• September Nymex futures down 8.1 cents to $2.121; October down 8.2 cents to $2.130
  • Recent EIA reports “reflect balances that simply are not tight enough to sustain a rally, and the market keeps moving lower to find more demand,” says Bespoke
  • “With regard to Mexico in general, we are not pleased with recent developments regarding two of IEnova’s pipelines,” said Sempra

After rallying briefly earlier in the week, natural gas futures came crashing back down Friday, selling off sharply amid moderate forecasts and signs of ample supply. Spot prices mirrored the downward move in the futures market, with double-digit discounts across most of the Lower 48; the NGI Spot Gas National Avg. tumbled 19.0 cents to $1.840/MMBtu.

The September Nymex futures contract settled 8.1 cents lower at $2.121 after trading as low as $2.077 on Friday. October fell 8.2 cents to settle at $2.130, while November settled at $2.213, off 8.0 cents.

It turned out to be quite a volatile week for natural gas, observed Bespoke Weather Services.

“After putting in an early week low, weather gained some hotter momentum, burns strengthened, as well as cash prices, and we had a pipeline explosion in Kentucky, all of which moved the September contract over the $2.33 level at one point” Thursday morning, Bespoke said. That was before guidance, particularly the European model, “went much cooler” late Thursday, “held its move overnight, and cash prices fell significantly” Friday.

“All of this wound up not only completely reversing the rally from earlier in the week, but leading prices to a lower settle than last week,” the forecaster said. The market continues to see Energy Information Administration (EIA) storage reports “reflect balances that simply are not tight enough to sustain a rally, and the market keeps moving lower to find more demand.”

The EIA on Thursday reported a larger-than-expected 65 Bcf injection into U.S. natural gas stocks for the week ended July 26, compared with a 31 Bcf injection recorded a year-ago and a five-year average of 37 Bcf.

Total Lower 48 working gas in underground storage stood at 2,634 Bcf as of July 26, 334 Bcf (14.5%) higher than last year’s stocks but 123 Bcf (minus 4.5%) lower than the five-year average, according to EIA.

Raymond James & Associates Inc. analysts said the 65 Bcf build implies the market was 2.6 Bcf/d looser versus the same week last year on a weather-adjusted basis. The market has averaged 2.5 Bcf/d looser over the past four weeks, according to the analysts.

The bearish EIA print drove prices lower during a rollercoaster day of trading Thursday. The front month rallied to as high as $2.333 early in the day as news spread of a fatal explosion on the Texas Eastern Transmission (Tetco) system in Kentucky, only to reverse on EIA’s storage number, eventually settling some 13 cents off the day’s highs.

Analysts with Tudor, Pickering, Holt & Co. (TPH) quipped that “the gas market was gyrating like a young Freddie Mercury” on Thursday, referring to the former front man for Queen, “as the Tetco explosion sent prices upward to open the day, only to have a disappointing storage print take the wind out of the sails.”

On the impacts of the Tetco explosion, “early indications are that a portion of the gas will be re-routed toward the Dominion South/Lebanon hubs; however, a share of this roughly 1.3 Bcf/d of gas flowing prior to the explosion is likely to be shut in,” the TPH team said.

As for the latest EIA data, the 65 Bcf build showed the market about 3 Bcf/d oversupplied during the period, according to the analysts.

Widespread Discounts

With forecasts continuing to show moderate temperatures for demand centers in the Midwest and Northeast going into the weekend, and with value eroding in the futures market, cash prices had nowhere to go but down Friday. A 25.0-cent sell-off at benchmark Henry Hub set the stage for broad declines throughout the Lower 48.

The sharp drop for Gulf Coast prices suggested any supply fears associated with Thursday’s Tetco explosion, which occurred on Line 15 of its 30-inch system just south of the Danville Kentucky Compressor Station, had been largely assuaged.

On Friday Genscape Inc. analysts estimated that the incident, which forced Tetco to cut flows through the area to zero until further notice, impacted about 1.6 Bcf/d of north-to-south flows day/day.

“This outage is reminiscent of the explosion that affected the Berne 30-inch compressor this past January, as the same lines (Lines 10, 15 and 25) are affected on the same system,” Genscape analysts Nicole McMurrer and Josh Garcia said. “During that event, roughly 2.2 Bcf/d of flows were cut through the Berne 30-inch compressor. Partial service of about 1.6 Bcf/d was restored after five days, but full service was not restored until the beginning of April.

“Flows through the compressor station upstream from the explosion come from the same Berne area, a major producing area with some available reroute options,” the analysts said.

Prices in Tetco’s M2 zone came under pressure in Thursday’s trading as the incident limited takeaway options for production in the region. On Friday, Texas Eastern M-2, 30 Receipt fell 23.5 cents further to average $1.580, roughly in line with the declines at Henry Hub.

The CEO of Tetco parent Enbridge Inc., Al Monaco, said late Thursday the company was “deeply saddened that this incident has resulted in a fatality. I want to express our condolences to the family and loved ones of the person who was lost today and to all who have been affected by this incident.”

Elsewhere, prices fell around 15-20 cents throughout the Midwest and Northeast Friday.

“Hot high pressure will rule the West and Plains with highs of upper 80s to 100s, hottest over the Southwest and Texas,” NatGasWeather said in its one- to seven-day outlook Friday. “Temperatures will be quite comfortable across the Midwest and Northeast with highs of 70s and 80s as a series of weather systems and associated cool fronts sweep through for light demand.”

In the Midwest, Joliet slid 19.5 cents to $1.895. Most Midcontinent locations posted similarly large declines. One notable exception was NGPL Midcontinent, which added 0.5 cents to average $1.705.

On Thursday, Natural Gas Pipeline Co. of America (NGPL) lifted a force majeure declared earlier in the week that had been restricting northbound flows through Kansas. Genscape analyst Matthew McDowell estimated that the event constrained volumes flowing through NGPL’s compressor station 105 from 1.1 Bcf/d to around 500 MMcf/d, putting downward pressure on NGPL Midcontinent spot prices.

On Thursday, “after the force majeure was lifted, both NGPL Midcontinent cash and flows returned to near 30-day norms,” McDowell said.

Declines were the norm along the West Coast Friday, including in Southern California.

SoCal Border Avg. tumbled 28.5 cents to $2.210, while SoCal Citygate shed 7.5 cents to $2.960.

Southern California Gas (SoCalGas) has again delayed the restart of its L235 and L4000 import lines, this time by about three weeks, according to Genscape analyst Joe Bernardi. A scheduled posted by SoCalGas Thursday showed the end date of ongoing maintenance on the L235 and L4000 lines shifting back to Sept. 18, whereas a schedule issued in July had pointed to an Aug. 29 conclusion, he noted.

“This most recent alteration likely means that any change in the actual flow capacity for the Needles/Topock points will be pushed back to November,” the analyst said. “...Fundamentally, this additional delay to the return of SoCalGas’ import lines would be expected to put upward pressure on futures prices, particularly SoCal Citygate.

“However, the size of any upward price movement will likely be smaller than it would have been earlier in the summer. The recently adopted Aliso Canyon withdrawal protocol brought Citygate winter futures down significantly, reflecting allayed concerns about SoCalGas’ supply through the winter.”

Mexico Roundup

In Mexico, the 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline, a crucial offtake valve for U.S. natural gas, continues to be held up more than one month after construction on the pipeline ended.

Infraestructura Energética Nova (IEnova), Sempra Energy’s Mexico subsidiary, which developed the pipeline along with TC Energy Corp., in June announced the mechanical completion of the $2.5 billion pipeline, but the pipeline’s anchor customer Comisión Federal de Electricidad (CFE) has not yet issued a letter of acceptance that would allow for commercial gas delivery.

CFE wants to amend the contracts for seven pipelines in the country.

“With regard to Mexico in general, we are not pleased with recent developments regarding two of IEnova’s pipelines,” Sempra President Joseph Householder said Friday during the company’s second quarter earnings call.

In addition to the marine pipeline, CFE is also seeking to amend the contract for the Guaymas-El Oro section of IEnova’s Sonora pipeline. Guaymas-El Oro has been inactive since 2017 amid a dispute with a faction of the Yaqui indigenous tribe.

Conversations between Sempra and CFE “have been focused specifically on the force majeure provisions,” said CEO Jeffrey Martin.

Householder added that Sempra is confident of its ability to amicably resolve the dispute with CFE in a timely manner.