see more growth ahead once work ends
- Lower Canadian imports could balance out some Lower 48 supply growth
- Pipeline maintenance seen impacting cash prices in some regions
Strong bearish sentiment was too much for natural gas bulls to overcome Tuesday even as the latest weather data added some demand back into forecasts. However, after Monday’s 7-cent plunge, the Nymex May gas futures contract took somewhat of a breather and ultimately settled only 1.8 cents lower at $2.572/MMBtu. June slid 1.6 cents to $2.617.
Spot gas prices were a mixed bag Tuesday as some early signs of heat were expected in the South, while mild conditions were set to move in across the East. Pipeline maintenance also appeared to be impacting cash. The NGI Spot Gas National Avg. rose 11 cents to $2.135.
If current weather forecasts hold, the past few days could prove to be an important turning point for natural gas futures, according to EBW Analytics Group. Prior to this past weekend, temperatures in Week 2 had been expected to be cool enough to potentially push prices back up, at least for a short time period. The weekend forecast shift, however, most likely negates this scenario, the firm said.
After Monday's 7-cent decline, the firm said a modest correction was possible Tuesday or Wednesday. “If current forecasts verify, however, the resulting drop-off in weather-driven demand is likely to pull natural gas prices down further, even if Sabine Pass returns to full capacity,” EBW CEO Andy Weissman said.
Further, with monster injections expected in both Weeks 2 and 3 -- and a string of 100-plus Bcf injections likely to follow -- headwinds most likely will be too strong for natural gas to mount a significant rally at any time during the next few weeks, according to Weissman.
Indeed, the latest weather data was a touch cooler, but did little to change the solidly bearish sentiment for natural gas prices. Instead, the market will have to patiently wait for more intimidating heat to build since the chances of strong late-season cold shots have all but ended, according to NatGasWeather.
“There will still be weather systems that bring widespread heavy showers, but with only slight cooling,” the forecaster said. “In addition, we are now reaching the time of the year when gains in heating degree days (HDD) often come with the loss of cooling degree days, and vice versa. The net result will be larger-than-normal weekly injections that are currently lining up at least five to six weeks deep -- with all of them likely to print at least 85 Bcf, with most well over 100 Bcf.”
Although current outlooks indicate that it will be a touch hot over the southern United States at times as temperatures in the upper 80s to lower 90s gain ground, with 70s to lower 80s arriving across the northern United States on most days going forward, “national demand will simply not impress,” NatGasWeather said.
Meanwhile, the Energy Information Administration’s (EIA) latest Drilling Productivity Report projects gas production in the seven largest U.S. shale/tight gas plays will top 79.84 Bcf/d in May, up 0.91 Bcf/d (1.2%) month/month. Gains are expected to be led by the tri-state Appalachian region (plus 0.36 Bcf/d), the Haynesville (plus 0.23 Bcf/d) and the Permian (plus 0.23 Bcf/d). Only the Anadarko region is expected to see a drop in output.
By not taking into account infrastructure constraints, however, the EIA is likely overstating new supply available to the market given takeaway constraints in the Permian and Bakken, slashing functional supply growth by 0.3 Bcf/d, according to EBW. Further, Appalachian producers are likely to undershoot EIA's incremental output expectations given their stated commitment to capital restraint.
“Nonetheless, Lower 48 output is likely to continue higher, further softening support for Nymex gas futures,” Weissman said.
For now, though, the spring maintenance season has hit supplies hard. Genscape Inc.’s estimate for Tuesday’s Lower 48 production showed a day/day drop of more than 2.13 Bcf/d with the East, Gulf Coast and Rockies all individually showing nearly 0.5 Bcf/d day/day declines. While revisions to top-day estimates so far this shoulder season have had some days in excess of 1 Bcf/d, much of Tuesday’s drop could be attributed to maintenance across the country.
East volumes are impacted by line work on Millennium Pipeline and Texas Eastern Transmission. Permian volumes are being affected by work on El Paso Natural Gas Pipeline; Rockies Express Pipeline maintenance is restricting Rockies output; and Midcontinent volumes are affected by Southern Star Pipeline work, the firm said.
Once maintenance ends, however, production is seen by analysts and traders as easily replenishing storage inventories to adequate levels for next winter. However, Energy Aspects analysts are monitoring early-season net imports from Canada as a potential counterbalance to sequential production gains.
Through April 11, Canadian net imports of 4.7 Bcf/d were off by 0.5 Bcf/d month/month. “That decline goes a long way to cancel out the 0.8 Bcf/d month/month in Lower 48 production bounce-back from winter disruptions and organic growth we expect this month,” analysts said.
The firm forecasts a 0.3 Bcf/d year/year slowdown in net imports during the full injection season (April-October), a number that could double if maintenance and production losses run for longer than currently assumed. “Should the decline in northern cross-border trade continue deeper into the injection season, balances could look tighter than the currently projected 3.65 tcf end-October carryout,” Energy Aspects said.
Spot Gas Mixed
Spot gas prices were mixed Tuesday even as Lower 48 demand is poised for a sharp retreat. All gas regions excluding the Rockies and New England are forecast to experience unseasonably warm weather through the next seven days, according to Genscape. The firm is forecasting Lower 48 population-weighted HDDs will drop to as low as 24.7 by Friday, roughly 60% fewer HDDs than normal for this time of year.
As a result, Genscape’s Daily Supply & Demand model is forecasting total Lower 48 demand will average slightly under 65.2 Bcf/d through the next seven days, about 10 Bcf/d lower than this same time last year and about 1.3 Bcf/d less than the three-year average.
“Monday’s demand estimate is likely the last 70-plus Bcf/d print for the month, with daily estimates declining headed into the weekend at a daily average rate of about 1.6 Bcf/d,” Genscape senior natural gas analyst Rick Margolin said. “Demand is forecast to bottom out on Sunday (April 21) at 63.2 Bcf/d before showing a modest rebound early next week, then resume seasonally declining into the upper 50 Bcf/d range near the end of the month.”
On the positive side of the ledger, West Coast spot gas prices rose by the double digits across the board, with SoCal Border Avg. posting the strongest increases day/day as it shot up 78 cents to $1.87.
Cash was also strong in the Rockies, where CIG DJ Basin next-day gas jumped more than $1 to $1.455. Most other pricing hubs in the region rose between 25 cents and 85 cents on the day.
The stout increases in those downstream markets helped improve pricing in the Permian Basin. El Paso Permian spot gas climbed 37 cents to average 37.5 cents.
Prices throughout the rest of Texas retreated, however, with Houston Ship Channel sliding less than a nickel to $2.47.
In the Midcontinent, the maintenance on Southern Star was impacting prices as next-day gas jumped 21.5 cents to $1.345.
Prices throughout Louisiana softened, mostly by a few pennies, while Appalachia prices slid by around a nickel or so.
Northeast prices were mixed as maintenance on the Algonquin Gas Transmission system boosted Algonquin Citygate spot gas by 16.5 cents to $2.845, while the pleasant weather sent Transco Zone 6 NY down 5 cents to $2.46.