With the temperature outlook for July shifting significantly hotter compared to the previous week, natural gas spot prices strengthened throughout the Lower 48 during the period ended July 12; the NGI Weekly Spot Gas National Avg. rallied 32.0 cents to $2.200/MMBtu.
The hotter forecast sparked a sharp rally in futures prices coming out of the July Fourth holiday, and spot prices at Henry Hub followed suit as traders returned from the long weekend. Weekly spot prices at Henry Hub jumped 18.0 cents to average $2.425.
Locations throughout the country saw similar gains, including from the Midwest into the Northeast. Chicago Citygate surged 21.5 cents to $2.255, while Transco Zone 6 NY rose 24.5 cents to $2.315.
Some of the largest gains on the week occurred in the West, including in Southern California. SoCal Citygate soared 66.5 cents higher on the week to average $2.590.
Faced with myriad uncertainties surrounding Tropical Storm Barry’s eventual supply and demand impacts as it approached the Gulf Coast Friday, but with a substantial chunk of production already shut in, natural gas futures traders bid up prices heading into the weekend. The August Nymex futures contract settled 3.7 cents higher at $2.453 after going as high as $2.481. Week/week the front month gained 3.5 cents after settling at $2.418 the previous Friday.
Aside from the cooler risks posed by Barry, the weather outlook remained “hot-dominated” Friday, according Bespoke Weather Services.
“Once the remains of the storm are gone, we reach peak heat in the pattern” late in the upcoming week, “with very hot conditions in most of the eastern half of the nation,” Bespoke said. “As we move toward the final week of July, we see the risk that the heat relaxes enough to take overall demand back toward normal levels, though for July as a whole, we still see this month ranking as one of the top five hottest Julys on record” in terms of national gas-weighted degree days.
With the week ahead “turning hotter, if we avoid any bearish repercussions relating to the storm and maintain solid burns to keep some firmness in cash prices, we could see the August contract testing the $2.50-2.52 level.”
Based on data from offshore operator reports submitted Friday, nearly 49% of natural gas production, or 1.35 Bcf/d, had been shut in, the Bureau of Safety and Environmental Enforcement said. Shut-in oil production at that time totaled around 59%, or 1.11 million b/d.
As of Friday a total of 257 offshore production platforms, or 38% of the 669 manned platforms, had been evacuated. Staff also had been evacuated from 10 rigs non-dynamically positioned (DP) rigs, equal to 48% of the 21 in operation. Eleven DP rigs had moved off location as a precaution, representing 55% of the 20 DP rigs working offshore.
In its 2 p.m. ET update on Friday, the National Hurricane Center said maximum sustained winds were near 65 mph with higher gusts. Strengthening was expected before landfall, with hurricane status likely before striking the Louisiana coast.
Regarding the impact of Barry, Tudor, Pickering, Holt & Co. (TPH) analysts said current flow data as of Friday showed GOM production down 1.3 Bcf/d week/week, with Cheniere Energy Inc.’s Sabine Pass liquefied natural gas (LNG) export volumes reduced to 2.9 Bcf/d, or down 0.8 Bcf/d week/week.
“The evolving energy landscape is changing the potential impacts of a hurricane, as Gulf of Mexico production is just 2.9 Bcf/d, which could easily be trumped by demand interruptions if LNG facilities are impacted,” TPH analysts said.
For context, the Cameron LNG project set to start up later this year on the Louisiana coast, along with Sabine Pass, “could potentially see hurricane-related interruptions, taking over 4 Bcf/d of feed gas demand down with it and resulting in a net loosening of the market.”
Genscape Inc. estimates showed production dropping to a 53-day low at 87.02 Bcf/d early Friday, driven by cuts to Gulf Coast output.
“We estimate total Gulf Coast production has dropped by about 2.14 Bcf/d from the prior 30-day average,” Genscape analyst Allison Hurley said. “At about 9.3 Bcf/d of current production, volumes for the region are at their lowest levels since January 2018. Gulf of Mexico output has dropped to just 0.5 Bcf/d, a decline of 1.97 Bcf/d from the pre-storm average. South Louisiana output is also down to 0.5 Bcf/d, a loss of about 0.18 Bcf/d from pre-storm averages.”
As of Friday, output from North Louisiana and other areas of the Gulf Coast had not been affected, according to Hurley.
Coming off Thursday’s 2.8-cent sell-off, EBW Analytics Group CEO Andy Weissman said he thought the market was overweighting the potential demand destruction associated with cooling from the storm’s heavy rains.
“Further, at least so far, loss of production is outweighing reductions in feed gas intake due to disruptions in vessel traffic,” Weissman said. “...The precise path of Tropical Storm Barry will be critical, with both continued production losses and LNG demand reductions likely.”
Production from the Haynesville Shale could see impacts as the storm moves inland, though the storm could dampen cooling demand during “what would otherwise be the hottest week of 2019” so far, he said. “The net effect of Barry will likely be bearish...but the magnitude remains to be seen.”
Meanwhile, the Energy Information Administration (EIA) on Thursday reported an 81 Bcf weekly injection into U.S. natural gas stocks that was on the higher side of estimates. The 81 Bcf figure, covering the period ended July 5, came in higher than both the 55 Bcf injection EIA recorded for the year-ago period and the five-year average 71 Bcf.
Prior to Thursday’s report, estimates had been pointing to a near-average build in the mid-70s Bcf. A Bloomberg survey showed a median prediction for a 76 Bcf injection, while a Reuters survey called for a 73 Bcf build. Intercontinental Exchange EIA Financial Weekly Index futures settled Wednesday at 80 Bcf. NGI’s model predicted a 70 Bcf injection.
Total working gas in underground storage stood at 2,471 Bcf as of July 5, 275 Bcf (12.5%) above year-ago levels but 142 Bcf (minus 5.4%) below the five-year average, according to EIA.
By region, the Midwest posted the largest week/week injection at 29 Bcf, followed by the East at 18 Bcf. The Pacific recorded an 8 Bcf build, while 6 Bcf was refilled in the Mountain region. In the South Central, a 21 Bcf injection into nonsalt stocks was partially offset by a 2 Bcf pull from salt for the week, according to EIA.
“Another week, another outsized build,” TPH analysts said about the latest storage report. “Total degree days for the week came in 5% ahead of five-year norms as temperatures in the Lower 48 have finally started to tick up,” with power demand up 2.7 Bcf/d week/week). “Weather-adjusted degree day correlations point to a 4 Bcf/d oversupplied market,” TPH noted.
“As we continue the storm watch, our preliminary estimates for next week show a build of 70 Bcf versus five-year norms of 68.”
Analysts with Raymond James & Associates said the build implies the market was 3.9 Bcf/d looser than last year after adjusting for weather. The market has averaged 1.7 Bcf/d looser over the past four weeks, according to the firm.
Compared to degree days and normal seasonality, Genscape viewed the injection as around 2.6 Bcf/d loose versus the five-year average.
“This week’s injection number includes demand impact from the July Fourth holiday, which we have estimated at roughly 16 Bcf, although the slightly larger than expected injection could imply there was a larger demand impact than we anticipated this year,” Genscape analyst Margaret Jones said.
Spot price moves were mixed throughout the Lower 48 Friday, with many locations posting small discounts. Benchmark Henry Hub shifted a penny higher to average $2.485.
Over the weekend and into Monday, NatGasWeather called for continuing hot temperatures over the southern United States, including highs of 90s from Texas to the Southeast and highs in the triple-digits in the Southwest.
“The exception will be along coasts of Louisiana and East Texas where Tropical Storm Barry will bring heavy rain and cooling,” the forecaster said. “The Midwest/Great Lakes to Northwest will warm back up into the upper 80s to 90s most days through next week. The West will be very warm to hot besides the cooler Northwest.”
Elsewhere, Radiant Solutions was calling for above-normal temperatures for major cities along the Interstate 95 corridor over the weekend, with highs approaching the low 90s from Washington, DC, to Boston.
Despite the hot outlook, spot prices mostly sold off along the East Coast and further upstream in Appalachia. Transco Zone 6 NY eased 5.0 cents to $2.310.
In the West, numerous Rockies locations saw discounts heading into the weekend. Northwest Sumas was one of the notable exceptions, adding 4.5 cents to average $2.305. North of the border in Canada, Westcoast Station 2 posted heavy losses coinciding with reports of additional restrictions on southbound flows through British Columbia. Prices there slid C$1.130 to average C91.0 cents Friday.
Maintenance on Enbridge Inc.’s Westcoast Energy system, set to begin over the weekend, was expected to limit more than 250 MMcf/d of volumes flowing south through British Columbia into the Vancouver area and into the Pacific Northwest, according to Genscape analyst Joe Bernardi, who said restrictions could potentially remain in effect until September.
“Station 4B South flow will be limited to 886 MMcf/d beginning Sunday (July 14),” Bernardi said. “The previous 30-day average here is 1,170 MMcf/d, with a single-day max of 1,487 MMcf/d during that time. Therefore, this maintenance would represent a cut of 284 MMcf/d and 601 MMcf/d compared to those marks, respectively.
“This maintenance is beginning slightly earlier than anticipated,” with the work previously scheduled to start Thursday (July 18). “Westcoast is performing hydrostatic testing required before returning segments of its southbound lines to full flow, because of the explosion that took place last October.”
Bernardi said the exact end date for the work remained unclear based on information provided by the operator, with a longer-term flow forecast from Westcoast indicating capacity through the location could be restricted to the 850-1,000 MMcf/d range through the end of August.
“Downstream, with supply limited at the Sumas import point, Northwest Pipeline (NWPL) may rely on increased withdrawals from its Jackson Prairie storage field,” the analyst said. “This field has been posting record high time-of-year inventories for nearly the last three months and came very close to filling up to its maximum working capacity of around 25 Bcf by early June, remaining within about 2 Bcf of that maximum since then.
“...On average in past years, NWPL has typically leaned slightly on storage in mid-summer, before building again through August and September and starting withdrawals again by October. To serve this summer’s demand in the Pacific Northwest with Sumas imports decreased, NWPL may also lean increasingly on imports from the Rockies and increase receipts from Gas Transmission Northwest at Stanfield, OR.”