A significantly hotter shift in some of the weather models was enough to help natural gas futures recover more than half of last week’s roughly 20-cent plunge. The July Nymex gas futures contract skyrocketed 11.7 cents on Monday to settle at $2.303. August jumped 11.5 cents to $2.284.
Spot gas prices also rallied despite several minor thunderstorms moving across the country, keeping demand low. With stronger-than-expected power burns, however, the NGI Spot Gas National Avg. climbed 28 cents to $1.92.
The wet weather systems that were moving across the United States at the start of the week were expected to clear by Wednesday, paving the way for much warmer weather in the days following. Where the weekend weather data came in hotter was with the European and Canadian models, with the European slowing down the retreat of heat back into the western United States and adding several cooling degree days (CDD), mostly for the first week of July, according to Bespoke Weather Services. The Canadian ensemble made a similar shift.
On the flip side, the American data, which was hotter last week, shifted cooler over the weekend, also around the start of July.
“We feel the slower overall transition is the way to lean,” Bespoke chief meteorologist Brian Lovern said, pointing out that Bespoke’s forecast lies in between the European and American models. “The heat we see in the near term still has more of a northern focus, keeping forecast gas-weighted degree days only slightly above average through next week.”
Despite the differences in the weather models, “what could be most important is they both aren’t hot enough across the South and East July 4-7 due to showers and cooling preventing widespread heat,” according to NatGasWeather. The mid-day Global Forecast System “did trend a little hotter to gain 6-7 CDDs, but still lags the hotter European model” for the June 30-July 3 period.
The forecaster said that while the hotter forecasts likely played a hand in Monday’s rally, reports of power burns being much stronger than expected, and traders with short positions rushing to book profits ahead of the July contract’s expiration on Wednesday, also likely supported prices.
Meanwhile, Genscape Inc.’s Daily Supply & Demand report estimated a net 6.11 Bcf/d of gas demand for liquefied natural gas (LNG) export for Monday. “This represents a potential new record and the first time that net gas demand for LNG export from the United States has broken 6.0 Bcf/d,” Genscape analyst Margaret Jones said.
The data and analytics company cautioned that it has seen fairly frequent downward revisions to top-day estimates at Corpus Christi’s LNG export terminal. “The previous record was set just last month on May 12 when exports averaged 5.92 Bcf/d. During the last gas week (ending June 21), net gas demand for LNG export averaged 5.48 Bcf/d,” Jones said.
Countering the possible record LNG exports was a dramatic plunge in exports to Mexico. Just days after new record highs were continually being established, exports to Mexico fell to a 65-day low, according to Genscape.
The firm estimates that cross-border flows for Monday dropped to 4.4 Bcf/d, nearly 1 Bcf/d below the prior seven-day average. “We are seeing substantial declines in flows from South Texas, West Texas and California,” Genscape senior analyst Rick Margolin said.
The South Texas drops are a product of a cessation of deliveries from the newly activated Valley Crossing to Sur de Texas pipelines, according to Genscape. “This is not surprising given we assume the systems to still be undergoing testing and then linepack,” Margolin said.
To the west, Genscape proprietary monitors are corroborating what looks to be a roughly 0.6 Bcf/d decline in flows from the NET Mexico to Los Ramones pipeline. It is unclear what the cause of this sudden drop is as no planned maintenance on any of the connected lines is scheduled, and the firm has not seen any notices of operational upsets.
“We are also seeing deliveries from the Howard Midstream system to the Nueva Era pipeline near Monterrey have dropped to their lowest levels since February. West Texas declines seem to be focused on lower volumes on the TransPecos system, while exports from California are largely concentrated on North Baja Pipeline,” Margolin said.
No matter the reason behind Monday’s surge, it was clear that prices at the end of last week, which had not been seen since May 2016, were unsustainable, according to EBW Analytics. At under $2.20, “storage injections between July 4 and the end of August would be expected to average just 35 Bcf/week, significantly reducing the year/year surplus and raising the deficit versus the five-year average to 300 Bcf, pushing Nymex gas prices back up.”
While summer showers were keeping a lid on cooling demand, natural gas appeared to be filling much of the little demand there was, with solid gains seen in cash markets across the country.
Increases were most substantial in California and the Rockies, and a trickle-down effect led to solid gains in the Permian Basin supply region as well. SoCal Citygate next-day gas jumped more than $1 to $2.21, while El Paso Bondad rose $1 to $1.77.
Over in West Texas, Waha bumped up 27.5 cents to average 29.5 cents, with no transactions across the region pricing in negative territory.
The price relief could be short lived, however, as a force majeure declared Friday by El Paso Natural Gas (EPNG) could add another indirect tightening on Permian outflow capacity for an undetermined amount of time. Equipment failure at EPNG’s Seligman C compressor station in northern Arizona reduced the throughput capacity for the “NORTH ML” flow point to 1,601 MMcf/d, according to Genscape.
“This limit is just above the previous 30-day average flow of 1,586 MMcf/d, although there were 13 out of those 30 days when flows exceeded 1,601 MMcf/d, maxing out at 1,761 MMcf/d,” Genscape analyst Joseph Bernardi said.
The majority of flows through this meter are San Juan-sourced molecules, but there is also a decent chunk of Permian-sourced gas as well, according to Genscape. Year to date, about 70% of flows (roughly 1,050 MMcf/d) through “NORTH ML” first passed through EPNG’s “SJ TRI” meter, representing southbound gas sourced from production points and interconnects in the San Juan area.
About 375 MMcf/d of flows through this meter came from the Permian via the “LINCOLN N” meter, Genscape said. The remaining 80 MMcf/d “represents gas delivered to local demand points along the North Mainline or diverted to flow south onto the Maricopa crossover toward Phoenix.”
Therefore, while Permian outflows are unable to be significantly reduced in the immediate term as a result of this force majeure, any further limitations would either start to cut into Permian volumes or would require commensurate decreases in San Juan volumes to keep Permian outflows steady, according to Genscape. The firm noted that this operating capacity limitation for “NORTH ML” represents a large decrease in flow capacity relative to normal operating capacity even earlier this year.
“Other sections of El Paso’s North Mainline upstream from this meter faced considerable restrictions for several months earlier this year for other unplanned outages, so it would not be unheard of for this meter to face similar extended and potentially increased restrictions. Many of these prolonged restrictions due to equipment failures began shortly after the Permian North Expansion project was completed last December, increasing EPNG’s Permian outflows to the northwest,” Bernardi said.
Elsewhere across Texas, spot gas prices also strengthened as the exceptionally mild conditions seen on Monday, when temperatures in Houston hovered in the 70s until midday, were expected to fade, paving the way for the usual scorching temperatures to return. Houston Ship Channel cash rose 6 cents to $2.205.
Midcontinent spot gas prices posted substantial gains at several market hubs, most notably at NGPL Midcontinent, which shot up 68 cents to $1.755.
The rest of the country put up gains of less than 20 cents, with several pricing locations moving back above $2.
Meanwhile, ANR Pipeline was scheduled to perform unplanned and planned maintenance on three different locations along its Southeast Mainline, limiting southbound flows all week.
First, due to unplanned maintenance in northwest Tennessee, the Cottage Grove Southbound throughput meter was to be limited by 320 MMcf/d (leaving 829 MMcf/d available) through Friday. Flows through Cottage Grove Southbound have averaged 1,072 MMcf/d and maxed at 1,163 MMcf/d over the past 14 days, leading to flow cuts of up to 334 MMcf/d, according to Genscape analyst Anthony Ferrara.
Second, due to planned maintenance in southwest Tennessee, the Brownsville Southbound throughput meter was to be limited by 230 MMcf/d (leaving 900 MMcf/d available) from Tuesday to Friday. Flows through Brownsville Southbound have averaged 1,034 MMcf/d and maxed at 1,127 MMcf/d over the past 14 days, leading to flow cuts of up to 227 MMcf/d, Ferrara said.
Third, due to planned and unplanned maintenance in Louisiana, the Jena Southbound throughput meter was to be limited by 170 MMcf/d (leaving 1,010 MMcf/d available) on Tuesday and Wednesday. “Flows through Jena Southbound have averaged 1,076 MMcf/d and maxed at 1,211 MMcf/d over the past 14 days, leading to flow cuts of up to 201 MMcf/d,” Ferrara said.