Further cooler trends in the latest weather data and steep production cuts because of Hurricane Delta combined to send natural gas futures prices screaming higher Friday. After surging to a $2.821 intraday high, the November Nymex gas futures contract capped off the week at $2.741, up 11.4 cents from Thursday’s close. December climbed a more moderate 5.5 cents to $3.204.

PM market

Spot gas prices were mixed, with some big moves to both sides of the ledger. NGI’s Spot Gas National Avg. climbed only 2.5 cents to $1.310.

Coming off a stout, though below-average storage injection, natural gas futures rallied early Friday. Bespoke Weather Services found the move perplexing given the risk of weaker cash prices heading into the weekend. However, the firm chalked up the steep gains to traders dismissing the potential impacts of Delta on liquefied natural gas (LNG) demand.

The storm, a Category 2 as of 4 p.m. CT Friday, was about 35 miles south of Cameron, LA, and set to make landfall within hours. NatGasWeather said the Sabine Pass and Cameron LNG sites were impacted with heavy rain and strong winds.

The National Hurricane Center said in the Friday afternoon update the storm had maximum sustained winds near 105 mph with higher gusts. After landfall, Delta was forecast to move across central and northeastern Louisiana through Saturday morning, then move into northern Mississippi and the Tennessee Valley.

NGI data showed feed gas volumes down nearly 1 Bcf day/day to around 6.5 Bcf on Friday. Bespoke acknowledged “the declines have been modest, for now.” However, “it is far too early to tell for sure.”

Cameron, which shut for a month because of Hurricane Laura, opted to shutter operations again ahead of Delta, though this time it kept a “ride-out” team in place. Sabine Pass also had a crew remain on site to continue managing operations.

Production was a little lower on Friday as well, which Bespoke said also could have attracted buyers. Nevertheless, the forecaster expected volatility to continue until weather settles into a more lasting colder regime.

As for the latest models, they were increasingly supportive for the next couple of weeks. The overnight Global Forecast System (GFS) and European weather models each added numerous heating degree days on cooler trends across the northern United States for the coming week, according to NatGasWeather.

The forecaster said it’s important to note the GFS remains a bit cooler compared to the European model by favoring colder Canadian air pushing more aggressively across the border. “After recent trends, the GFS is now slightly bullish for the eight to 15-day period, while the European model remains slightly bearish.”

Any shift toward colder weather would help the increasingly dire storage situation. Analysts ahead of the weekend were still digesting the latest storage report. The Energy Information Administration (EIA) reported that U.S. stocks grew by 75 Bcf to 3,831 Bcf, which is 444 Bcf above year-ago levels and 394 Bcf above the five-year average.

Tudor, Pickering, Holt & Co. (TPH) analysts said the EIA figure came in slightly bearish to consensus and its forecast, but it was “still plenty bullish” versus the five-year average build of 90 Bcf.

“However, this is simply a taste of what’s coming” in the next EIA report, the TPH team said. Its early modeling projected a 45 Bcf build, compared to norms of 82 Bcf. “The print would surpass 2012’s 50 Bcf build as the tightest seasonal injection over the past 10 years. That said, the market is benefitting from around 2 Bcf/d of production offline from a combination of voluntary curtailments and storm-related shut-ins in the Gulf of Mexico.”

On a weather-adjusted basis, TPH analysts said the most recent build implies a 2.5 Bcf/d undersupplied market. They see the market being roughly 3 Bcf/d undersupplied in 2021.

In the near term, however, all eyes will be on Delta, which forced Sabine and Cameron “back into their shells” and temporarily stalled the LNG ramp. “If they are able to weather the storm unscathed, there is a good chance we see record feed gas demand in the coming weeks, surpassing the prior high of 9.8 Bcf/d,” TPH said.

Cash Mixed

Spot gas prices moved in both directions on Friday, with some large increases seen across Texas, Louisiana and the Southeast as Delta took the majority of Gulf of Mexico production offline. However, some big losses were seen in West Texas and on the East Coast.

NatGasWeather said “a glancing cool shot” was impacting the Upper Great Lakes and New England on Friday, though most of the central, southern and eastern United States were expected to remain comfortable through early in the week. Showers and cooling were forecast to arrive across the Northwest over the weekend into the Midwest shortly thereafter. In the middle of the country, colder Canadian air was set to drop lows into the 20s and 30s for locally strong heating demand.

The chillier weather in New England boosted prices in the region. Algonquin Citygate gas for delivery through Monday averaged 10.5 cents higher at 92.5 cents. Most other Northeast prices were lower day/day.

Those losses extended through Appalachia as well. Dominion South fell 12.5 cents to average only 52.0 cents.

With Delta cutting slashing supply and prompting several pipelines along the Gulf Coast to restrict gas flows ahead of the storm, prices in Louisiana and across the Southeast gained ground. Henry Hub jumped 78.5 cents to average $2.265.

Gains of 50.0 cents or more were common across much of Texas, with Houston Ship Channel rocketing some 61.5 cents higher day/day to $2.365. In West Texas, though, Waha tumbled 43.0 cents to average only 42.5 cents.

Despite the current weakness at Waha, prices could soon rebound. 

Genscape Inc. reported that since the Wahalajara system’s lower leg, Villa de Reyes-Aguascalientes-Guadalajara (VAG), started commercial flows at the beginning of October, West Texas deliveries to the Fermaca system on Thursday averaged an estimated record high of 533 MMcf/d.

The level not only represented a 230 MMcf/d boost from the already robust volume seen in September, it explained the surge in West Texas exports to Mexico to more than 1.1 Bcf/d. 

The surge was a historical maximum, according to Genscape analyst Ricardo Falcon, and is driven primarily by Wahalajara’s receipts from the Ojinaga-El Encino duct that connects with the U.S. TransPecos Pipeline.

“Looking forward, we expect a potentially stronger demand pull downstream of Wahalajara by the now operational VAG and interconnecting infrastructure,” Falcon said. “If continued, the current uptrend would push West Texas border flows to Mexico closer to our projected average of nearly 1.5 Bcf/d for 4Q2020, up by almost 590 MMcf/d from 3Q2020, largely due to gas-to-gas competition against South Texas exports.”

The main driver, according to Falcon, is the gas burn for power generation by assets operated by or delivering energy to the Comisión Federal de Electricidad.