Natural gas futures started off the week lower amid further uncertainty surrounding the pace of liquefied natural gas (LNG) export recovery. A “complicated” weather outlook also left traders unsure of where to price gas, but a chillier turn in Monday’s midday models ultimately lifted the November Nymex contract up 2.2 cents to $2.795. December nudged nine-tenths of a cent higher to $3.280.
Spot gas prices were sharply higher after the weekend, with chilly air hitting the Midwest and Great Lakes, while heat lingered from California to Texas. NGI’s Spot Gas National Avg. climbed 16.5 cents to $2.160.
After keeping futures prices intact at the end of last week, traders were looking for some clarity on the weather and LNG fronts before making big price moves. Instead, the demand outlook grew murkier as a new obstruction blocked the waterway near the Sabine Pass LNG terminal, while the barge submerged in the Calcasieu Ship Channel also has not been recovered. As of Monday, draft restrictions remained in place, and there was no timeline as to when the waterways would be fully reopened.
Reports started circulating after hours on Friday that the waterway near the Cameron LNG terminal would remain blocked for a few more weeks. Bespoke Weather Services noted that Cameron’s volumes had only been around 0.5 Bcf, but there seemed to be expectations that they would rise to more than 2.0 Bcf soon.
“Fast forward to now, and the market no longer seems concerned, even though nothing has changed that we are aware of as far as the timeline is concerned,” Bespoke said.
NGI data showed feed gas volumes remaining elevated at slightly under 8 Bcf, but many analysts had expected LNG demand to jump to around 9.5 Bcf in the fourth quarter.
“The key issues are weather and the pace at which LNG feed gas flows can be ramped up at Cameron and Sabine Pass,” said EBW Analytics Group.
The U.S. Coast Guard on Saturday allowed Panamax-size vessels with drafts of less than 36 feet to move up the channel in daylight hours, according to EBW. Since then, the firm said several vessels have successfully reached Lake Charles, passing Cameron along the way.
“While LNG tankers generally have a draft of less than 36 feet when they are fully loaded, additional dredging work is still being done, and partially loaded tankers may already be able to traverse the channel,” EBW said.
Three other tankers were sitting in the Gulf of Mexico waiting to move to the terminal, according to EBW, suggesting production at Cameron might ramp up further soon. Meanwhile, “substantial work has been done to remove the rig” near Sabine Pass, and feed gas flows could return to 4 Bcf/d as soon as Tuesday, EBW said.
Cold Boosting Demand
As for what Mother Nature has in store for the gas market, the overnight and midday Global Forecast System model added demand back versus Friday. The model gained more than 15 heating degree days on colder trends across the Midwest and central United States late this weekend and next week, according to NatGasWeather. Overall, the weather data maintained a rather bearish pattern this week, though, as most of the country experiences comfortable conditions with highs of 60s to 80s.
There were to be some hotter exceptions across the Southwest, as well as some chilly weather across the low-population states of the northern Rockies and northern Plains, according to NatGasWeather. A fresh cold shot was on track to push into the Midwest/central United States this weekend, with the coldest air initially over the interior West and Plains, then shifting toward the Great Lakes and Ohio Valley early next week.
“It’s this system where the greatest amount of demand was added the past 24 hours,” NatGasWeather. “Although, we caution, the weather data has been inconsistent, bouncing between milder and colder trends, but it is worth noting the trend has been to the colder side the past few runs.”
Looking ahead to the winter, overseas demand looks to be improving. European gas storage data showed withdrawals for each of the last five days, about two weeks earlier than normal and a “potential bullish indicator” for the global gas market, according to Tudor, Pickering, Holt & Co. (TPH).
The firm expected the relatively tight balances were being driven by reduced LNG imports, as U.S. shipments were interrupted by storms throughout the fall and Australian projects have been plagued by downtime, drawing cargoes away from the European market and into Asia. TPH analysts projected European storage to exit the winter at 1,874 Bcf, 8% below last year but still a bloated 46% surplus to the five-year average.
“In our view, inventories will have to draw materially more than modeled over the winter if U.S. cargo cancellations are to be avoided in the spring,” TPH analysts said.
Over the winter, the TPH team is modeling pipe imports into Europe to be 1.4 Bcf/d higher year/year on higher flows from Russia and Azerbaijan. This means lower LNG imports are likely to be the key to driving strong storage draws.
“From this perspective, we’ll be keeping a close eye on Asian LNG demand, which has been up just 2% year/year in 2020,” TPH said. However, September data was promising, up 8% year/year. The firm is modeling Asian LNG demand to be up roughly 7% over the winter but sees “much stronger levels being required if European storage is to be normalized by the spring, keeping us cautious on the 2021 Title Transfer Facility strip.”
Despite only pockets of cold in the forecast for the Lower 48 this week, power burns remained strong and provided a lift to spot gas prices across the country.
On the pipeline front, Pacific Gas & Electric Co. is scheduled to limit capacity through the Redwood Path to 1,450 MMcf/d from Tuesday through next Monday (Oct. 26). This level would be about 320 MMcf/d below the month-to-date average, according to Genscape Inc.
“Despite other maintenance earlier this month limiting Redwood Path to around 200 MMcf/d below its September average flow of roughly 1,950 MMcf/d, this month’s flows are still right in line with the previous three-year average for October,” Genscape analyst Joseph Bernardi said. “In general, Redwood Path flows are much higher during the summer months and drop off during the winter.”
Cash prices in the Rockies were generally 15-25 cents higher than Friday’s levels, while some Texas pricing hubs posted stronger gains. Houston Ship Channel was up 30.5 cents to $2.805.
Midcontinent spot gas prices climbed 20-35 cents at most locations, a trend that also played out in the Midwest. Farther east, Transco Zone 5 climbed 19.5 cents to $2.395.
Genscape reported that in last week’s Operation Status Update, Texas Eastern Transmission (Tetco) updated the estimated return to service for two segments of the 30-inch diameter system to late October, including eastbound capacity through M3. Tetco has completed all the geohazard work required to return back to service the Line 10, 15 and 25 segments between Holbrook and Uniontown, PA; and Kosciusko, MS, and Tompkinsville, KY.
Once the Pipeline and Hazardous Materials Safety Administration (PHMSA) approves both segments and a regulator is installed in the Holbrook compressor station (CS), Tetco could restore full capacity through both segments. PHMSA approval is expected in late October.
“This means that M3 will have full eastbound capacity through its Uniontown and Bedford compressors ahead of the peak winter demand season,” Genscape analyst Josh Garcia said. “Capacity through the Uniontown compressor fell to 2.59 Bcf/d after the June Owingsville CS explosion. Capacity through the compressor was at 4.37 Bcf/d for the majority of last winter and should be restored to a similar level.”
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