While some of the world’s largest oil producers were meeting to discuss potential curtailments, natural gas traders were making cuts of their own, slashing Nymex futures even further as demand impacts from Covid-19 became increasingly clear. After plunging as low as $1.721, the May contract settled Thursday at $1.733, down 5.0 cents day/day. June dropped 3.3 cents to $1.863.
Spot gas, which traded Thursday for gas delivered through Monday, also retreated amid lighter-than-usual holiday demand. The NGI Spot Gas National Avg. fell 9.5 cents to $1.485.
Thursday trading brought no shortage of volatility to the futures market as a host of factors led to wild action throughout the day. The early hours were heavily influenced by traders eagerly anticipating the latest storage data, as analysts had pegged the first injection of the year to be quite a bit larger than normal on the various shutdowns and restrictions being imposed due to Covid-19.
The Energy Information Administration (EIA) reported a 38 Bcf injection into natural gas storage inventories for the week ending April 3, coming in well above most estimates but besting NGI’s model by only 1 Bcf.
“Demand is getting killed,” said Genscape Inc. senior natural gas analyst Eric Fell, who had called for a 36 Bcf build.
Bespoke Weather Services, which had estimated a much lower 18 Bcf injection, said the actual figure provides “a clearer sign that the data we have is not indicating the proper amount of demand destruction that is ongoing with the shutdowns.
“This makes for two very bearish numbers in a row in terms of balances. Using the two-week average balance versus the five-year average shows end-of-season storage at an impossible 4.9 Tcf.”
The EIA’s 38 Bcf injection compares with last year’s 25 Bcf increase in storage and the five-year average injection of 6 Bcf.
Broken down by region, the South Central region posted a 32 Bcf build, including a 22 Bcf injection into nonsalt facilities and a 9 Bcf build in salts, EIA said. The Pacific region added 6 Bcf, while East facilities held steady with 382 Bcf in inventory. The Midwest withdrew 1 Bcf.
Total working gas in storage as of April 3 stood at 2,024 Bcf, 876 above year-ago levels and 324 Bcf above the five-year average, according to EIA.
Adding to the bearish demand picture were the latest weather models, which continued to peel back demand from April outlooks. The Global Forecast System was a little colder with the upcoming frigid shot into the central and northern United States, but then milder across those areas April 19-23, according to NatGasWeather.
“It remains a challenging market to navigate, at least in the near term, as the moves have been large, despite no major changes in underlying data,” Bespoke said. The main issue remains demand destruction, “and how long it will continue.”
Shut-Ins In Focus
Notwithstanding the latest storage and weather data, other factors were weighing on the gas market midday Thursday, most notably a meeting between the Organization of the Petroleum Exporting Countries (OPEC) and its allies during which discussions centered on potential supply cuts.
Over the past month, natural gas prices have avoided a complete collapse as the oil price war and pandemic have prompted exploration and production companies to make major cuts to spending and activity, moves that also would likely reduce associated gas output.
By most published accounts, Saudi-led OPEC and its allies were nearing an agreement to temporarily slash oil production by at least 10 million b/d, thereby ending the price war with its Russian ally that began in early March, when they failed to agree on curtailing output.
Regardless of the outcome of the meeting, EBW Analytics Group projected that the oil market would remain “massively oversupplied” and U.S. production of oil and associated gas would decline. “The speed and severity of declines remains very much in question, but recent events have suggested oil and associated gas production declines may be much greater than anticipated only weeks ago.”
This point was driven home by the EIA’s latest Short-Term Energy Outlook, in which the agency said it now expects U.S. dry gas production to average 91.7 Bcf/d this year, a decline from the 92.2 Bcf/d of average U.S. dry gas production last year. Last month, EIA had guided for a 3% increase in production.
In a note to clients on Thursday, Tudor, Pickering, Holt & Co. (TPH) said gas shut-ins may accelerate if condensate-rich gas producers are forced to shut in because of an inability to move the condensate. The firm said for the last two weeks, Utica Shale condensate prices have been hovering around zero, at times moving negative, indicating that storage is likely near capacity and barrels are struggling to find a home.
“This doesn’t come as a major surprise, given gasoline cracks are razor thin and oilsands barrels are shutting in and reducing demand for diluent, but could have very interesting ramifications for the gas market,” TPH said.
The firm noted that the gas market already is “staring down” more than 5 Bcf/d of potential associated shut-ins. In Canada, where condensate-rich gas makes up a significant portion of the gas market, pricing is currently sitting around $9/bbl but will likely face further pressure with heavy oil shut-ins expected to accelerate into May, according to TPH.
“While we caution in reading too much into the short-term data, for what it’s worth, the last two days of flow data show Northeast gas production down 0.5 Bcf/d, while condensate prices hover around zero.”
Spot gas prices posted widespread losses Thursday as lighter-than-usual demand was expected over the long Easter holiday weekend despite some rather chilly weather on the horizon.
NatGas Weather said “a major pattern change” remained on track as a blast of cold from southern Canada swept across the Midwest and then over the Northeast. The southern United States was expected to remain “warm to very warm,” while a slow-moving weather system was to bring rain and snow showers to California for local cooling, “but again, far from cold.”
Another late-season cold shot was expected to push into the central and northern United States early in the week, although conditions were expected to get milder by later in the week.
Despite the cold air moving into the eastern United States, spot gas prices came tumbling down Thursday. Algonquin Citygate cash plunged 18.0 cents to $1.455 for gas delivered through Monday. Transco Zone 6 NY was down 16.0 cents to $1.305.
Similar decreases were seen across Appalachia and the Southeast. Louisiana points lost up to a dime, as did market hubs throughout the Midwest and Midcontinent.
On the pipeline front, Vector Pipeline was set to begin planned pigging runs on Monday to inspect the entire pipeline on various days through May 11. The pigging is to be done in three main phases, with the most impactful phases occurring next week and April 21-23, which could cut more than 1.5 Bcf/d of receipts and 0.7 Bcf/d of deliveries, according to Genscape.
“During each phase, interconnects along a different segment of the pipeline will mostly be shut-in, except for certain receipts and deliveries scheduled in order to move the pigs,” Genscape analyst Anthony Ferrara said.
The only gas that will be allowed on the pipe is from Chicago-area interconnects delivering gas east of Milford Junction, according to the analyst.
“These Chicago-area interconnects (with Alliance, Northern Border and Guardian pipelines) historically used to flow far larger volumes before being displaced by Rover Pipeline and Nexus Pipeline,” Ferrara said. “Over the past 30 days, these interconnects have averaged only 0.25 Bcf/d, however, they still have the capacity to deliver over 1 Bcf/d onto Vector, so we could see receipts increase to offset the other interconnects being shut-in. “
Segment 2 and 3 pigging should be less impactful, since all major interstate interconnects are located east of Milford Junction.
On the West Coast, maintenance on one of the Southern California Gas (SoCalGas) import lines beginning Monday was expected to cut about 115 MMcf/d of flowing supply for nine days as capacity for the Blythe Sub-Zone is cut to 709 MMcf/d.
SoCalGas also is set to start low-inventory shut-in maintenance at the Aliso Canyon storage facility next Wednesday that would limit both injection and withdrawal capacity to zero. Over the past month, about 5.1 Bcf has been withdrawn from Aliso, averaging about 500 MMcf/d on days with withdrawals, according to Genscape analyst Joseph Bernardi.
“Those withdrawals have all come on days where SoCalGas’ system-wide demand exceeded around 2.7 Bcf/d. For comparison, during the second half of April 2019, SoCalGas’ demand never rose above 2.3 Bcf/d,” Bernardi said.
April has thus far seen colder-than-normal weather in Southern California, but temperatures were expected to warm up by the middle of the week. The Aliso work is set to continue through the end of April.
The various restrictions on the SoCalGas systems had no bearing on spot gas prices. SoCal Citygate cash tumbled 38.5 cents to $1.610.