After being driven sharply lower by an increasingly mild weather forecast, natural gas futures sustained even more damage on Friday as global fears of the coronavirus continued to hammer stocks and energy commodities. The April Nymex gas futures contract plunged to an intraday low of $1.642/MMBtu before going on to settle at $1.684, down 6.8 cents from Thursday’s close. May also fell 6.8 cents to land at $1.732.
Spot gas, which traded Friday for delivery on Sunday and Monday, also moved lower as any remnants of the blustery conditions that hit the United States in the final days of February were set to dissipate. NGI’s Spot Gas National Avg. dropped 10.5 cents to $1.525.
The latest weather data, already fairly warm, trended further milder overnight Thursday as the American model lost more than 10 heating degree days (HDD) and the already warmer European model lost three to four more HDD, according to NatGasWeather. The midday Global Forecast System continued to trim demand from its outlook, losing another four HDD, the firm said.
However, while the warmer weather trends undoubtedly aided Friday’s selling, the move lower also was likely influenced by major moves in commodity and equity markets because of the coronavirus fears, according to NatGasWeather. Stocks continued to plunge on Friday, and energy commodities went along for the ride. West Texas Intermediate front month futures dropped below $44/bbl early Friday before recovering a bit, while Brent crude broke below $50.
The global markets were poised to extend the worst losing streak since the 2008 financial crisis, with the virus, officially dubbed Covid-19, forecast to pound productivity levels this year.
“Our current assessment forecasts that Covid-19 could result in global E&P investments falling by around $30 billion in 2020 -- a significant hit to the industry,“ said Rystad Energy’s Audun Martinsen, head of oilfield service research. Some of the investments are likely to come back in 2021, he said, but the situation is expected to worsen in March, slamming the global services industry well beyond Asia.
Federal Reserve Chair Jerome Powell attempted to suppress concerns about the outbreak’s impact on the homefront. In a statement Friday, Powell said, “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”
As for domestic gas prices, continued downside could lie ahead as weather models point to March 12 for better prospects of late season cold, but with much more evidence needed to expect it, according to NatGasWeather. “It's quite possible the weather data trended too mild and adds demand back over the weekend, but it would need to be a considerable amount to be bullish.”
With the withdrawal season rapidly drawing to a close, the effect of the shift is to “nearly guarantee” that end-of-season storage may be well above 1,900 Bcf, according to EBW Analytics Group. The Energy Information Administration’s (EIA) most recent storage report showed that only 143 Bcf was drawn out of storage for the week ending Feb. 21. That compares with a 167 Bcf draw for the similar week last year and a five-year average withdrawal of 122 Bcf, according to EIA.
Total working gas in storage as of Feb. 21 stood at 2,200 Bcf, 637 Bcf above year-ago levels and 179 Bcf above the five-year average, EIA said.
After a string of tight EIA stats, the 143 Bcf draw reflects a market that appears loose/bearish by about 1 Bcf/d versus the five-year average when compared to degree days and normal seasonality, according to Genscape Inc. It is impossible to reconcile the reported 143 Bcf number versus the previous week’s 152 Bcf draw given around 10 Bcf of added demand week/week driven by colder weather and relatively flat net supply, the firm said.
Senior natural gas analyst Eric Fell said the previous week’s EIA storage report was 13 Bcf larger than Genscape’s projection. “Taken at face value,” the latest numbers relative to the previous week “would imply that weather-adjusted balances suddenly shifted by nearly 4 Bcf week/week absent any big changes in production, weather, etc.”
As such, it appears the last two storage reports look like EIA inventory “true-ups,” with the prior week’s reported withdrawal being overstated, which led to the most recent withdrawal being understated (the true-up), according to Fell and analyst Nicole McMurrer.
With 1.9 Tcf end-March storage now back in the realm of possibility, market bears will have the reins until sequential production declines are “not a matter of when, but a matter of how much,” according to Mobius Risk Group. In addition to Apache Corp., which bowed out of the Alpine High development in West Texas because of low natural gas and natural gas liquids prices, Continental Resources Inc. indicated it is trimming its near-term guidance for spending and production on what it views as a “fundamentally oversupplied” market with “demand even further impacted by the coronavirus.”
Other producers also have pledged to reduce spending and drilling activity. Comstock Resources Inc. planned 17% reduction in capital spend and a 29% decrease in the number of wells connected, and EQT Corp., the Appalachian “behemoth,” is expecting growth of less than 10%, “which is meaningful considering the base from which they will grow,” Mobius said.
With another round of losses across the Lower 48, already weak Permian Basin markets suffered another blow.
Waha spot gas slipped 3.0 cents to average 19.0 cents, but some transactions sank below zero in Friday trading for gas delivered on Sunday and Monday.
Genscape analysts see prolonged weakness in the Permian market as one potential relief valve for stranded volumes has been delayed, with Carso Infraestructura y Construcción announcing it would not bring its Samalayuca-Sasabe project online until September.
“We had been modelling Samalayuca-Sasabe would begin operations in May,” Genscape senior natural gas analyst Rick Margolin said. “This announcement prolongs about 0.25 Bcf/d of relief for the Permian.”
Samalayuca-Sasabe is a project in northern Mexico that would parallel the El Paso Natural Gas (EPNG) South Mainline. According to Genscape, it would provide “an alternative, cheaper, more direct route” for Permian molecules to flow to northwestern Mexican markets -- gas currently moves that direction through New Mexico and Arizona on EPNG.
“Though the project is not expected to create an incremental increase in U.S. exports to Mexico, it helps debottleneck the Permian by clearing space on El Paso that can be backfilled by Permian gas to flow to U.S. Southwest and Southern California markets instead,” Margolin said.
As for California, spot gas prices came crashing down Friday despite a planned pipeline maintenance that would restrict imports. With chilly weather subsiding ahead of the scheduled work, SoCal Citygate tumbled 22.5 cents to $1.895; slightly smaller losses were seen farther north.
Southern California Gas (SoCalGas) is scheduled to begin work on Monday in the Blythe Sub-Zone, consisting of the SoCalGas Blythe and Ehrenberg receipt points, which would cut firm operating capacity by 190 MMcf/d, to 800 MMcf/d from around 990 MMcf/d.
“These points have averaged a receipt of about 885 MMcf/d in the past 30 days,” Genscape analyst Joseph Bernardi said. Meanwhile, SoCalGas is conducting an in-line inspection on its Line 2001 that is scheduled to last through March 8.
The Midwest posted losses of less than a dime across the region, while benchmark Henry Hub slipped 5.5 cents to $1.725.
On the East Coast, steep sell-offs continued as much milder weather was in store to start the new week. Tenn Zone 6 200L spot gas plunged 35.5 cents to $1.925. Transco Zone 6 non-NY was down only 10.5 cents to $1.645.