North American natural gas prices continued on the downward swing this week as Hurricane Ian pummeled the U.S. state of Florida and markets braced for a potential economic slowdown.
The October Nymex natural gas futures contract edged up 21.7 cents on Wednesday, its final day as prompt month, to expire at $6.868/MMBtu. On Thursday, November took over as the prompt month and futures prices dipped to $6.874, down 8.1 cents.
Nearly 2.5 million Floridians remained without power on Thursday after the hurricane barreled its way through the Sunshine State. The “devastating outages” could contribute to downward pressure for the November Nymex natural gas futures contract, according to EBW Analytics Group analyst Eli Rubin. A plump U.S. natural gas storage print in addition to continued high Lower 48 production of around 100 Bcf/d also weighed on prices.
NatGasWeather said “supply/demand balances are much looser than they had been a few weeks ago” which should lead to “at least a couple more solid storage builds in at least the next two weeks.” This would bode well for a bearish outlook.
However, the energy wars remain hot in Europe, causing deep uncertainty as the continent heads into winter. Four separate leaks were found on the closed Nord Stream (NS) undersea natural gas pipelines earlier in the week. On Thursday, North Atlantic Treaty Organization (NATO) officials pointed to signs of sabotage.
Rystad Energy vice president Emily McClain said European gas prices “appear like a leaf in the wind, with little indication on how far they will be carried and in what direction.”
Waha Still In Focus
The West Texas Waha benchmark, an important natural gas pricing hub for Mexico, continued trading at a steep discount to Henry Hub this week, at times by as much as $4.00. East Daley Analytics forecasts Permian Basin egress to tighten by late 2022, “yet the steep discounting at Waha suggests takeaway is already tight.”
Analysts suggest Permian prices are being impacted by reduced southbound exports to Mexico. After hitting a record near 1.5 Bcf/d this summer, total exports on West Texas pipelines have eased by 0.3 Bcf/d recently as Mexico comes off its peak summer season.
[Mexico Matters: Cross-border energy trade between the U.S. and Mexico reached $42 billion last year. Understand this burgeoning trade flow — the projects, politics and natural gas prices — with NGI’s Mexico Gas Price Index. Know more.]
Mexico is also buoyed by an uptick in domestic production. Natural gas output averaged 4.06 Bcf/d in August, up from 3.81 Bcf/d in August 2021. The top gas-producing fields were in the southeastern part of the country, at Quesqui (477 MMcf/d), Ixachi (304 MMcf/d), Maloob (303 MMcf/d), Akal (253 MMcf/d) and Onel (190 MMcf/d).
Dry gas production from Petróleos Mexicanos (Pemex) processing centers averaged 2.29 Bcf/d, the company said, up from 2.15 Bcf/d in August 2021.
President Andrés Manuel López Obrador said this week that an LNG export hub in the port of Coatzacoalcos, Veracruz, could potentially help Europe wean itself off Russian gas. The gas would most likely be sourced from the United States, which was supplying 87% of total Mexico consumption as of May.
Meanwhile, economic concerns hang over the market in Mexico. Despite worries of a recession, the Bank of Mexico hiked its interest rate by 75 basis points to a record 9.25% on Thursday, following in the footsteps of the U.S. Federal Reserve Bank. Annual inflation in Mexico hit 8.76% in the first half of September.
Demand on Mexico’s Sistrangas on Tuesday (Sept. 27) was 4.545 Bcf, up from 4.462 Bcf a day earlier. Mexico gas production fed into the system was 1.279 Bcf. Southeast production dominated the total, with 714 MMcf from the region injected into the pipeline system.
The power sector was the biggest user of natural gas on the Sistrangas on Tuesday, at 1.382 Bcf. This was followed by the distribution segment (1.145 Bcf) and Pemex (1.090 Bcf).
According to calculations from consultancy Gadex, natural gas pipeline imports from the United States into the Sistrangas were 3.266 Bcf as of Tuesday. The Sur de Texas pipeline injected 604 MMcf into the system. Liquefied natural gas imports into the Sistrangas were 23 MMcf.
Mexico Cash Prices
In Mexico, NGI natural gas cash prices nosedived week/week, losing over a dollar at most points. On Wednesday, Los Ramones was down 16.3 cents day/day to $5.851. Monterrey via the Mier-Monterrey system dropped 16.2 cents to $7.639.
Tuxpan in Veracruz via Cenagas saw the spot price fall 16.2 cents to $6.378.
In the West, the Guadalajara price rose 30.8 cents to $5.806. Farther north in El Encino, prices via Tarahumara were $4.629, 77.6 cents higher than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $7.087 on Wednesday, down 16.0 cents.
U.S. Gas Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a 103 Bcf injection into natural gas storage inventories for the week ending Sept. 23. It matched last week’s print and was above expectations.
The South Central region saw a 23 Bcf increase in inventories, which included a 18 Bcf injection into nonsalt facilities and a 5 Bcf increase into salts, according to EIA. Until Mexico develops storage capability, this is the storage system most readily available to the country.
For the week ended Sept. 23, total working gas in the South Central region stood at 958 Bcf, down from 1,010 Bcf for the same time one year ago. The figure was also 94 Bcf lower than the average 1,052 Bcf in storage for the same day between 2018-2022, EIA said.
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