• Natural futures stall as weather outlooks trim demand, but remain hot overall
  • Waha cash trades above zero amid strong Texas demand
  • Elba Island LNG developers seek Aug. 16 in-service for first production unit

Natural gas futures prices remained intact Friday after choppy trading because of slightly cooling weather forecasts and a lack of other strong fundamentals. The September Nymex gas contract settled at $2.119, down nine-tenths of a cent, while October slipped 1.3 cents to $2.133.

Spot gas prices fell for a third day as cool air was expected to blanket most regions outside of the South. Losses were most severe on the West Coast, where cash dumped nearly 80 cents in California. However, the NGI Spot Gas National Avg. was down only 6 cents to $1.815.

Friday’s relative flatness in the futures market capped an otherwise volatile week in which traders digested building heat in long-range weather forecasts, a significant drop in feed gas deliveries to liquefied natural gas (LNG) facilities, an above-average storage injection and record production. Prices throughout the week swung from as low as $2.029 to as high as $2.155. And despite the modest change at the end of Friday, action was somewhat noisy as the front month fluctuated in a roughly 8-cent range.

“We continue to view $2.10 as an important level bulls and bears are trying to control, which likely won't be decided until next week,” NatGasWeather said.

Bulls don’t have much working in their favor. The latest weather models turned slightly cooler but still maintained an overall hot pattern for the second half of August. NatGasWeather continues to view the pattern as not quite hot enough through Aug. 17-18, then hot enough Aug. 19-23 as high pressure expands to dominate most of the country.

“However, we continue to see flaws in the pattern where the hot upper ridge could be exposed by weather systems advancing into the northern United States Aug. 24-28 and therefore remain cautious the weather data might look less impressive for late August in time,” the forecaster said.

Both the American and European models were beginning to indicate that trend overnight Thursday, suggesting heat might not hold past Aug. 22-23. The midday American model was a touch cooler Aug. 17-19 but slightly hotter Aug. 22-23.

“We believe widespread heat needs to last at least a week if weather sentiment is to be considered bullish, and the data needs more evidence of it,” NatGasWeather said.

If the coming heat doesn’t last, the market may expect storage inventories to continue growing rapidly, much as they have over the summer. The Energy Information Administration (EIA) on Thursday reported a 55 Bcf injection into inventories for the week ending Aug. 2. This expanded the year/year surplus to 343 Bcf and shrunk the deficit to the five-year average to 111 Bcf.

Early estimates for the next EIA report point to an injection in the upper 50 Bcf range, which would once again be well above last year’s 35 Bcf build and the 49 Bcf five-year average.

However, significant uncertainty over the fall storage trajectory could set up multiple outcomes heading into the upcoming winter, according to EBW Analytics. The most likely scenario features falling prices exerting downward pressure on the natural gas storage trajectory in early fall and thus setting the table for a potentially significant rally by late fall or early winter.

EBW noted, however, that during the late fall 2018, a combination of cold weather and low storage caught the market off-guard and created an early November price surge of more than $1.50. “Although the storage trajectory is currently higher than year-ago levels, an estimated 3.6 Bcf/d increase in LNG demand in winter 2019-20 versus winter 2018-19 creates the possibility for a similar bullish surge.”

On Friday, Kinder Morgan Inc. affiliates requested authorization to place the first production unit, along with other facilities, at the Elba Liquefaction Terminal into service on Friday (Aug. 16). The $2 billion project on Elba Island in Chatham County, GA includes 10 units with a total capacity of 2.5 million metric tons/year.

Meanwhile, the global LNG market remains weak, especially in Asia. And although prices are indicating that more LNG should be pushed to Europe, imports into the continent showed signs of slowing month/month in July, but were still higher year/year, according to Energy Aspects.

“Our forecast for the first two weeks of August suggests that LNG imports in August could be the lowest for any month so far in 2019,” the firm said.

However, Cheniere Energy Inc. executives during a 2Q2019 conference call indicated that looking beyond the current shoulder season, Asian and European benchmarks are trading in steep contango, indicating demand is expected to pick up again going into the winter season.

Cool Temperatures, Lower Cash

Spot gas prices remained firmly in the red Friday as extremely mild weather set up over most of the United States aside from the South, especially Texas.

“Temperatures and humidity levels over much of the Upper Midwest and Northeast will be more typical of September, rather than the middle of August, this weekend,” AccuWeather senior meteorologist Alex Sosnowski said. Highs were forecast to range from the upper 70s to near 80 over the northern tier to the upper 80s around the Chesapeake Bay. The air expected over the weekend had its origins from northern and central Canada, which was expected to cool conditions at night.

“Low temperatures in the Northeast are forecast to range from the middle 40s over the mountains of northern New England to the upper 60s around the Chesapeake Bay,” Sosnowski said.

Meanwhile, at their lowest point, nighttime temperatures over the Midwest are expected to range from the lower 50s over the Upper Peninsula of Michigan and northern Minnesota to the middle 60s along the Ohio River in Illinois, Indiana and Ohio.

The breath of fresh air on tap for the Northeast sent prices plunging on Friday. Transco Zone 6 NY spot gas prices tumbled 16.5 cents to $1.685, while New England prices posted smaller losses due to the reshuffling of flows following unplanned maintenance on Algonquin Gas Transmission.

In Appalachia, Tennessee Zone 4 Marcellus cash tumbled 28 cents to $1.395, although most other pricing hubs fell less than 20 cents day/day.

Prices were mixed throughout the Southeast and in Louisiana, with changes limited to less than a nickel at most locations as flow nominations to U.S. LNG export terminals for Friday returned above the 4 Bcf/d mark for the first time since last Monday (Aug. 5).

However, Genscape Inc. proprietary monitoring indicates a new set of operational issues cropping up similar to those that recently suppressed numbers, suggesting Friday’s nominations may be subject to downward revisions.

Since Aug.3, when feed gas deliveries to domestic LNG export terminals began dropping with a series of train outages, pipeline-reported deliveries had averaged 3.98 Bcf/d (including Friday’s potentially high value), according to Genscape. This represented a drop of nearly 1.8 Bcf/d compared to the 30-day average prior to the outages.

On the pipeline front, Gulf South Pipeline on Thursday began maintenance at the Hall Summit compressor station in Bienville Parish, LA. The work, set to continue through Sept. 26, is to restrict capacity at the Hall Summit/East Texas/Koran Area scheduling group by 146 MMcf/d for the duration of the event.

In the Midcontinent, cash prices were down as much as 10.5 cents at Northern Border Ventura. Similar decreases were seen in the Midwest.

Losses intensified farther west in the Rockies, where El Paso Bondad spot gas dropped 22.5 cents to average $1.49. In California, SoCal Citygate was down 79 cents to $1.96.

The only significant gains seen across the country were in West Texas, where strong local demand lift prices considerably. Waha jumped 28.5 cents to average 44 cents, with every trade pricing above zero and at least one hitting a high of $1.05.