Energy and stock markets steadied themselves Monday after last week’s swoon over Covid-19 fears, and natural gas futures followed the broader trend, rebounding decisively despite a lack of weather-driven demand in the forecast. The April Nymex contract added 7.2 cents to settle at $1.756/MMBtu, while May picked up 6.5 cents to $1.797.
Meanwhile, amid comfortable conditions across much of the country, and with a wave of more frigid temperatures not expected to arrive until later in the week, spot prices floundered for most regions Monday; NGI’s Spot Gas National Avg. stumbled 7.5 cents to fall to $1.450.
In the wake of heavy losses for stocks and crude prices last week, NatGasWeather viewed Monday’s rally as being driven more by gains across the broader economy rather than weather trends. The midday Global Forecast System (GFS) run added some heating demand to recover some of what it had lost overnight, with the demand gains focused around a “weak cool shot” reaching the Upper Midwest around March 11-12, the forecaster said.
“However, the latest GFS data forecast warm high pressure strengthening across the central and southern United States March 13-16 in a rather bearish setup, with the only slightly cool areas of the country being the far Northwest and Northeast corners,” NatGasWeather told clients Monday. “...We view today’s move higher as being due to other factors besides weather.”
Prices rallied Monday, but market sentiment remains “overwhelmingly bearish,” according to analysts at Enverus. They said they wouldn’t rule out a test of the 2016 intraday low of $1.611, noting that the April contract came close on Friday when it traded as low as $1.642.
Looking at the fundamentals, Enverus estimated a 0.39 Bcf/d week/week increase in Lower 48 dry gas production last week, driven by a 0.53 Bcf/d increase in the East. Canadian imports dropped 0.47 Bcf/d, they said.
On the demand side, “residential/commercial saw the biggest drop in demand on the week, falling 5.39 Bcf/d, while power and industrial demand decreased 1.08 Bcf/d and 0.33 Bcf/d, respectively,” Enverus said.
The firm estimated a 0.55 Bcf/d week/week increase in liquefied natural gas (LNG) export demand and a 0.12 Bcf/d increase in exports to Mexico.
With weather-driven demand poised for a “steep drop” in the weeks ahead as warmer-than-normal temperatures are expected to dominate, the strength of the global LNG market could play an increasingly important role in determining the direction of futures prices, according to EBW Analytics Group.
Over the next two to three months, U.S. LNG export levels are “likely to become the most important factor determining how much further U.S. gas prices decline,” EBW analysts said in a note to clients Monday. The spread of the coronavirus has impacted important LNG destinations including Japan, China, South Korea and Europe, and “a significant economic contraction is nearly guaranteed, reducing consumption in these markets.
“These developments raise serious questions regarding the ability to place U.S. cargoes, particularly in the critical period between May and September,” the EBW analysts continued. “As a result of new liquefaction capacity added during the past year, the number of U.S. export cargoes available to be placed during this year’s injection season has nearly doubled, adding nearly 1,000 Bcf of new supply.”
Slowing global economic activity, increased competition and “dwindling storage in Europe,” could lead to struggles for U.S. LNG operators looking to find destinations for their cargoes, they said.
“Curtailments of several hundred Bcf are possible, putting intense downward pressure on the U.S. market,” according to EBW.
Meanwhile, as the market ponders whether currently operating U.S. LNG exporters will see shut-ins this year, a prospective LNG exporter appears to have encountered choppy waters on its quest to reach a final investment decision (FID).
Tellurian Inc. on Monday said it is feeling the squeeze of the global natural gas glut and has announced a cut in corporate spending as it works to sanction its massive Driftwood LNG export terminal in Louisiana.
“Given current financial market conditions and increasing restrictions on travel caused by the onset of coronavirus, we are taking steps necessary to focus on preserving the value we have created at Tellurian and Driftwood LNG,” said CEO Meg Gentle.
Global LNG prices have hit historic lows in recent weeks and the specter of U.S. LNG shut-ins looms as the forward curve through the summer and beyond shows the spread between the Gulf Coast and key markets in Northwest Europe and Northeast Asia in negative territory.
Despite an ominous projection for global economic growth from the Organization for Economic Cooperation and Development (aka OECD) Monday, stocks and crude oil futures started off the work week on a more optimistic note. After falling into a tailspin last week, Nymex West Texas Intermediate futures rallied $1.99 to settle at $46.75/bbl Monday.
In a sharp departure from the intensely frigid conditions that sent prices soaring at this time last year, generally mild temperatures to start the week had spot prices floundering throughout the country Monday. Benchmark Henry Hub eased 2.5 cents to $1.700.
Genscape Inc. said it expects demand to rise later this week. Compared to Friday’s outlook, the firm’s meteorologists on Monday added about 2.4 Lower 48 population-weighted heating degree days to their forecast for Wednesday through Sunday.
“Revisions affected all regions, but western markets from the Desert Southwest to the Pacific Northwest received the largest changes and are also expected to show the largest deviations from seasonal norms,” Genscape senior natural gas analyst Rick Margolin said. “As a result, we project Lower 48 demand to post daily increases of about 2.5 Bcf/d through Friday, with demand by Friday reaching a peak for the 14-day forecast period of 93.2 Bcf/d.”
Outside of some “slightly cool conditions” associated with rain and snow showers in the Southwest, NatGasWeather on Monday called for “quite comfortable” temperatures over the rest of the Lower 48 for this time of year, including highs in the upper 40s and 50s from Chicago to New York City. The forecaster predicted temperatures into the 60s to 80s from Texas to the Mid-Atlantic.
“The Southwest U.S. system will track across Texas, the South and the Southeast midweek, with heavy showers but with only modest cooling, while still mostly comfortable elsewhere,” NatGasWeather said. “A stronger cold shot will race across the Midwest and Northeast Friday to Saturday,” dropping lows into the teens to 30s and resulting in a “minor increase in national demand.”
West Texas was a different story, however, as steep discounts across the board Monday plunged most regional hubs deep into negative territory, recalling the unprecedented low prices Permian Basin producers endured last spring. Waha plummeted 85.5 cents to average minus 66.5 cents.
Takeaway congestion for the Permian’s associated gas production has been a longstanding issue driving steep negative basis differentials for West Texas hubs like Waha, and the onset of shoulder-season conditions is only likely to exacerbate the situation.
Genscape analysts late last week warned of prolonged weakness for Permian pricing, pointing in particular to a delay in the start-up for the Samalayuca-Sasabe project in northern Mexico, which would offer an additional route for West Texas gas to flow into northwestern Mexican markets.