An early-season heat wave and fluctuating production helped lift forward prices at the majority of pricing hubs across the country during the May 23-29 period, with gains up to 10 cents most common. However, increasing supply in the Permian Basin combined with pipeline maintenance to drive regional prices back into negative territory after plunging as much as 35 cents, according to NGI’s Forward Look.
The action was far more subdued on the gas futures front during the short holiday week as prices continued to fluctuate in the $2.50s-2.60s. The Nymex June contract, which rolled off the board Wednesday, ultimately rose about a nickel from May 23-29 to reach $2.633 upon expiration.
An early season heat wave was behind most of that increase as weather outlooks showed storm systems with showers and thunderstorms continuing across the West and Plains with highs gradually warming into the 70s to 90s by the weekend, with the hottest conditions over the Southwest, according to NatGasWeather. Cities in Texas over to the Mid-Atlantic Coast were expected to be very warm to hot with highs of 80s and 90s, and the hottest weather was forecast across the Southeast, where highs could reach close to 100 degrees.
Mostly warm conditions were also forecast to continue from Chicago to New York City, with highs expected in the upper 60s to 80s, although with showers and slight cooling arriving this weekend, the forecaster said. And although the hot high pressure over the Southeast was expected to weaken during the weekend, it was forecast to then strengthen over Texas and the South early next week.
How much heat remains after next week remains unclear. American weather model data was net warmer overnight Wednesday, by way of slight cooler changes next week followed by a hotter overall medium range depiction, according to Bespoke Weather Services. The European data was net cooler overall, dropping medium range cooling degree days.
One thing to consider with the European data, however, “is that it is known to overplay surface parameters, and in this case, due to high soil moisture content in all of the middle of the nation, is likely too cool given what it shows for the overall upper level pattern,” Bespoke chief meteorologist Brian Lovern said.
That said, neither model for now shows strong heat coming back yet after this week, keeping overall gas-weighted degree days not too far from normal into the first half of June. “We are still watching the tropical forcing shifts for possible mid-June heat that can reach farther east again, but for now, confidence is lower that far out in time,” Lovern said.
While Bespoke early Thursday indicated its sentiment was neutral given the most recent weather data and production figures, it indicated there was the usual risk around the Energy Information Administration’s (EIA) storage data.
The EIA reported a whopping 114 Bcf injection into storage inventories for the week ending May 24, a figure that surprised well to the upside by about 10 Bcf. The reported build blew out of the water both last year’s 95 Bcf build and the five-year average 97 Bcf injection.
The Nymex July futures contract was already down several cents early Thursday. When the EIA figure crossed trading screens at 10:30 a.m. ET, the front month quickly shed another 3 cents or so, dropping from $2.580 down to around $2.550. The July contract went on to settle at $2.547, down 7.7 cents. August slid 7.5 cents to $2.557, and September lost 7.4 cents to $2.549.
Balance wise, the 114 Bcf injection “is disastrously loose, reflective of the loosest balances we have seen in a very long time, though could be somewhat of a ‘make-up’ from recent reports that were on the lower end of estimates,” Lovern said. He noted that much of the country also had a very high amount of wind last week, “which was no doubt a contributing factor, but not one that made us feel this number was on the table.”
Prior to the EIA report, consensus had formed around a build in the high 90s to low 100s Bcf. A Bloomberg survey had pointed to a median prediction of 98 Bcf, based on estimates ranging from 94 Bcf to 104 Bcf. The 114 Bcf figure topped even the highest estimate submitted to this week’s Reuters survey, which had called for a 101 Bcf injection based on a range from 91 Bcf to 110 Bcf. Intercontinental Exchange (ICE) EIA Financial Weekly Index futures settled Wednesday at 100 Bcf, while NGI’s model predicted a 98 Bcf build.
Market observers on Enelyst, a social media platform hosted by The Desk, pointed fingers at the Midwest for the large miss on storage this week. The Midwest injected a whopping 35 Bcf as strong winds and a sizable reduction in heating loads squashed gas demand.
The South Central also caught some off-guard, as it often does, with only 4 Bcf injected into salt facilities in the region. Nonsalts added a heftier 27 Bcf, while the overall region posted a net 31 Bcf injection, according to EIA.
Elsewhere, the East injected 30 Bcf, and the Pacific added 12 Bcf. Total working gas in storage as of May 24 stood at 1,867 Bcf, which is 156 Bcf higher than last year and 257 Bcf below the five-year average, EIA said.
Next week’s EIA storage report should reflect balances that are a good deal tighter than what the market saw in Thursday’s report, according to Bespoke. Although, nailing down the actual injection could be tricky given the hottest weather of the season so far occurred during a holiday week.
Permian Woes Continue
While the near-term outlook for Nymex gas appears increasingly bearish, Permian Basin prices are already in the pits as the lack of gas takeaway capacity and robust production continues to wreak havoc on regional cash and forward markets.
The latest bout of widespread negative pricing in the cash market began last Friday, coinciding with an uptick in Permian production, according to Genscape analyst Joe Bernardi.
“Before last Friday, the month-to-date daily average production for the Permian was around 9.66 Bcf/d,” Bernardi said. “In the five days since then, production has come in at an average of around 9.90 Bcf/d (up by 240 MMcf/d) and as high as 10.08 Bcf/d (up by 420 MMcf/d).”
Maintenance on Natural Gas Pipeline Co. of America (NGPL) also appeared to be weighing West Texas prices as the outages resulted in inter-basin competition between associated gas volumes from NGPL’s Anadarko basin molecules and NGPL’s Permian receipts fighting for limited space on the pipe, according to Genscape Inc.
Meanwhile, there is the possibility of more maintenance-induced price volatility if the force majeure-prone Amarillo Mainline compressors continue to have issues, Genscape analyst Matthew McDowell said. A notice by NGPL last Thursday (May 23) extended the maintenance related force majeure that is separating the Midcontinent and TexOK zones by five days. The event, which was supposed to end May 27, was extended through this Friday and finally through June 5 due to “extreme weather-related conditions” at the repair site.
After setting a record low last Friday, NGPL Midcontinent dropped further into the negatives Tuesday, slipping another 61.5 cents to average minus 67.5 cents. In West Texas, Waha fell as low as minus $2.305 last Friday. By Wednesday, however, NGPL Midcontinent averaged a hair above zero at one penny, while Waha rose to a minus 80 cents average.
There is some hope for West Texas prices in the coming months, and forward markets are already reflecting that optimism. Recent flight data from Genscape Inc.’s Infrastructure Intelligence team showed a rapid pace of completion of Kinder Morgan Inc.’s (KMI) Gulf Coast Express (GCX) pipeline.
Scheduled to be online in October, the vast majority of the 2 Bcf/d, 450-mile GCX pipeline appears finished, according to Genscape, which made an earlier flight over the construction site in March.* The 42-inch diameter line stretches from Waha to the Agua Dulce Hub near Corpus Christi, TX.
The remaining incomplete sections are short in length, according to Genscape. Progression of construction at all three compressor stations -- estimated to be about seven units total -- is on pace with other compressor stations observed through aerial imagery and is on track for an October start.
“Due to the advanced nature of construction along the pipeline, Genscape believes there is the potential for an early partial service along GCX prior to the full October start date,” Genscape natural gas analyst Colette Breshears said. “This uncompressed capacity would be dependent on pressure from Waha receipts to move gas through the pipeline to Agua Dulce. This potential was not previously priced into the market.”
KMI management, when asked about early service during their 1Q2019 earnings call, did not confirm the possibility, but noted that “it's a long linear project with a lot of mechanical parts to it that we've got to get completed. We're not comfortable in projecting some kind of an early in-service date, anything other than Oct. 1 at this point.”
But forward markets may be pricing in an expected early start for GCX. The day after Genscape alerted its clients about the near-completion of the pipeline, Waha’s August and September contracts gained 21 and 17 cents, respectively, according to ICE reports. “Curiously, the July and October contracts each only gained about 3 cents, while further down the curve, prices weakened slightly,” Breshears said.
The latest forward data continues to reflect that trend. Waha’s June contract rolled off the board Wednesday at minus 24 cents after plunging some 35 cents from May 23-29, according to Forward Look. July, meanwhile, edged up about 2 cents to 50.6 cents. August rose a heftier 13 cents to $1.049, as did September, which climbed 11 cents to $1.435. October held steady at $1.842.
*Correction: The original story incorrectly stated that Genscape Inc.’s previous flyover of Kinder Morgan Inc.’s Gulf Coast Express pipeline project was in November 2018. It was in March. NGI regrets the error.