In a sign that Thursday’s 6.1-cent decline was a bit overdone, natural gas futures recovered all of those losses -- plus a penny -- on Friday. Driven in part by more supportive long-range weather forecasts, the July Nymex gas futures contract rose 6.2 cents to settle at $2.387. August climbed 5.9 cents to $2.381.
Spot gas prices were mixed as the weather system that had kept much of the country rather mild over the past week was expected to dissipate, with a ridge of hot high pressure coming in closely behind to drive temperatures higher in parts of the country for the third week of June. However, with cooler weather moving into the West and pipeline maintenance restricting Permian Basin outflows, the NGI Spot Gas National Avg. dropped 6 cents to $1.855.
With the latest storage data fully digested, all attention was on weather models, which have struggled to show with certainty the return of hot weather to key demand regions across the United States. The data overnight Thursday showed a weak trough developing in the West in the 11- to 15-day time period, with a downstream hotter ridge evolving farther East, which is similar to what occurred in the second half of May, according to Bespoke Weather Services.
As in May, the best chance of above-normal heat in the coming weather pattern should be in the southern half of the United States and possibly into the Mid-Atlantic at times. Storminess was forecast to continue in the Midwest, limiting heat opportunities there.
“We also saw a hotter shift in the European weeklies, hinting at hotter chances in the eastern half of the nation into the first half of July,” Bespoke chief meteorologist Brian Lovern. “We aren’t ready to go that far, but do think the slightly hotter-than-normal pattern can hang on into the very beginning of July, given the look of the day 15 pattern.”
Overall, the data was seen adding back demand compared to Thursday’s data, including the European model, which added 7 total degree days (TDD), although still not nearly as hot as the Global Forecast System (GFS) model, according to NatGasWeather.
“It’s possible it’s enough of a hotter trend for the markets to want a few cents back, although the markets would likely prefer to see the European model trend further hotter to better match the GFS if they are to believe it.”
Instead, the midday GFS run was mixed between a few days a little cooler and a few slightly hotter, overall only losing 1 TDD over the 16-day run compared to earlier runs. Of greatest importance, the GFS held slightly cooler trends for midweek, but still favored a rather hot ridge strengthening across the central and southern United States during the last week of June, with increasing coverage of 90s and 100s for strong demand, according to NatGasWeather.
“If the GFS holds the pattern for late June as it shows,” then weather sentiment would likely have a bullish bias when the markets reopen. “If the GFS trends cooler toward the less impressive European model, the markets could come back disappointed,” the forecaster said.
With still a bit to prove on the weather front, Friday’s rebound also could be an indication that Thursday’s sell-off, after a somewhat bullish storage report, was a bit of an overreaction. The Energy Information Administration (EIA) reported a 102 Bcf injection into storage inventories for the week ending June 7. While larger than both last year’s build and the five-year average injection, the reported build was on the lower end of expectations and was the tightest stat of the injection season so far, according to Genscape Inc.
Compared to degree days and normal seasonality, the 102 Bcf injection is about 0.6 Bcf/d loose versus the five-year average, which the firm viewed as close to neutral. The stock gain pushed Lower 48 inventories to 2,088 Bcf, enabling the year/year surplus to grow to 189 Bcf while closing the current inventory deficit to the five-year average to 230 Bcf.
Looking ahead, liquefied natural gas (LNG) exports are expected to ramp up this summer, with Cheniere Energy Inc. management indicating that the second train at its Corpus Christi export terminal along the Texas coast has started producing. Sempra Energy’s Cameron LNG is also set to start exporting this summer from the first of three trains at its Louisiana facility. Altogether, about 7 Bcf/d of feed gas demand is expected by year end.
Meanwhile, exports to Mexico, which have hit an all-time high of around 5.5 Bcf/d, are expected to continue growing as well. Gas has begun flowing into the Valley Crossing pipeline, which feeds into the newly completed 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline. On Thursday those flows were estimated around 60 MMcf/d. They had risen to roughly 100 MMcf/d early Friday, or less than 4% of operational capacity of the cross-border pipeline.
"We don't expect the marine pipeline to fill right away, but these initial flows are certainly a positive step, especially ahead of increased summer demand," said NGI’s Patrick Rau, director of strategy and research.
Tudor, Pickering, Holt & Associates Inc. (TPH) said it expected the pipeline to run materially below its nameplate capacity as further interconnects within Mexico are still required to reach demand centers. The firm is currently modelling 0.7 Bcf/d of initial flows.
Meanwhile, crude oil futures early Friday had initially retreated from Thursday’s $1/bbl-plus spike in response to a reported attack on two oil tankers in the Gulf of Oman. Given the risk that attacks will mount, Thursday’s price gain remained a surprisingly mild response, according to EBW Analytics. “The possibility that oil prices will rise $20 or more sometime this summer should not be ruled out.”
The firm noted that disruptions in the Persian Gulf do not only affect the oil market. Qatar remains the largest LNG producer in the world, accounting for 23% of global supply, all of which is shipped through the Strait of Hormuz.
“If traffic through the Strait is shut down for even a week or two or slowed down for an extended period, demand for LNG from other sources will skyrocket,” EBW said.
High oil prices, if they occur, will also reduce utilization of oil-fired plants around the world, further increasing demand for LNG. This could increase the odds that U.S. liquefaction plants will run flat out, potentially for much of next year, according to EBW.
“In an increasingly integrated global market, prices for energy resources are increasingly linked. Tensions in the Gulf have the potential to disrupt energy markets -- and the global market -- far more broadly than the current reaction suggests.”
However, the TPH team said it’s been one or two oil market cycles since the market has seen a sustained geopolitical risk premium place an effective floor under oil prices. As such, the firm is not entirely convinced that Thursday’s oil price bounce “is of the sustainable variety given investor anxiety on the global oil demand side of the equation.”
Nymex crude oil futures went on to settle Friday at $52.51, up 23 cents on the day.
Spot gas prices were quite mixed Friday amid a slew of pipeline maintenance events and progressively warmer weather forecast for most of the country this week. The exception to the hotter forecast was the western United States, which had been under a sweltering heat wave throughout last week. With much cooler weather expected early this week, prices plummeted.
PG&E Citygate spot gas on Friday tumbled 38 cents to $2.405, with steeper declines seen in the southern part of the state.
Cash prices over in the Rockies also softened, where El Paso Bondad posted the heftiest drop of roughly 40 cents on the day.
On the pipeline front, beginning Monday and lasting through June 25, Williston Basin Interstate (WBI) is performing line maintenance on Segment 28 in northwestern North Dakota, according to Genscape. The line will be taken out of service for nine days, cutting off transportation services to a gas processing plant, a power plant and an interconnect between WBI and Northern Border Pipeline.
Oneok Rockies Midstream LLC, a subsidiary of Oneok Inc., holds a firm transportation contract between the “Stateline I” plant and the “Northern Border-Stateline” interconnect that accounts for 82 MMcf/d of the affected 165 MMcf/d to be impacted by this maintenance, Genscape natural gas analyst Matthew McDowell said. “This is the only firm contract through the Northern Border interconnect, implying that the maintenance will restrict roughly 165 MMcf/d instead of the cumulative nominations of the plant and interconnect.”
The Pioneer Generating Station, a 239 MW peaking plant in Williston is to be shut in for the duration of the event as well, according to Genscape. EIA plant data lists WBI as the sole pipeline connected to the plant. “It has nominated an average of 10 MMcf/d for the last 30 days,” McDowell said.
Over in West Texas, with downstream demand on the West Coast falling from recent highs, Permian Basin prices continued to struggle Friday. Waha tumbled more than 20 cents to average minus 25 cents, with every transaction pricing below zero.
Adding to the weak pricing environment in the Permian was a force majeure on Transwestern Pipeline that was to be in effect through Saturday (June 15), restricting roughly 40 MMcf/d of Permian flows westward.
Prices in the country’s midsection also declined Friday, although most losses were limited to less than a dime and occurred as ANR Pipeline was set to continue unplanned and planned maintenance along its Southwest Mainline, limiting up to 155 MMcf/d of northbound flow through Kansas through Friday.
As maintenance has been ongoing since mid-May, flow continues to be restricted through the “SWML Northbound” throughput meter at various levels, according to Genscape. The most impactful period of this maintenance event will occur this week, when total capacity through “SWML Northbound” will be restricted by 140 MMcf/d, leaving 549 MMcf/d available.
“Over the past 21 days with maintenance ongoing, flows through SWML Northbound have averaged 617 MMcf/d and maxed at 704 MMcf/d, therefore leading to flow cuts of up to 155 MMcf/d during the most impactful restriction period,” Genscape analyst Anthony Ferrara said.
Louisiana cash prices were up a few pennies, while some market hubs in the Southeast posted gains of nearly a dime.