Nymex natural gas futures, led now by the August contract, failed to hold onto early price gains amid weakening demand ahead of the holiday weekend. The August Nymex futures contract settled at $6.498/MMBtu, down 7.2 cents on the day. September futures slipped 6.4 cents to $6.493.
At A Glance:
- BREAKING: U.S. EIA reports another larger-than-expected 82 Bcf injection into storage
- Production growth trajectory still unclear
- Supplies tight even without Freeport demand
Spot gas prices posted moderate gains amid rising temperatures, particularly on the East Coast. NGI’s Spot Gas National Avg. climbed 13.0 cents to $6.610.
After two days of upside, Wednesday’s modest retreat along the Nymex futures curve failed to reflect any meaningful changes in factors driving the gas market.
Weather models maintained a hot pattern in the first half of July over most of the southern two-thirds of the United States, with highs forecast in the 90s to lower 100s, according to NatGasWeather. However, the latest data shifted the hottest portion of the heat dome over the west-central region, thereby allowing a little stronger cooling over the Great Lakes and Northeast.
“It’s still a bullish pattern July 10-13, just not quite as hot as July 1-9,” the forecaster said. “Overall, the coming 15 days are plenty hot enough to be considered bullish since it will prevent deficits from improving.”
The market has been laser focused on storage inventories throughout the spring and summer after a cold winter drained stocks. Russia’s war on Ukraine also led to stronger calls on U.S. liquefied natural gas (LNG). An explosion at Freeport LNG earlier this month appeared to ease supply concerns, though, since the 2 Bcf/d that would normally feed the shut-down terminal is now available to meet demand or be injected into storage.
Last week, the market got its first glimpse into the Freeport outage’s impact on supply. In a surprising report, the Energy Information Administration (EIA) said inventories for the week ending June 17 rose by 74 Bcf. Ahead of last week’s report, analysts had been looking for a build in the 60s Bcf.
Despite the larger-than-expected increase, total working gas in storage as of June 17 stood at only 2,169 Bcf, which is still 331 Bcf below the five-year average, according to EIA.
This week, covering the period through June 24, injection expectations ranged from 68 Bcf to 80 Bcf with consensus pointing to a 72-73 Bcf build. This would be on par with both last year’s build and the five-year average of 73 Bcf, keeping deficits intact.
An early Bloomberg survey of estimates ranged from 69 Bcf to 78 Bcf, with a median of 70 Bcf. A Wall Street Journal poll had a range from 70-80 Bcf, with an average of 75 Bcf. Reuters polled 15 analysts, whose estimates ranged from injections of 68 Bcf to 80 Bcf, with a median increase of 74 bcf.
With temperatures across Texas easing this week amid increasing cloud cover associated with potential storm activity in the Gulf of Mexico (GOM), analyst Het Shah of Analytix.ai said the recent downturn in LNG feed gas deliveries stemming from Freeport may be poised for a rebound in the coming days.
Shah pointed out that U.S. LNG deliveries have been around 10.7 Bcf/d for the last few days. This level seems to be what the market should expect for the summer months, with the ambient temperatures lowering the operational level of the Gulf Coast facilities.
“Sabine is currently operating at 80% of its peak observed level,” Shah said. “With any relief from extreme heat, we should see overall deliveries jump well above 11 Bcf/d.”
Exports to Mexico, meanwhile, remain robust. Shah said 7.1 Bcf of gas was reportedly flowing south of the border into Mexico on Wednesday.
However, some of that demand could get squashed later this week as the tropical disturbance moves through the GOM. Wednesday afternoon, the National Hurricane Center said showers and thunderstorms associated with the area of low pressure had increased day/day but remained unorganized. The system was forecast to move slowly westward and approach the coast of South Texas/northern Mexico by early Thursday. Some slow development was still in the cards, according to NHC, with heavy rain possible along the Texas coast for the next few days.
Meanwhile, global demand is ready to jump on any increased LNG exported from the United States and other countries. Rystad Energy analyst Lu Ming Pang said although gas supplies to Europe were stable amid issues at the Nord Stream 1 pipeline, the market is still wary of further supply cuts and elevated. Annual maintenance is scheduled to begin next month on the pipeline. Work was scheduled to take place from July 11-21, but there were concerns that Russia may not return the pipeline to service at all.
Meanwhile, worries have arisen in Germany around whether any LNG terminals can ramp up in 2023. The country had planned for several import terminals using floating storage regasification units to hasten the start-up process. However, Rystad’s Pang noted that there have been reports that since no final investment decision has been made on the stationary terminals, construction has not yet started.
At the same time, the Shell plc-operated Prelude floating LNG facility offshore Western Australia faces an increased risk of disruption. A strike following a pay dispute began on June 10 and is set to be extended to mid July.
“The strike involved operators stopping work on several work processes related to the loading of LNG cargoes, which has not slowed down exports so far,” Pang said. “However, the recent extension of the strike includes a harsher stance by operators to stop even more important processes, which may cause a noticeable disruption until mid-July.”
Prelude typically supplies the Northeast Asian market, with South Korea, Japan and Taiwan the primary offtakers. Japan, in particular, has seen strong demand because of early summer heat and routine planned maintenance at power plants.
Spot gas prices continued to gain ground Wednesday ahead of another round of scorching weather this weekend.
AccuWeather said temperatures would range from the mid-70s in upstate New York to the upper 80s near Washington, DC, on Wednesday, but then steadily climb through the end of the week. Temperatures may reach as high as 90 degrees in DC, Philadelphia and Harrisburg, PA, by Friday, according to the forecaster. Even cooler locations of upstate New York and northern New England were expected to reach the mid-80s, with higher humidity as well.
The holiday weekend was likely to begin with thunderstorms late Friday around the Great Lakes and part of the central Appalachians, according to AccuWeather. On Saturday, the storms should stretch from the Appalachians to the Atlantic Coast as a cold front moves southeastward.
Southeast markets increased as much as 46.0 cents day/day, while increases across Louisiana were limited to less than 20.0 cents at the majority of locations.
Texas points also rose only modestly across most of the state, but Western locations tacked on heftier increases. El Paso Permian next-day gas climbed 25.5 cents to $6.195.
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