Natural gas futures closed last week in positive territory, but only as a sign that the market stopped for a breather after Thursday’s dramatic plunge, not any renewed bullish momentum. After climbing as high as $2.222, the July Nymex gas futures contract settled Friday at $2.186, up one-tenth of a cent. Similarly modest shifts were seen throughout the curve.
Spot gas prices also tumbled despite scorching temperatures in Texas and a shifting weather pattern that was expected to increase heat on the East Coast early this week. With sharp sell-offs continuing on the West Coast and substantial losses spreading to the Midcontinent, the NGI Spot Gas National Avg. plummeted 24.5 cents to $1.64.
It’s ironic that parts of Texas remained under a heat advisory Friday since it was the lack of heat in most other areas of the country that helped send July futures to a four-year low on Thursday. On a national level, the first 20 days of June have been 1.5% cooler than three-year norms and 20.5% cooler than the same 20 days last year, according to Mobius Risk Group.
Six out of the eight prior years have ranked in the top 10 warmest Junes over the past 69 years, while June is on track to rank a lowly 34th warmest. “Weather is, and will remain, the most dominant force affecting near-term prices,” the Houston-based firm said.
Meanwhile, the latest weather models have backed off some of the heat expected in the coming weeks, as the hottest temperatures were expected to remain away from key demand regions in the East.
Already, mild conditions have factored into storage injections this summer, with Thursday’s report easily surprising to the upside by about 10 Bcf. The Energy Information Administration (EIA) reported a 115 Bcf injection that lifted inventories as of June 14 to 2,203 Bcf, 209 Bcf above last year and 100 Bcf below the five-year average.
The reported build implies the market is around 3 Bcf/d oversupplied on a weather-adjusted basis, according to Tudor, Pickering, Holt & Associates Inc. (TPH). “Every injection so far this year (11 weeks and counting) has come in above the five-year average, adding an incremental 340 Bcf to storage relative to five-year norms.”
The larger-than-average storage injections have come even as liquefied natural gas (LNG) exports continue to grow. Feed gas volumes delivered to the Corpus Christi liquefaction facility along the Texas coast hit a record 1.3 Bcf/d for the week, potentially related to commissioning of Train 2, according to TPH. However, volumes at Cameron LNG, Sempra Energy’s Louisiana terminal, have been soft since the initial commissioning cargo, with speculation of mechanical issues beginning to emerge, the firm said.
In a sea of negative data points, one small positive for the macro picture is the force majeure on the 2 Bcf/d Alliance Pipeline that delivers Canadian gas into the U.S. Midwest. The previously scheduled four-day complete shut-down was extended into Monday (June 24) and has reduced net imports from Canada by around 1 Bcf/d. This could shave about 6 Bcf off the next storage print.
Alliance cited “weather and working conditions” in Iowa and Illinois for the outage extension.
Nevertheless, price levels following Thursday’s sell-off -- and Friday’s absence of any meaningful recovery -- are not sustainable, according to EBW Analytics. The firm said while the storage data was indeed bearish, the market also appears to have begun pricing in likely U.S. LNG shut-ins this fall, largely because of fears of overflowing gas storage in Europe.
European storage is currently sitting above 925 Bcf over year-ago levels, and it appears on pace to exceed the 2016 peak of 3,920 Bcf by several hundred Bcf.
“Many U.S. LNG cargoes, however, are being redirected to other global destinations in search of higher returns,” EBW said. “It is also possible that LNG tankers may transform into floating storage this fall, allowing the U.S. market to continue to load cargoes. If demand can be sustained, Nymex prices can surprise to the upside.”
After another day of steep declines on Friday, there was a large swath of the United States sporting $1 handles for spot gas.
Even as Texas continued to bake under near 100-degree temperatures, weather systems were barreling across the northern United States, keeping temperatures rather mild, according to NatGasWeather. Cooling was forecast to sweep across the West and Plains as well, although heat was expected to begin building.
Where demand becomes strongest is later in the coming week “as the upper ridge expands across much of the southern two-thirds of the United States with widespread highs of upper 80s to 100s,” the forecaster said. The hot ridge is still expected to extend across the Midwest late in the week into early July with highs of 90 near Chicago.
Midwest cash markets were unimpressed by weather outlooks, however. Chicago Citygate tumbled 18 cents to $1.91.
Houston Ship Channel dropped 10.5 cents to $2.145 even as the entire Houston area remained under a heat advisory again Friday, with heat indices predicted to reach more than 110 degrees, according to the National Weather Service (NWS).
This advisory is the second of its kind in as many days as brutal heat coming off the Gulf of Mexico brings "dangerous" conditions to Southeast Texas, forecasters said. Friday's actual high was forecast to top out around 94 in Houston, although heat indices were expected to range anywhere between 106 and 111, the NWS said.
Over in West Texas, Permian Basin pricing got hammered after enjoying a few days of renewed strength. Waha averaged only 2 cents after plunging 30.5 cents on the day.
Cash markets across Louisiana and the Southeast slid between 10 and 15 cents, while Appalachia losses were capped at around a dime.
On the pipeline front, ANR Pipeline was expected to continue planned maintenance along its Tie-Line in northwest Ohio, limiting up to 196 MMcf/d of westbound flow from Monday through Friday (June 24-28). Located in ANR’s Northern Area (Zone 7), flows were to be limited through the Defiance Westbound throughput meter by 250 MMcf/d (leaving 434 MMcf/d available).
In the week ending Friday (June 24), flows through Defiance Westbound had averaged 384 MMcf/d and maxed at 630 MMcf/d, according to Genscape Inc.
Spot gas in the Rockies posted sharp declines of as much as 80 cents Friday, driving several pricing hubs below $1. Kingsgate averaged only 85 cents after falling 55.5 cents on the day.
In California, SoCal Citygate tumbled 70 cents to $1.135 while other markets in the region posted similar declines.
Pricing across the border in Canada remained extremely weak, even though cash ended the day in positive territory for some hubs. Westcoast Station 2 jumped 11.5 cents to average 11 cents on Friday.
As expected, continued maintenance and outages on the Nova Gas Transmission Ltd. system prevented volumes from reaching storage, with last week's build coming in at 3 Bcf, compared to a five-year average 6 Bcf build, according to TPH. Inventories now sit at a 20% deficit to norms.
Meanwhile, the Alliance pipeline work and other gas flow restrictions in the region that have cut off around 1 Bcf/d of Canadian exports have driven NOVA/AECO C spot pricing further into shut-in territory, especially as prices have moved into negative territory at times, TPH said.