After sharp swings over the last week, natural gas futures tapped the breaks Tuesday as weather models remained fairly intact, trending only slightly hotter overall for the late June/early July period. With production data pointing to the highest output in 30 days, the July Nymex gas futures contract went on to settle at $2.308/MMBtu, a half-cent higher on the day.
Spot gas prices across the majority of the United States continued to strengthen Tuesday as temperatures were expected to climb steadily throughout the week. As most gains were capped at around a dime, the NGI Spot Gas National Avg. rose 3 cents to $1.95.
Tuesday’s quiet trading is not surprising given Monday’s dramatic increases in both futures and cash markets. Much of those gains occurred as the European weather data trended hotter for later this month.
The data overnight Monday continued to show slightly above-normal demand for the remainder of this week and into next week, with the focus of above-normal heat still being mostly in the northern United States, according to Bespoke Weather Services. In fact, outside of the West this week, the firm doesn’t see any below-normal areas depicted in the latest data.
“Total gas-weighted degree days (GWDD) over the next 15 days are now just 6-7 lower than the total GWDDs on the same dates last year,” Bespoke chief meteorologist Brian Lovern said. “Again, we do not expect to see demand stay this elevated, as the background El Niño state suggests that sustaining above-normal heat will be difficult, but it is rather impressive at least for the next 10-12 days.”
Beyond the July Fourth holiday, the forecaster suspects that demand will pull back toward normal, with any heat becoming western-focused and cooler weather possible farther east.
The latest midday Global Forecast System data was little changed in overall cooling degree days (CDD), although with recent models being slightly hotter July 5-10, the trend has been favorable, according to NatGasWeather. However, the data still expects weak weather systems to track across the northern, and at times the eastern, United States, and that is what is preventing a solidly bullish pattern from setting up, the firm said.
Rising production is also throwing a wrench into bulls’ plans for a further rally, as supply output indicates it would take sustained and widespread heat for below-normal storage builds to result. “It's a decent pattern, but is it really hot enough for a sustained rally?” NatGasWeather said.
After revisions to Monday’s data, Genscape Inc. estimated that Lower 48 production was the highest in 30 days. Production was revised up to 89.26 Bcf/d, the second highest print this summer to date, and nearly a full 1 Bcf greater than the June month-to-date average.
“This is generating the strongest rate of production growth since late May,” said Genscape’s Rick Margolin, senior natural gas analyst.
The past five-day average is coming in nearly 0.54 Bcf/d above the prior 30-day average, according to Genscape. The largest rate of growth is from the East, where production the past five days has averaged 0.46 Bcf/d greater than the month-to-date average. This is followed by Gulf Coast region production averaging more than 0.31 Bcf/d higher; Rockies (excluding the Bakken Shale) rising 0.24 Bcf/d and Texas increasing 0.18 Bcf/d.
“These gains have been more than enough to offset about 0.25 Bcf/d of contraction out of the Bakken and 0.17 Bcf/d lower output from the Permian,” Margolin said. “Collectively, the gains have lifted the overall month-to-date average 88.36 Bcf/d, about 0.1 Bcf/d above our forecast headed into the month.”
The positive production data was likely factored into Tuesday’s marginal shift in futures prices. However, even with the overall upward trajectory so far this week, prices remain too low given potential power sector demand in July, according to EBW Analytics. “We expect the July contract to post further gains before trading ends Wednesday.”
Similarly modest gains were seen throughout the front of the curve, with August inching up to $2.286 and September rising to $2.26.
With heat building across the country following a series of thunderstorms, spot gas prices were on the rise again Tuesday as Lower 48 demand was set to reach its highest levels since early May.
Genscape meteorologists were forecasting total Lower 48 population-weighted CDDs to climb daily through Saturday, reaching a peak of 128 CDDs, about 17 CDDs above seasonal norms. Accordingly, Genscape’s Daily Macro Supply & Demand report shows demand rising from Tuesday’s projected 70.3 Bcf/d to a high of 73.8 Bcf/d by Friday.
“Following the weekend, demand is expected to resume running in the 73 Bcf/d area, with slightly above-normal temperatures forecast to extend into next week,” Genscape’s Margolin said.
The bulk of above-normal temperatures and demand increases were expected to be driven by Northeast and Southeast/Mid-Atlantic regions. Demand in the Energy Information Administration (EIA)-defined East region was forecast to climb to 26 Bcf/d, its highest level since April 10. Smaller but notable increases were also expected in the Rockies and West Texas.
Even with some of the smallest demand gains, cash prices out in West Texas posted some of the strongest day/day increases. El Paso Permian next-day gas jumped 24 cents to average 52 cents. The lowest-priced transactions across the Permian Basin were at Waha and Oneok WesTex, which each saw deals as low as a quarter.
Permian Basin pricing could be in for further upside as pipeline exports may soon surge, according to Genscape. After pipeline exports to Mexico averaged just shy of 5.0 Bcf/d in 1Q2019, a combination of pipeline maintenance and mild weather-driven demand cut exports south of the border to 4.7 Bcf/d in 2Q2019.
A seasonal uptick in summer cooling demand in Mexico and the recent completion of the 2.6 Bcf/d Sur de Texas-Tuxpan pipeline could lead to additional exports for the rest of the summer, according to Genscape.
“Last year, pipeline gas exports rose 0.7 Bcf/d from 2Q2018 to 3Q2018,” Margolin said. “Although the Sur de Texas pipeline alone may increase gas flows by 0.5-0.7 Bcf/d, we project a similarly sized 0.7 Bcf/d uptick from 2Q2019 to 3Q2019, potentially tightening weekly EIA-reported storage inventory balances by nearly 5 Bcf/week.”
Other pricing hubs across Texas also strengthened Tuesday, although most increases were only a few cents at best. Transco Zone 2 spot gas rose 5 cents to $2.205.
On the pipeline front, Texas Eastern Transmission (Tetco) indicated that pipeline integrity investigations on its Line 15 between the Egypt to Barton compressor stations is now expected to last until next Wednesday (July 3). During these investigations, Tetco will be required to lower north-to-south capacity through Barton to about 1.253 million Dth/d.
Over in the Midwest, Chicago Citygate cash was up 6 cents to $2.095, while Panhandle Eastern in the Midcontinent shot up 33 cents to $1.655 as planned summertime maintenance continued on the pipeline and limited flexibility. The rest of the Midcontinent posted much smaller increases.
Small gains were also seen in Appalachia and the Northeast, although some prices rose nearly 10 cents at a couple of market hubs.