- August Nymex futures drop 10.2 cents to $2.306, September down 10.0 cents to $2.286
- Timing of next hotter pattern for eastern U.S. unclear as “the latest data shows nothing convincing until potentially early August”: NatGasWeather
- Former Hurricane Barry still impacting Gulf of Mexico production: Genscape
Faced with further signs that strong heat this week won’t have staying power, natural gas bulls acquiesced to sharp discounts in the U.S. futures market Tuesday. Meanwhile, a weak spot market response to near-term forecasts showing some of the hottest conditions of the summer so far reinforced the bearish sentiment on the day; the NGI Spot Gas National Avg. slid 10.0 cents to $2.160/MMBtu.
The August Nymex futures contract plunged 10.2 cents to settle at $2.306, trading as low as $2.298. Further along the strip, September settled at $2.286, off 10.0 cents, while October dropped 10.4 cents to $2.314.
Given the heat still in the forecast, the extent of Tuesday’s sell-off “seems fairly bearish,” according to Powerhouse Executive Vice President David Thompson.
Looking back at the big rally on July 5, which was sparked by the intensely hot pattern playing out this week in the Lower 48, “that’s all, in two trading days, just evaporated away,” he noted. “That we’ve given all that back in just two days shows that the bulls didn’t have enough to move this forward. The market’s saying, ‘I don’t see the next period of sustained heat that’s going to continue this A.C. demand.’”
At this point in the summer cooling season, Thompson said he’d be surprised if the market broke below the lows recorded on June 20, when the August contract went as low as $2.134.
“If this is what the market is telling us with this amount of heat,” expect to see a choppy pattern “unless a period of more sustained heat develops,” he said.
Heading into Tuesday’s trading, the Global Forecast System (GFS) and European models both advertised further cooler trends for the period beginning Monday through July 30, showing high pressure shifting west and increasing the chance of cool shots into the northern and eastern United States, according to NatGasWeather.
The midday GFS data “was a touch cooler this weekend into the start of next week but a touch hotter around July 27-28 due to a break between weather systems over the East,” the forecaster said. “Most importantly, the GFS didn’t back off on cooling arriving across the Great Lakes and East next week through the end of July, while also including portions of the South.”
From here, markets will likely focus on when hot high pressure will “build back toward the eastern U.S.” after heat fades early next week, NatGasWeather said, adding that “the latest data shows nothing convincing until potentially early August.”
Meanwhile, Gulf of Mexico (GOM) production levels remained impacted early Tuesday in the aftermath of former Hurricane Barry, posting minor gains since the storm made landfall over the weekend, according to Genscape Inc. “Gulf region production has inched up only slightly since Hurricane Barry moved onshore,” senior natural gas analyst Rick Margolin said.
Genscape estimates Tuesday showed Gulf region production at 9.16 Bcf/d, with volumes at 9.24 Bcf/d for Monday. That’s about 0.3 Bcf/d above Saturday, when volumes sank to a 545-day low, according to Margolin.
“Producers and system operators in the Gulf of Mexico have posted notice that personnel are returning to facilities but that operations will not begin to ramp back up until facility inspections are conducted and completed,” he said.
As of Tuesday, the Bureau of Safety and Environmental Enforcement (BSEE) estimated that 51.42% of GOM natural gas production was shut in, equating to about 1.5 Bcf/d. About 1.1 million b/d of crude production was also shut in. That’s versus about 1.7 Bcf/d and 1.3 million b/d that had been shut in as of Monday, BSEE data show.
Spot Market Not Heating Up
Despite forecasts showing widespread heat through the back half of the work week, spot prices fell throughout the Lower 48 Tuesday. Benchmark Henry Hub tumbled 10.0 cents to average $2.360.
The remnants of Barry were expected to deliver rain and cooler temperatures over the Ohio Valley Tuesday, with hotter temperatures, including highs into the 90s, to “either side of the storm,” according to NatGasWeather.
Over the next few days, “the Southwest will be very hot with highs of 100-110s,” while northern portions of the country will see more comfortable conditions, especially in the Northwest, the forecaster said. “Hot high pressure will strengthen over the Midwest to the Northeast Wednesday through Friday, with highs of mid-90s arriving from Chicago to New York City, while also hot across the southern and central U.S. to driver very strong national demand.”
The sweltering conditions failed to translate into stronger prices at downstream markets in the Midwest and East. Chicago Citygate fell 8.5 cents to $2.235, while Algonquin Citygate fell 12.5 cents to $2.360. Further upstream in Appalachia, discounts of around a nickel were the norm. Dominion South skidded 7.5 cents to $2.125.
Maintenance on the Rockies Express Pipeline (REX) could shut in as much as 328 MMcf/d of receipts in Ohio Wednesday and Thursday, according to Genscape.
“Due to maintenance being performed by Eureka Midstream, an upstream operator, the Eureka Hunter receipt location will be completely shut in for gas days Wednesday (July 17) and Thursday (July 18),” Genscape analyst Anthony Ferrara said.
Also in the region, maintenance on the Texas Eastern Transmission (Tetco) system appeared to be impacting up to 176 MMcf/d of deliveries from Columbia Gas Transmission (TCO) onto Tetco, Ferrara said. These restrictions, associated with ongoing maintenance at Tetco’s Waynesburg Compressor Station, are expected to run through Sunday (July 21), according to the analyst.
Elsewhere, a restriction on the Transcontinental Gas Pipe Line (Transco) in Texas appeared to have little price impact Tuesday. Most locations throughout East and South Texas finished lower on the day. Texas Eastern S. TX shed 11.5 cents to $2.250; Katy fell 12.0 cents to average $2.270.
Starting Wednesday and continuing until next week, maintenance on Transco in the Houston area could isolate roughly 300 MMcf/d of demand, Genscape analyst Josh Garcia said.
During the maintenance Transco is expected to isolate a section of its mainline, resulting in “no net flow past mile post 312, effectively isolating Zone 1 and half of Zone 2 from the rest of the mainline,” Garcia said. “A net balance of the pipeline at the isolated segment shows that the section west of Houston has net imported an average of 150 MMcf/d over the last 14 days, with a max of 294 MMcf/d in imports scheduled” for Tuesday thanks to an “uptick in nominations from Corpus Christi LNG.
“This segment would net export gas if not for Corpus Christi. If Corpus Christi sustains their liquefaction levels,” the facility could also take volumes from Tennessee Gas Pipeline, Natural Gas Pipeline Co. of America and Kinder Morgan Tejas.