After another day of low liquefied natural gas (LNG) demand, natural gas futures buckled in a big way Tuesday as the continuation of weak exports and cool September outlook pressured the market. The October Nymex gas futures contract dropped 10.3 cents to settle at $2.527. November fell a much more modest 1.9 cents to $2.901.
Spot gas prices were mostly higher, however, as heat was expected to rebuild on the East Coast beginning Wednesday. NGI’s Spot Gas National Avg. ticked up 2.0 cents to $2.015.
After inspections indicated “no significant damage” to either the Sabine Pass or Cameron LNG terminals following last week’s devastating hurricane, futures traders were optimistic that it was only a matter of time before export demand would increase. However, five days after Laura crashed ashore near Lake Charles, LA, as a Category 4 storm, NGI’s U.S. LNG Export Tracker showed feed gas volumes still below 3 Bcf/d on Tuesday, albeit by a hair.
The continued weakness in LNG demand sent futures lower from the start of Tuesday’s session, with the front-month October contract ultimately settling not far above the $2.504 intraday low.
“Bears seem to have gained a little momentum today, but how long that sticks is tough to know,” said NatGasWeather.
Energy Aspects said some operations can quickly revert back to normal after a hurricane passes, but there is no guarantee. High water levels forced a near-weeklong closure of traffic on the Sabine River after Hurricane Harvey in 2017, analysts noted.
Based on data submitted by 33 operators Tuesday morning to the Bureau of Safety and Environmental Enforcement (BSEE), 71 production platforms in the Gulf of Mexico remained unmanned, or around 11% of the total. There also were no personnel on one rig, or around 8%.
BSEE estimated that 24.96% (676.55 MMcf/d) of natural gas production still was shut-in, while 28.38% of oil (525,099 b/d) remained offline.
Meanwhile, Entergy Corp., which services 2.9 million utility customers in Arkansas, Louisiana, Mississippi and Texas, said Covid-19 mitigation measures may prolong restoration efforts. As of Tuesday, the utility had restored power to all customers in Mississippi and most in Arkansas. Texas outages along the coast, mostly in the Port Arthur area, should be restored sometime soon.
The situation is more dire in Louisiana, however. Only a little more than half of the outages in the Pelican State had been restored, leaving 133,000-plus still without power. Entergy said “restoration continues for our Louisiana customers, but those in Lake Charles, and Cameron and Calcasieu parishes face weeks without electrical power.”
EBW Analytics Group still struck an upbeat tone. The firm said the loss in feed gas is not permanent, with vessels expected to be loaded still sitting in the Gulf of Mexico. In addition, analysts pointed out that Cheniere Energy Inc. never declared force majeure and Sempra Energy LNG canceled its force majeure effective for Tuesday’s gas day.
“In all likelihood, all 18.5 Bcf of previously expected deliveries plus the additional shortfalls expected before Sabine Pass and Cameron return to service will still occur, with the deliveries made in the first one to two weeks after production resumes.”
The “make-up” production, according to EBW, is likely to occur during the same period in which exports were set to increase. Analysts see demand growing to as much as 6-7 Bcf/d this month, from around 5 Bcf/d pre-Laura, as the number of canceled cargoes were expected to decrease significantly. In total, feed gas flows could reach as much as 7-8 Bcf/d, or 4-5 Bcf/d above Monday’s level, the firm said.
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“This steep increase in feed gas flows, not yet anticipated by many traders, could boost gas prices significantly once Sabine Pass and Cameron are brought back online.”
Other factors could dampen the demand and price outlook for natural gas. Weather models are starting to converge in a mild September outlook.
NatGasWeather said stronger national demand is likely Wednesday-Friday as hot conditions return across the East. However, weather systems are forecast to push deep into the northern and central United States beginning this weekend, sending demand back lower. In addition, the pattern after next week remains rather bearish, “with not hot or cold enough conditions for mid-September.”
Cash Heats Up
With temperatures on the rise early this month, particularly on the East Coast, spot gas prices moved higher Tuesday.
Most U.S. markets picked up 10.0 cents or so as high pressure was forecast to strengthen over the East, according to NatGasWeather. The change in weather pattern was expected to lift temperatures back into the upper 80s to low 90s, with even hotter conditions expected to continue over the western and southern states.
By the weekend, strong weather systems were forecast to sweep across the northern and central United States, resulting in the first early-season heating degree days. “However, it’s too early in the season to expect it to translate to much heating demand,” NatGasWeather said. Cooler air also was to push into portions of Texas and the South next week, keeping highs in the 70s and 80s for lighter demand throughout the region.
For now, West Texas cash was enjoying a run. El Paso Permian next-day gas jumped 19.5 cents to $1.765, while much stronger gains were seen along the Transwestern Pipeline.
More modest gains were seen across the Rockies and Midcontinent producing areas. Midwest prices also increased only marginally, but some locations in the Southeast posted more notable increases. Tenn Zone 1 100L next-day gas was up 10.5 cents to 2.110.
On the East Coast, Algonquin Citygate climbed 13.0 cents to $1.490, while points along the Iroquois Pipeline moved up even higher amid ongoing constraints on the system.Out West, SoCal Citygate continued to retreat, shedding another 18.5 cents to average $2.850. Some other California points moved lower as well.
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