• The U.S. Energy Information Administration reported an injection of 66 Bcf
  • The result was lower than expected and helped sustain a rally
  • LNG volumes ticked back up to 6.0 Bcf

Natural gas futures soared for a second consecutive day on Thursday after a light storage build provided a positive surprise and liquified natural gas (LNG) levels further recovered from interruptions imposed by a furious storm season in the Gulf of Mexico (GOM).

storage

The October Nymex contract jumped 12.3 cents day/day and settled at $2.248/MMBtu. A day earlier the prompt month spiked nearly 30 cents on favorable weather shifts and early signs of LNG improvement.

November advanced 10.5 cents to $2.899 as traders continued to bet on winter-driven demand supporting prices.

Spot gas prices also advanced. NGI’s Spot Gas National Avg. rose 9.5 cents to $1.865.

The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 66 Bcf into storage for the week ending Sept. 18. The result came in below the low end of estimates found by major polls and eased containment concerns that had permeated markets following the prior week’s relatively lofty build of 89 Bcf.

Ahead of the EIA report, Bloomberg and Reuters surveys found an estimate of 68 Bcf on the low end of their ranges, while the range of a Wall Street Journal poll started at 71 Bcf. NGI projected an injection of 71 Bcf.

The latest injection also proved bullish compared to a year earlier, when EIA reported a 97 Bcf injection. The previous five-year average build for the week was 80 Bcf.

“As storage containment fears abate and the gas market looks ahead to an undersupplied winter, significant gains are possible,” EBW Analytics Group CEO Andy Weissman said of gas prices in coming weeks.

Several analysts said the build for the Sept. 18 week reflected improved LNG volumes, as feed gas levels hovered near 8 Bcf at the end of the week, as well as continued cooling demand amid late summer heat in key regions. Temperatures were hotter than normal over the Northwest and Southeast during the covered week, and intense heat blanketed the West and Southwest. 

“This number reflects very tight balances — the tightest we have seen in our data all summer long,” Bespoke Weather Services said.

The latest build nevertheless lifted inventories to 3,680 Bcf, above the year-earlier level of 3,176 Bcf and above the five-year average of 3,273 Bcf. With seven more weeks in the traditional storage season, an average weekly injection of 45.71 Bcf would put storage on track to hit 4.0 Tcf. At that level, containment could still be challenging.

“It all hinges on containment or not, and we continue to walk a very fine line there,” Bespoke said.

As such, the industry will likely need help from sustained LNG export momentum and potentially early winter-like temperatures to ward off the threat of storage surpluses, some analysts have said. Positive developments on both fronts helped support the rally Thursday.

Early this week Tropical Storm Beta hampered LNG feed gas flows to Gulf Coast terminals and volumes dropped below 4.0 Bcf Tuesday. The storm also brought strong winds and flooding to the Texas coast, curbing cooling demand.

However, as Beta weakened, LNG volumes ticked back above 4.0 Bcf Wednesday and approached 6.0 Bcf Thursday.

Increased demand for Lower 48 gas exports in Europe and especially Asia ahead of winter — after a coronavirus-induced slump earlier this year — could provide a sustainable boost. Analysts are increasingly optimistic as more governments overseas vow not to shut down their economies again, even if the virus surges anew.

“The pandemic is not over,” but a global economic recovery is underway, Barclays analysts said Thursday. “China has bounced back rapidly, and, aided by large policy support,” recessions across Europe “look to be less severe than earlier feared.” Activity is picking up, and the analysts expect the global economy to expand by 4.9% in 2021.

Increased economic activity would breed greater commercial and industrial energy demand.

While overall cooling demand is expected to moderate over the balance of this week, as much of the Lower 48 is expected to see highs in the 70s and 80s, a substantial shift is expected. NatGasWeather said that, by the middle of next week, “strong early season cold shots” will span much of the eastern half of the country. This is projected to last several days, creating “a surge in a national demand” as heating needs kick in and compensate for waning air conditioner use.

Cash Sails

Spot gas prices Thursday advanced for a third straight day as warm enough weather continued across much of the United States and lower supplies boosted prices in the East.

Conditions the rest of this week, however, may add little to demand. NatGasWeather said “comfortable highs” will span most of the Lower 48 through the weekend, though “hotter exceptions persist over the Southwest into California,” with highs in the 90s and 100s.

Chicago Citygate prices climbed 15.5 cents day/day to an average $1.895, while CIG advanced 12.5 cents to $1.760.

In the East, where previously reported planned maintenance and curtailments have caused production cuts, Niagara jumped 25.5 cents to $1.575, and Tenn Zone 6 200L gained 15.0 cents to $1.635.

Out West, where a brutal wildfire season injected volatility into cash prices this month, PG&E Citygate rose 19.5 cents to $3.960, but SoCal Citygate fell 2.0 cents to $2.840.