- June Nymex futures off 0.8 cents to $2.631; July down 1.0 cent to $2.664
- U.S. market to “move toward balance over the summer” on LNG, exports to Mexico: TPH
- IPGN natural gas prices in Mexico average below $3/MMBtu in April
Near-term forecasts calling for a mix of heating and cooling demand across the U.S. Lower 48 coincided with a mix of spot price trends Friday; the NGI Spot Gas U.S. National Avg. fell 9.5 cents to $2.065/MMBtu.
The June Nymex futures contract eased 0.8 cents to $2.631 after going as high as $2.660 and as low as $2.616. The July contract settled at $2.664, down 1.0 cent, while August slid 0.9 cents to $2.680.
The weather picture has turned “increasingly bullish,” showing “a lot more heat in the back half of May than what we were looking at in the forecasts a week ago,” Bespoke said. However, a “bearish fundamental picture” has weighed on prices. Thursday’s Energy Information Administration (EIA) storage report “did confirm some tightening of balances, but they still remain too loose to allow for prices to continue moving up and taking out the $2.65-2.66 resistance level.”
The upcoming week could provide a “very important measure of the fundamentals side given the heat that is on the way,” the firm added. “We do suspect that the burns will show improvement as the heat arrives,” but sentiment remained neutral as of Friday “because the market has been showing that it wants to see confirmation in the data before putting together a rally from these levels.”
The EIA reported a 106 Bcf injection into U.S. gas stocks for the week ended May 10, versus a 104 Bcf build recorded in the year-ago period and a five-year average 89 Bcf injection. Total Lower 48 working gas in underground storage stood at 1,653 Bcf as of May 10, 130 Bcf (8.5%) above year-ago levels but 286 Bcf (minus 14.7%) below the five-year average, according to EIA.
Market to Move to Balance as LNG projects, Sur de Texas Ramp Up
“On a weather-adjusted basis, the market is currently around 2 Bcf/d oversupplied, down from a 3 Bcf/d oversupply last week,” according to analysts with Tudor, Pickering, Holt & Co. (TPH). They attributed the tighter balances to liquefied natural gas (LNG) and Mexico export volumes that “continue to ramp up; current flows show combined exports at 10.6 Bcf/d, up from a trailing 30-day average of 9.4 Bcf/d.
“We expect the market to move toward balance over the summer as LNG projects ramp up, and Mexican exports are expected to get a lift in late June from the Sur de Texas pipeline,” the TPH team said. “LNG demand will be key to watch over the next couple weeks, as flow data shows Cameron LNG began shipping its first gas this week, beginning a ramp to around 0.6 Bcf/d of feed gas demand.”
U.S. LNG export capacity will nearly double in 2019, increasing from 3.6 Bcf/d at the beginning of the year to about 7 Bcf/d by the end of the year, according to FERC's Summer 2019 Reliability and Energy Market Assessment.
"Although 1.4 Bcf/d of export capacity began service in March, most of the expected capacity for 2019 is forecast to come online in the second half of the year, beginning in July," according to the report, which was released Thursday by the Federal Energy Regulatory Commission's offices of Electric Reliability and Enforcement.
Meanwhile, the spring nuclear outage season is “winding down rapidly,” including 1.95 GW of capacity restored over the past week, according to Genscape Inc. senior natural gas analyst Rick Margolin.
“Outages peaked in early April. Current levels on outage are now down to their lowest point since the end of February, with additional reductions slated to occur in the next several days,” Margolin said. “The volume of capacity on outage this spring peaked on April 1 at 22.45 GW. By the start of May there was 16.48 GW on outage. Current capacity on outage stands at 10.3 GW.”
West Texas Prices Under Pressure
West Texas prices came under significant pressure Friday, with several locations dropping into the negatives. Waha slid 35 cents to average minus 12 cents, including trades as cheap as minus 50.0 cents on the day.
In late March and early April, locations in the Permian Basin saw unprecedented negative pricing as takeaway constraints and an associated gas glut cratered the region’s natural gas market. Since then, pricing has mostly recovered to positive -- if still relatively weak -- levels, coinciding with reports of operators like Apache Corp. curtailing natural gas output.
NGI has recorded negative spot price trades in West Texas on only a handful of occasions over the past 30 days. Prior to Friday, the last negative transaction occurred May 6, when a deal was struck at minus 25.0 cents, Daily GPI historical data show.
Coinciding with calls for the mercury to rise in the Lower 48’s southeastern quadrant, prices gained modestly across much of East and South Texas, Louisiana and Southeast Friday. Transco Zone 4 picked up 4.5 cents to $2.590.
Natural gas prices in Mexico averaged below $3/MMBtu in April, the first time this has occurred since the Comisión Reguladora de Energía (CRE) began publishing the IPGN monthly natural gas price index in July 2017. Marketers reported an average price of 51.938 pesos/GJ ($2.88/MMBtu), according to the April IPGN.
As shown in NGI’s recent survey of natural gas buyers and sellers in Mexico, a majority of transactions in the country are priced using U.S. indexes plus the cost of transport, reflecting Mexico’s growing reliance on gas imports from the U.S.
Meanwhile, during President Andrés Manuel López Obrador’s Monday morning press conference, Alicia Bárcena, the Executive Secretary of the United Nations Economic Commission for Latin America and the Caribbean, said that there was a unique opportunity to take advantage of the cheap supply of natural gas from the United States by building a pipeline from Mexico through Central America.
In his latest column for NGI, energy consultant Eduardo Prud’homme says that given the results from Mexico’s recent natural gas consulta pública, the opportunity for U.S. exports adds up to total growth of around 4 Bcf/d by the end of 2024 as compared to today. A pipeline to Central America would increase this figure.