- Natural gas futures steady as production dips, feed gas deliveries to LNG facilities increases
- U.S. production hits new all-time high of 93 Bcf/d
- Cash prices mixed as pipeline maintenance restricts, shuffles gas flows
An increasingly bullish background for the natural gas market is building with the onset of commercial liquefied natural gas (LNG) export operations along the Gulf Coast, but production is proving to be a tough barrier for prices to overcome. With long-term weather outlooks once again trending cooler, the September Nymex gas contract swung in and out of positive territory before going on to settle only eight-tenths of a cent higher Tuesday at $2.218/MMBtu. October rose six-tenths of a cent to $2.219.
Spot gas prices started to weaken in key demand markets on Tuesday as the core of extreme heat was set to move out with the arrival of several wet weather systems. However, with strength in Texas, the Midwest and the Southeast, the NGI Spot Gas National Avg. rose 1.5 cents to $2.025.
The widespread extreme heat gripping the country and boosting demand is set to begin dissipating midweek, and long-term weather models shifted cooler again Tuesday, with the change occurring in the 11- to 15-day time frame as models converged on a stronger upper level trough moving into the eastern half of the United States, according to Bespoke Weather Services. This brings more expansive coverage of below-normal temperatures to the Midwest and parts of the mid-South, with the heat focused in the West to begin in September.
“Our view is still that this is just a variable window in the overall hotter-than-normal base state, which we still suspect holds for September as a whole,” Bespoke chief meteorologist Brian Lovern said.
Models keep some eastern ridging lingering in the 11- to 15-day outlook, which could keep New England temperatures and demand above normal, according to Bespoke. Furthermore, the cooler momentum in modeling should be close to waning at this point after a few cooler cycles in a row.
“We should begin to see warmer anomalies show back up in the East after the first few days of September,” Lovern said.
The midday run of the Global Forecast System model was a little hotter for early next week because of a break between weather systems over the East, according to NatGasWeather. However, it held a much cooler pattern east of the Rockies for late August and early September by favoring numerous weather systems arriving with showers, keeping daytime highs in the 70s and 80s.
The potential for returning heat in September is one of a few supportive factors for gas prices in the weeks ahead. Another is the start of commercial operations under tolling agreements at the first production unit of Sempra Energy’s Cameron LNG export terminal in Louisiana.
Train 1 is part of the first phase at the Hackberry, LA, terminal, which includes a projected export capacity of 12 million metric tons/year (mmty) of LNG, or around 1.7 Bcf/d.
San Diego-based Sempra, which is planning four other LNG export facilities across North America, remains “focused on safely achieving commercial operations of Train 2 and Train 3," according to COO Lisa Glatch.
Freeport LNG has also begun producing, although its first cargo is not expected to set sail until the end of the month.
“LNG is making a comeback, with the initial data showing a full 1 Bcf increase day/day,” Bespoke’s Lovern said.
Tuesday’s aggregate nominations to U.S. LNG terminals were slightly above 5.65 Bcf/d, which is within 0.2 Bcf/d of the July average, according to Genscape Inc. Aggregate nominations in August had fallen to as low as 3.7 Bcf/d (Aug. 8) on the combination of maintenance and commissioning activities.
Nominated deliveries to Cheniere Energy Inc.’s Sabine Pass LNG terminal on Tuesday were up to 2.96 Bcf/d, an 18-day high with maintenance winding down. Genscape monitors also saw first signs of startup at Train 4, while Train 5 is fully operational.
Cheniere’s Corpus Christi nominations for Tuesday were at a record high 1.46 Bcf/d, the firm said. It noted, however, that top-day nominations at the facility have recently revised lower, and the terminal has not yet received federal authorization to begin commercial service.
Tudor, Pickering, Holt & Associates Inc. expects feed gas demand to push 7 Bcf/d by year end, up from around 4.5 Bcf/d last December. “From there, eyes will move back to Freeport and Cameron, as both are expected to add trains 2 and 3 in the first half of 2020, pushing total demand from LNG north of 9 Bcf/d.”
Meanwhile, Venture Global LNG on Tuesday sanctioned the Calcasieu Pass LNG terminal, which is under construction in Cameron Parish, LA. The company also has completed project financing for the terminal and related TransCameron pipeline. The 10 mmty terminal began full site construction in February and is scheduled for commercial operations in 2022.
Nevertheless, rampant production growth continues to weigh heavily on the gas market, with Monday’s revised data showing output at a new all-time high of 93 Bcf/d. Tuesday’s initial data showed a substantial drop in production, although much of the 3.4 Bcf/d decline can be attributed to pipeline maintenance.
The largest drop occurred in the Northeast, which was down nearly 1.4 Bcf/d with every sub-region showing declines amid pipeline work kicking off or already underway on Equitrans, Millennium, Columbia Gas Transmission, Texas Eastern Transmission (Tetco) and Transcontinental Gas Pipe Line, according to Genscape.
Permian production was down nearly 1.1 Bcf/d day/day because of scheduled maintenance on El Paso Natural Gas (EPNG). Total Texas production was down more than 0.8 Bcf/d day/day, and Rockies output was down nearly 0.7 Bcf/d.
Once the maintenance ends, and temperatures begin to ease, the question remains whether prices can remain supported. “We continue to view $2.15 as an important level bulls need to hold to maintain control,” NatGasWeather said.
Pipeline Work Galore
Spot gas prices were mixed on Tuesday as weather demand was set to remain strong another day before a line of storms was forecast to dampen demand. Meanwhile, a slew of pipeline maintenance events was creating plenty of flow restrictions across the country, boosting prices in some areas while pressuring those in others.
On Monday, NGI reported that Natural Gas Pipeline Company of America was to conduct work this week that would restrict flows out of the Permian. EPNG also began some expansion projects that have disrupted production and outflows.
In California, scheduled maintenance set to begin Wednesday on the northern portion of Pacific Gas & Electric (PG&E) system should cut imports by about 275 MMcf/d, reduce the availability of two of its noncore storage facilities and may put additional upward pressure on PG&E Citygate basis, especially when hotter weather arrives later this week, according to Genscape.
Redwood Path volumes were to be limited to 1,735 MMcf/d beginning Wednesday and continuing through the end of the month. The current 30-day average flow for the scheduling path is 2,009 MMcf/d, so the event would cut 274 MMcf/d versus that average, according to Genscape.
“This work, which is centered on PG&E’s Line 400, will also cap withdrawal capacity from Wild Goose and Central Valley at zero,” Genscape analyst Joseph Bernardi said.
Wild Goose has seen an average net injection of 129 MMcf/d over the past month, although six of the last 30 days it has posted a net withdrawal, all of which occurred on days with higher system demand.
Central Valley’s net withdrawals have also correlated with higher demand days, although less tightly.
Genscape meteorologists are forecasting sustained hotter-than-normal weather arriving in Northern California this Friday and remaining in place close to the end of the month, basically the entire duration of the maintenance event as currently scheduled.
“Although the neighboring regions -- Pacific Northwest and Southern California -- are not expected to experience the same level of heat, these restrictions on PG&E’s system combined with elevated demand have the potential to boost PG&E Citygate basis,” Bernardi said.
Spot gas prices across the rest of California were lower day/day, as were those in the Rockies. Kingsgate dropped a whopping 31 cents to $1.55, while other market hubs in the region dropped less than a dime.
Similarly small declines were seen in Appalachia, where Texas Eastern M-3, Delivery fell 7.5 cents to $1.99.
Tetco has indicated that it expects repairs at its Five Points, OH, compressor station will be completed by Sunday (Aug. 26). The station has operated under reduced flows since a force majeure was declared on Aug. 14.
In the Northeast, cash prices were down mostly less than a dime. PNGTS next-day gas dropped 2.5 cents to $3.635.