With developments along the Louisiana coast appearing favorable for a ramp-up in export demand, natural gas futures surged in early trading Tuesday. The November Nymex contract was up 11.4 cents to $2.909/MMBtu at around 8:40 a.m. ET.
Liquefied natural gas (LNG) feed gas demand climbed to 8.5 Bcf/d in early morning estimates from Bespoke Weather Services.
“Despite all of the potential issues we heard about the last few days, it is full steam ahead for LNG…and we received word late yesterday that even Cameron would be receiving a tanker to load up, even though the rock barge” obstructing the Calcasieu Ship Channel “has not been cleared,” Bespoke said.
Recent price action demonstrates “just how sensitive the market is to LNG,” a trend that’s likely to continue, according to the firm.
Analysts at EBW Analytics Group noted reports late Monday that the U.S. Coast Guard would be allowing “vessels of all sizes” to navigate the Calcasieu Ship Channel, clearing the way for “the first LNG tanker since early October” to potentially “dock at Cameron today. Shortly thereafter a fully loaded cargo left Sabine Pass, freeing up space for an empty tanker to take its place.
“With other empty tankers waiting offshore, LNG feed gas flows are likely to ramp up rapidly, providing a much needed boost to natural gas prices and driving futures higher,” the EBW analysts said.
In the latest weather outlook, Bespoke pointed to further colder trends in both the American and European models compared to last Friday’s projections.
This “in turn pushes our forecast colder, as the warm-up we have been looking for late month into early November, at least for now, is a no-show,” the firm said.
Looking ahead to the winter heating season, analysts at Tudor, Pickering, Holt & Co. (TPH) are looking for gas-to-coal switching to eat into natural gas demand in the power sector, a result of strengthening gas prices.
“Wide local basis is keeping current gas demand strong, but with basis expected to tighten into the winter we see gas-to-coal switching accelerating, resulting in a 2.5 Bcf/d reduction in demand year/year,” the TPH analysts said.
“Latest data points show gas’ share of thermal power generation in the 67% to 71% range, well above our regression results, which point to a 60% share of therm generation at a Henry Hub price of $2.80.”
This “disconnect” is likely a product of weaker pricing at regional hubs that are “largely missing out on the Henry Hub rally,” a dynamic that could change once winter demand starts to ramp up, according to TPH. Once colder weather arrives, “local constraints relating to full storage and congested export pipes are no longer expected to be an issue,” which should tighten regional basis differentials and make gas less competitive versus coal in the power stack.
November crude oil futures were down 23 cents to $40.60/bbl at around 8:40 a.m. ET, while November RBOB gasoline was up fractionally to $1.1645/gal.
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