Natural gas futures skyrocketed Wednesday as supply/demand balances continued to tighten and news reports circulated that deliveries of U.S. natural gas to China have resumed after more than a year. The May Nymex contract settled Tuesday at $1.852, up 12.1 cents day/day and up 30.0 cents from last Thursday.
Cash prices also extended their rally, lifting NGI’s Spot Gas National Avg. 14.5 cents to $1.575.
Colder-trending weather forecasts and lower production remained supportive Tuesday, with fresh news of four tankers carrying U.S. liquefied natural gas (LNG) heading to China likely giving the market an extra nudge. The May Nymex contract opened the session at $1.759 and then soared to a $1.907 intraday high before settling about a nickel below that level.
“China accepting U.S. cargoes again certainly isn't hurting things, but it could be the case that those cargoes that are now going to China still could have traveled elsewhere, even in this environment of weak global prices,” said NGI’s Patrick Rau, director of Strategy & Research.
Ship tracking data from Refinitv and Kpler showed that two cargoes were loaded at the Sabine Pass terminal and one each from the Corpus Christi and Cameron terminals. All four, expected to dock by early May, listed Tianjin, China, as their final destination but some were shown to have been previously diverted.
Feed gas deliveries to U.S. terminals, for now, remain well off highs, slipping to a three-week low on Monday and coming in only slightly higher on Tuesday, according to Genscape Inc. Monday’s flow declines were led by a roughly 0.4 Bcf/d drop in deliveries to Corpus Christi, while volumes to Sabine Pass have hovered around 3.1 Bcf/d for a few days following a train outage that started late last week, the firm said. Genscape showed Tuesday’s nominated feed gas volumes to Freeport down to 0.96 Bcf/d, about 0.3 Bcf/d below the prior 30-day average.
Rather than renewed exports to China, Rau said the real boost to prices may be more speculative in nature, stemming from the capital expenditure reductions by exploration and production companies, especially as they relate to associated gas output from oil production.
“If an investment grade company like ExxonMobil Corp., which previously vowed to invest throughout the down cycle, is cutting investment in the Permian Basin, that could be a strong precursor to others doing the same.”
Already, supply growth is beginning to show signs of slowing. Lower 48 production showed a more than 1 Bcf/d day/day decline on Tuesday, led by drops of 0.6 Bcf/d in the East, 0.46 Bcf/d in the Permian Basin and 0.3 Bcf/d from the Gulf Coast area, according to Genscape.
East production was down primarily because of declines in West Virginia and Ohio, the majority of which are on the Columbia Gas Transmission and Dominion Transmission systems, at connected processing plants, Genscape senior natural gas analyst Rick Margolin said. Permian production was down (0.46) Bcf/d day/day, with about 0.27 Bcf/d lower output on the Texas side.
“It is possible that demand is consuming gas before it appears in our regional production sample,” Margolin said. Temperatures in the region were expected to be above seasonal norms in the mid-80s.
“However, this spurt is only expected to last two days. Otherwise, we believe the recent declines in area production may be an early reflection of producers choking back volumes in response to depressed prices. The Gulf Coast production drop is almost exclusively located out of North Louisiana,” the analyst said.
Bespoke Weather Services’ chief analyst Brian Lovern pointed to other factors that likely have contributed to the recent run-up in gas prices. For one, while power loads are down, gas burns have held their own, likely because of the very low price, “thus disappointing some of the folks who had been waiting on bigger demand destruction.” LNG, though not at its peak, also has held its own so far.
Meanwhile, though April is not typically a "weather-heavy" time of year, there has been an unusually large amount of forecast weather demand added over the last week, “enough to play some role,” he said.
Indeed, weather models have continued to trend colder and have added 40-plus heating degree days (HDD) since late last week, according to NatGasWeather. The latest Global Forecast System added another 3-4 HDD to the total.
“How long this cool pattern lasts is now the focus going into the shortened week due to the Good Friday holiday,” NatGasWeather said.
Genscape, which has added a total of 54 Bcf of demand to the next seven-day window, indicated that the chillier conditions are expected to peak on Friday, with more than 13 Bcf/d of demand being added on that day alone.
Lovern also noted that seasonality is likely at play in gas markets this week. “It’s that time of year when natural gas likes to rally, last year notwithstanding, so maybe some of the large amount of money that had been just sitting on the sideline is stepping in on the cheap.”
Regardless, price action over the past three sessions has been bullish, but at these levels, the risk for some pullback is increasing, he said. “That doesn’t have to come tomorrow, and if balance data again shows any improvement, it probably won’t. Should prices manage to move toward $2.00, we would think that level can provide some additional resistance. $1.83 is now the first support level we see below.”
Cash Gains Hold
Spot gas prices continued to post solid increases on Tuesday despite the absence of significant weather-related demand.
Forecasts showed much warmer-than-normal weather for the next couple of days from the Midwest to the Northeast, while warmer, but not hot, conditions were in store for the southern United States. A weather system with rain and snow tracking into California and the Southwest was to provide some cooling in the West, “but far from cold,” NatGasWeather said.
However, with such cheap gas prices, power burns have remained strong and are likely behind Tuesday’s cash gains as well.
Prices throughout the Southeast and Louisiana were up 10-20 cents at most pricing hubs, with benchmark Henry Hub tacking on 16.0 cents to $1.770.