Natural gas futures raced higher Monday as supply/demand balances finally started to move in a more supportive direction for prices. With a further push from the cash market, the June Nymex gas futures contract settled up 13.7 cents from Friday’s close at $1.783. July jumped 12.6 cents to $1.959.
Spot gas prices were sharply higher on Monday, driven by gains of nearly 50 cents in the Northeast. NGI’s Spot Gas National Avg. ultimately climbed 16.5 cents to $1.640.
Despite the lack of significant weather-driven demand, power burns are increasing as more businesses reopen from coronavirus-induced shutdowns, according to Bespoke Weather Services. Although burns are not considered strong, they are “definitely improved compared to where they have been recently.”
Meanwhile, Lower 48 production continues to retreat amid the low oil price environment, with the latest curtailments by EQT Corp. likely playing a big role in Monday’s rally. The producer said it started curtailing output on Saturday from some Appalachian wells on expectations that prices would be higher later. The cuts were reported to be around 1.4 Bcf/d, according to Equitrans Midstream Corp., which transports EQT’s Appalachian supplies.
Top-day estimates for U.S. production on Monday were at 84.4 Bcf, according to Bespoke, which is more than 11 Bcf below late-November highs.
“It becomes more difficult to pin down where we go now from here,” said Bespoke. “The improvement in data justified getting prompt-month prices out of the $1.60s, but it does not yet eliminate risk of completely filling storage, so bulls must still be cautious until we see more tightening in the data.”
Not only did Nymex futures leave the $1.60 range in the dust, but the June contract shot up as high as $1.851 during Monday’s session before settling about 7 cents below that level. While the bounce may have been expected given technical indicators, the massive upswing stands to be erased rather quickly, even if prices move higher again later this week following the next government storage report, according to EBW Analytics Group.
“With near-term power sector natural gas demand near its low for the year, and the Memorial Day holiday weekend just around the corner, any gains made early in this week are likely to be erased before the week ends.”
Even if prices manage to hang on to the majority of gains, additional liquefied natural gas (LNG) cancellations “could send prices lower at any time,” the firm said. The global supply glut, unusually large storage inventories following a mild winter and tempered demand amid the Covid-19 pandemic could keep U.S. LNG supplies at home through October, analysts have said.
On Monday, NGI’s U.S. LNG Export Tracker showed feed gas deliveries down slightly from Friday’s levels to around 5.7 million Dth, with volumes to the Elba Island terminal in Georgia still depressed following a fire last week in a mixed refrigerant compressor that forced operator Kinder Morgan Inc. to shut down three production units. Restart plans for the units were in the development phase as of Friday.
Meanwhile, the market is still a few weeks out from any weather-led demand gains. The latest weather models show “a fair amount” of above-normal coverage on the maps in both the six- to 10-day and 11- to 15-day time frames, according to Bespoke. However, the heat is not focused in areas that generate enough cooling degree days to move the overall demand needle very much, with eastern warm anomalies being focused more north than south and the heat in the West also focused where there are fewer people, the firm said.
“That said, our forecast is a little warmer than the model consensus,” so there is room for the American and European models to perhaps add a little more demand, “but it isn’t expected to be significant. Nothing has changed at this time regarding our view of a hotter overall summer on the way for the nation as a whole.”
And although still a couple of weeks shy of the official start of the Atlantic hurricane season, Tropical Storm Arthur brought squalls to the North Carolina Coast on Monday. The National Weather Service (NWS) said in its 2 p.m. ET update Monday that the center of the storm was moving away from the North Carolina Outer Banks and was expected to turn away from the East Coast overnight and Tuesday. Although some strengthening in wind speed was likely, Arthur was expected to lose its tropical characteristics by Tuesday, NWS said.
Though gains were widespread across U.S. cash markets to start the week, Northeast markets ran away with the largest gains. The steep climb in prices comes despite little in the way of weather-led demand, with forecasts calling for “rather mild” temperatures in the 60s and 70s in the coming days despite a weather system that is tracking through the Great Lakes and into the East, according to NatGasWeather.
The same system also was preventing hot conditions from setting up over the South and Southeast as highs reach the “ideal” 70s and 80s, the firm said. A second cooler weather system was tracking into the West with rain and snow showers, but with temperatures reaching the 50s to 70s, it was “far from cold.
“The pattern for the last week of May into June favors near-perfect temperatures across the northern and eastern United States with highs of 60s to 80s, while the southern U.S. remains very warm with 80s to lower 90s,” NatGasWeather said. “We just don't think the pattern will be viewed as hot enough until upper high pressure strengthens to more impressive levels to produce widespread highs of 90s.”
Nevertheless, stronger power burns boosted prices across the country. In the Northeast, Algonquin Citygate next-day gas jumped 49.0 cents to $1.580. Transco-Leidy Line in Appalachia tacked on a stout 43.5 cents to average $1.495.
Tennessee Gas Pipeline (TGP) began performing scheduled maintenance Sunday at its MLVS 316-1 location in Tioga, PA, resulting in a facility outage which has limited throughput nearby at Station 315 until this Friday. Flow impacts have already begun to materialize, cutting over 180 MMcf/d of south-bound flows out of Pennsylvania relative to the prior seven-day average, according to Genscape Inc.
“These flow impacts are visible as far as northern Alabama at the MLV548TOSTA860 location,” said Genscape analyst Preston Durham. “However, disruptions have yet to materialize farther south within the Gulf Coast region as net receipts on TGP from the Monroe Gas Storage facility in Alabama have increased 140 MMcf day/day, offsetting the northern lost molecules and limiting further downstream impacts.”
On Sunday, Texas Eastern Transmission (Tetco) declared a force majeure due to an unplanned outage on its 24-inch System Line 1 between the Atlanta, TX and Hope, AR, compressor stations.
“Based on local news near the affected area, this does not appear to be an explosion,” said Genscape analyst Josh Garcia.
As a result of the outage, Tetco has reduced pressure through the line, which reduced capacity at Hope to zero beginning Monday. Texas-to-Arkansas exports from Atlanta to Hope have maxed at 49 MMcf/d over the last month, “and as such this outage should not be very impactful,” according to Garcia. There was no estimated return to service.