Natural gas futures slipped lower Tuesday, extending the extensive sell-off from a week earlier. A mid-July reprieve from oppressively hot weather patterns and the potential for another stout storage print weighed on prices.
At A Glance:
- Permian, Appalachia output sinks
- Storage seen benefiting from cooler temps
- Spot gas mostly higher, but Northeast falls
The August Nymex gas futures contract settled at $5.523/MMBtu, down 20.7 cents day/day. September fell 22.5 cents to $5.487.
With heat scorching the Lower 48 in the near term, NGI’s Spot Gas National Avg. gained 30.0 cents to $5.760.
Major weather models continued to show strong heat through the first half of the month, according to NatGasWeather, though some easing in temperatures may be on the horizon.
The American and European models “both remain plenty hot enough most days through July 15-16 as highs of 90s to 100s rule most of the southern two-thirds of the U.S.,” the firm said. “The pattern is neutral or closer to seasonal July 16-19 as the hot ridge weakens slightly and shifts over the west-central U.S., while at the same time weather systems with showers and comfortable temperatures are favored across the Great Lakes, Ohio Valley and Northeast for near-normal national demand.”
EBW Analytics Group’s Eli Rubin, senior analyst, provided a similar assessment.
“Strong near-term heat exceeding 13 cooling degree days all week may help provide physical support for cash market prices,” Rubin said. “The locus of heat shifting westward and northward, however, appears to have lessened cooling demand risks for mid-to-late July.”
This could enable utilities to maintain solid levels of injections into natural gas storage in July.
The U.S. Energy Information Administration (EIA) last week reported a larger-than-expected 82 Bcf injection into storage. It surpassed the highest of estimates ahead of the report by 2 Bcf.
A June fire at the Freeport LNG export facility curbed U.S. export capacity by about 2.0 Bcf/d through at least the end of summer. That gas is now available for domestic use, including storage.
Analysts at The Schork Report noted that the market is about 40% through the injection season, and it is averaging a steady pace. Utilities have added enough to supplies to cover about two-fifths of last winter’s deliveries.
The median of early estimates for Thursday’s EIA inventory report, which covers the period ended June 24, hovers around 70 Bcf.
That compares with an injection of 73 Bcf in the comparable week last year and a five-year average injection of 73 Bcf.
Still, the storage to date trails historic averages.
Total working gas in storage as of June 24 was 2,251 Bcf — 322 Bcf below the five-year average, according to EIA.
The Schork team estimates that storage will come in at around 3.44 Tcf at the end of the injection season. That would fall short of the five-year average of nearly 3.66 Tcf.
Strong LNG Demand
Despite the Freeport LNG situation, demand for American supplies of the super-chilled fuel remains robust.
Rubin noted that LNG feed gas demand bounced “sustainably above 11.0 Bcf/d” over the July 4 holiday weekend. This effectively put U.S. export activity near capacity, providing a bullish undercurrent. European calls for American LNG, already robust amid depleted supplies last winter, grew louder in the spring amid Russia’s war in Ukraine. European countries are pulling back on Russian energy and looking for the United States to help fill the void.
“Europe’s push to reduce and eventually eliminate its reliance on Russia for natural gas has pushed LNG imports back into the forefront of Europe’s long-term energy plan,” RBN Energy LLC analyst Lindsay Schneider said in a report Tuesday. “This year, with European natural gas prices trading above Asian prices, the continent has been able to attract an incredible amount of LNG, with imports at record levels this winter and sitting just shy of those records this spring.”
Schneider cautioned, however, that to continue the trend, not only does the United States need to further build out its LNG infrastructure, but Europe needs to expand its import capacity.
“Most of the LNG terminals in Europe are operating at full capacity or don’t have enough market access on the other side of the pipe to take more,” Schneider said. “While plans to build new import terminals are underway, those take time, and lots of it, so Europe is also pursuing a more immediate option, floating storage and regasification units — basically, an LNG import terminal on a ship.”
Cash Prices Cruise
While milder temperatures are expected later in July, intense heat continued to permeate most of the country to start the trading week, fueling gains in spot prices Tuesday.
Hubs in every region of the Lower 48 advanced. Prices in the Southeast, where a combination of heat and humidity propelled cooling demand, led the upward charge.
In the East, Algonquin Citygate near Boston jumped $1.030 to $6.200.
AccuWeather said bouts of lofty temperatures are expected again later in the week. The forecaster cited a northward shift in the jet stream that will allow a heat dome to form over the West and High Plains during the latter part of the week.
“Underneath these heat domes, the air sinks, causing temperatures to climb and precipitation and cloud cover to generally be limited,” the firm said. It said high temperatures in the 90s are expected as far north as Montana by the end of the week, with highs in the deserts of the Southwest likely to top 110. Daily highs could be reached in markets such as Phoenix and Palm Springs, CA.
“By the upcoming weekend, highs could be around 105 in places such as Salt Lake City, which is 10-15 degrees above normal for this time of year and would eclipse the hottest day of the year they’ve had thus far, which was 102 back on June 12,” AccuWeather Senior Meteorologist Dan Pydynowski said.
Meanwhile, meteorologists on Tuesday continued to track Hurricane Bonnie as it strengthened and moved parallel to Mexico’s Pacific coast.
As a Category 3 storm, it had maximum sustained winds of 115 mph at midday Tuesday, according to the National Hurricane Center. Forecasters, however, did not expect Bonnie to make landfall early this week as it was heading westward into the Pacific.
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