- Natural gas futures bounce amid drop-off in production
- Weather outlooks cool for latter part of June
- Permian spot gas prices rally as major pipeline work ends
Weather models continued to show cooler trends for the latter part of June, but after plunging more than 20 cents over the past three trading sessions, a technical bounce kept natural gas futures prices in the black on Tuesday. Spot gas prices continued to decline in several areas as stormy conditions were expected to move across the country through Wednesday. However, eastern markets strengthened a bit due to a loss of supply in the region. The NGI National Spot Gas National Avg. rose 6.5 cents to $1.935.
With weather forecasts showing very little in the way of significant summertime heat, market bears have kept a firm grip on the Nymex gas futures in recent days. In addition, some increased producer hedging has begun to weigh on longer-dated tenors, according to Mobius Risk Group.
Larger-than-normal volumes of calendar 2021 and 2022 swaps were sold last week, recent Commodities Futures Trading Commission data show. “Even minor increases in calendar 2023 selling are enough to pressure that strip as a result of limited liquidity,” Mobius said.
However, after posting losses of more than 5 cents in each of the previous three sessions, front-end futures prices bounced back Tuesday. The July Nymex contract, which fell as low as $2.381, ultimately ended the day at $2.416, up 1.3 cents. Similar gains of less than 2 cents were seen through the end of the year.
As for weather, overnight models continued to march in the cooler direction, with small cooling degree day losses shown in both American and European weather data, according to Bespoke Weather Services. The middle third of June is still projected to be cooler than even the long-term normal, due to an anomalous upper level trough that parks over the eastern half of the nation in response to the push farther into El Niño territory, the firm said.
“The cool anomalies are shown to fade as we move out toward June 20,” most notably on the American ensemble data, which hints at the return of a weak trough into the West, Bespoke chief meteorologist Brian Lovern said. “This would open the door for some heat to attempt coming back eastward if correct, but confidence is low for now that far out.”
The midday American data cooled even further for the near-term, scaling back on demand in Texas and the Southeast for this week and early next week, according to NatGasWeather.
“There will continue to be bouts of hot conditions across the southern United States through mid-June, although not widespread or sustained enough when considering the northern half of the country is favored to be exceptionally comfortable over most major cities,” NatGasWeather said.
The firm viewed Tuesday’s small bounce in prices as more technical in nature, although Bespoke pointed to a sizable drop in production and stronger power burns for the small gain.
Genscape Inc. said production data early Tuesday reflected a massive day/day decline of 2.3 Bcf/d or more.
Although Tuesday’s production estimate was likely to be revised higher, “the preponderance of maintenance underway indicates a good portion of the drops are actual,” Genscape senior natural gas analyst Rick Margolin said.
The firm estimated production at 85.49 Bcf/d on Tuesday. Of the 2.3 Bcf/d day/day drop, the East’s declines were the largest at 0.7 Bcf/d, followed by a 0.55 Bcf/d drop in Texas, excluding the Permian Basin; a 0.35 Bcf/d drop along the Gulf Coast; a 0.27 Bcf/d decline in the Rockies; and about a 0.17 Bf/d drop from the Permian and San Juan basins, respectively.
East declines were heavily concentrated in Northeast Pennsylvania, where nominations data shows Empire Pipeline receipts down nearly 0.35 Bcf/d, while volumes on Tennessee Gas Pipeline were down 0.14 Bcf/d. Ohio volumes were also lower again Tuesday as the forces majeure on Columbia Gas Transmission affected flows.
San Juan’s 0.17 Bcf/d of declines was likely tied to ongoing Transwestern Pipeline maintenance. Meanwhile, Stingray Pipeline declared a force majeure on Tuesday that restricted offshore Gulf of Mexico production into the pipeline.
Permian Pipe Work Ends
Although weather isn’t driving much demand, Permian spot gas posted substantial gains Tuesday after a force majeure limitation that has been in effect since December on El Paso Natural Gas (EPNG) ended.
The “LINCOLN N” flow meter, which tracks Permian outflows to the northwest across New Mexico, had been limited by an average of about 150 MMcf/d since an equipment failure occurred at the Caprock compressor station on Dec. 28, according to Genscape.
“This failure happened only a few weeks after flows through this meter ramped up notably, driven by EPNG’s Permian North Expansion Project coming in service on Dec. 5. Prior to that expansion, it was rare for LINCOLN N flows to exceed 300 MMcf/d,” Genscape analyst Joseph Bernardi said.
After that expansion, flows crested above 500 MMcf/d in mid-December. However, the force majeure took operational capacity back down into the 400-500 MMcf/d range with occasional dips below 300 MMcf/d for short-term work, according to Genscape.
“LINCOLN N” began functioning as a constraint point as a result of this combination of changes, but the force majeure ended effective Tuesday.
“The resulting return of operating capacity to around 600 MMcf/d levels should help to alleviate some pressure on Permian outflows, particularly when compared with the short-term restrictions at ‘LINCOLN N’ to less than 300 MMcf/d that have happened in the past several months,” Bernardi said.
However, the Permian outflows to the northwest will still be restricted, and all Permian-related points on EPNG will not feel the benefits of this allowable flow increase equally, he added. The “PERM N” meter -- which saw its operating capacity roughly double back in December as a result of the Permian North Expansion project -- will still function as a chokepoint like “LINCOLN N”, only closer to the source of much of the basin’s production, according to Genscape.
“Molecules flowing onto EPNG which do not route through ‘PERM N’ but which do flow through ‘LINCOLN N’ could potentially see more systemic available capacity -- for example, DCP Midstream’s Fox Hill processing plant,” Bernardi said.
With the return of outflow capacity, West Texas prices put up substantial increases. El Paso-Permian next-day gas shot up more than 50 cents to average 29 cents. In fact, no deals were transacted below zero at any pricing hub across the region.
Midcontinent prices also climbed as less gas in that region had to compete with Permian output. OGT jumped 55 cents to $1.44.
Most pricing hubs throughout Louisiana and the Southeast rose less than 10 cents, although Henry Hub slipped 2.5 cents to $2.39.
Markets out in the Midwest also softened Tuesday, although losses were limited to a few cents at best.
Prices on the East and West coasts moved higher amid the production losses in Appalachia and the Rockies. The gains in the East, however, were rather small, capped at less than a dime across the region.
Out West, CIG DJ Basin next-day gas shot up 37.5 cents to $1.24, and several other pricing locations also put up stout double-digit increases. California markets rose as well, with Malin posting a region-leading 16.5-cent gain to $1.47.