With forecasts showing milder temperatures later this month, and with the market assessing former Tropical Storm Barry’s full impact on the fundamentals, natural gas futures prices sold off Monday. In the spot market, Gulf Coast and Southeast locations saw mostly discounts as what remained of Barry moved inland; the NGI Spot Gas National Avg. eased 2.0 cents to $2.260/MMBtu.
The August Nymex futures contract settled 4.5 cents lower at $2.408 after going as low as $2.383. September settled at $2.386, off 4.8 cents, while October dropped 4.6 cents to $2.418.
The mid-day guidance offered no major changes to the weather outlook Monday, with a “very hot U.S. pattern” still on track for the second half of this week and into early next week, including highs in the 90s or even triple digits across the populated Midwest and Northeast regions, according to NatGasWeather.
“However, the weather data still favors at least some cooling across the Great Lakes and East July 24-28 in what we continue to view as a not-hot-enough pattern,” the forecaster said. “Essentially, quite bullish through July 23-24, but then with a bearish bias July 24-28.”
“...What we now view as most important is if hotter conditions can build back across the East around July 29-31, which there’s potential for, but the data would need to show better evidence of it if the markets are to expect it.”
As for any lingering effects on the fundamentals from former Tropical Storm Barry, data Monday suggested the supply disruptions could outweigh the demand-side impacts, according to analysts.
Barry inundated the Gulf Coast over the weekend, with the storm strengthening into a hurricane before making landfall over Louisiana Saturday. By Monday, Barry had weakened to a tropical depression and was moving inland over Arkansas, according to the National Hurricane Center.
Based on data from offshore operator reports submitted to the Bureau of Safety and Environmental Enforcement (BSEE), about 60%, or 1.68 Bcf/d, of Gulf of Mexico natural gas production remained shut in as of midday Monday. About 69%, or 1.3 million b/d of oil production also was shut in.
As of Monday, personnel had been evacuated from a total of 267 production platforms, roughly 40% of the 669 manned platforms in the Gulf of Mexico. Staff had also been evacuated from 10 non-dynamically positioned (DP) rigs, which is equal to about 48% of the 21 rigs in operation. All 20 of the DP rigs operating in the Gulf had returned to pre-storm positioning, the BSEE said.
Tudor, Pickering, Holt & Co. (TPH) analysts said natural gas prices “could catch a bid this week,” as the impacts from the storm have resulted in a net tightening of the market, with production losses exceeding cuts to liquefied natural gas (LNG) exports.
“We indicated earlier that hurricane impacts could go either way, with supply interruptions in a tug-of-war versus LNG feed gas demand,” the TPH analysts said. “As it stands, supply impacts are winning the battle, with field receipts showing supply down about 2.3 Bcf/d as feed gas looks un-impacted, posting a record 6.5 Bcf/d” for Sunday.
“Demand from LNG projects pared back on Thursday, dropping to 5.2 Bcf/d, but has increased sequentially every day since, largely driven by Sabine Pass returning to 3.7 Bcf/d after dipping to 2.9 Bcf/d on Thursday. Outside the eye of the storm, Corpus Christi hit record demand of 1.4 Bcf/d, and Freeport showed signs of life, taking gas for the first time since late May.”
EBW Analytics Group called the market’s concerns about Barry’s demand destruction “overblown.” Aside from the limited LNG impacts, EBW’s CEO Andy Weissman noted that “the effect of heavy rains on demand is already baked into our forecast. Further, lost demand has been largely offset by shut-in production, which is likely to last for longer than the market currently expects.”
Analysts with Drillinginfo took a less bullish view on Barry’s cumulative impact, noting that “while the initial response was a reduction in production from the Gulf operators evacuating rigs, the longer-term impact will be on the reduced temperatures associated with the storm’s rains. The market will start to get insight as to the effect on power demand early this week as the flow data becomes transparent.”
To rally the market further, bulls will have to “overcome the selling at $2.49, as witnessed last week with the failure to push through” this level, the Drillinginfo analysts said. The area from $2.49 up to $2.522, then $2.56 after that, “will continue to find significant selling in the coming weeks.”
Conversely, with the heat in the pattern as of Monday, any declines down into the $2.30 to $2.263 area will likely find buyers, the analysts said.
The heat expected later this week could eventually spark a rally for spot prices, but there was little life in the day-ahead market Monday.
From the Gulf Coast to the Southeast, prices generally saw modest discounts as Barry’s remnants delivered rain to areas further inland. In Louisiana, Henry Hub sold off 2.5 cents to average $2.460, while further east Transco Zone 4 eased 2.0 cents to $2.450.
Barry, downgraded to tropical depression status, was expected to transition to a post-tropical cyclone Monday while moving northeastward, according to the National Weather Service (NWS), who called for the storm to contribute to potentially record low maximum temperatures in the Lower Mississippi Valley.
“Heavy rainfall of an additional 3-6 inches is possible in its vicinity, with locally higher amounts,” the forecaster said. “These accumulations will lead to continued flooding and flash flooding concerns across the Lower Mississippi Valley and northward.
“...As Barry moves northeastward on Tuesday, the flash flooding threat will shift a bit and stretch from Arkansas into parts of the Tennessee and Ohio Valleys, where there is a slight risk of excessive rainfall in effect. A brief tornado or two is also possible.”
NatGasWeather called for temperatures to remain hot to either side of Barry over the next few days, including highs in the 90s.
“The Southwest will be very hot with highs of 100-110s,” while areas in the northern United States will see comfortable temperatures, “especially the Northwest, with highs of upper 70s and 80s,” NatGasWeather said. “Late in the week, hot high pressure will strengthen over the Midwest to the Northeast, with highs of mid-90s from Chicago to New York City, while also hot across the southern and central U.S. to drive very strong national demand.”
In the West, maintenance events restricting imports into California coincided with only a modest reaction from spot prices there Monday. SoCal Citygate fell 10.0 cents to $2.895, while PG&E Citygate climbed 9.0 cents to $2.895.
From Tuesday through Friday, planned maintenance will restrict at least 150 MMcf/d of imports into the Southern California Gas (SoCalGas) system, according to Genscape Inc. analyst Joseph Bernardi.
The maintenance, a scheduled inspection of the L225 line, will limit operational capacity for both the Wheeler Ridge Zone and a sub-zone including the PGE-Wheeler Ridge and Elk Hills-Wheeler Ridge interconnects on the SoCalGas system. This will limit combined receipts at Wheeler Ridge to a max of 505 MMcf/d for Tuesday and Wednesday and 596 MMcf/d on Thursday and Friday, Bernardi said.
“The past 30-day average receipt from this entire zone is 656 MMcf/d, so this would translate to about a 150 MMcf/d cut for the first two days and a 60 MMcf/d cut for the last two days,” the analyst said. “In addition, a restriction from the same inspection will limit the firm operational capacity to just 100 MMcf/d for the combined receipts of only the PGE and Elk Hills points.
“These two points together have averaged 286 MMcf/d in the past 30 days, translating to an expected cut of 186 MMcf/d.”
During this maintenance, forecasts point to “fairly mild weather,” with slightly warmer-than-normal temperatures expected for Tuesday before temperatures cool later in the week, according to Genscape.
Elsewhere in the region, planned maintenance on Pacific Gas & Electric (PG&E) was expected to cut around 175 MMcf/d of Redwood Path imports starting Tuesday and continuing until next week, according to Bernardi.
“PGE is set to perform maintenance on its L-400 pipeline, which will require Redwood Path flows to be limited to 1,770 MMcf/d,” the analyst said. “Their previous 30-day average, consisting of receipts from Gas Transmission Northwest and Ruby, is 1,945 MMcf/d, so this would translate to a cut of 175 MMcf/d.
“The pipeline will likely withdraw from storage to make up for the decreased import volumes. The PG&E demand area, like its southern neighbor in southern California, is forecasted to experience cooler-than-normal and very mild temperatures for the rest of this week.”