Spot natural gas prices were mostly stronger for the Aug. 8-12 trading week, propelled by robust power burns in the wake of plunging wind generation. However, cooling temperatures in some regions ultimately left NGI’s Weekly Spot Gas National Avg. up only 4.5 cents to $8.065/MMBtu.


News headlines, first on Freeport LNG and then on the offshore Mars crude oil pipeline, drove a huge rally for Nymex natural gas futures this week despite little impact to gas balances. Production also garnered the market’s attention and by Friday, the September Nymex futures contract settled at $8.768, up $1.179 from Monday’s close.

With cooler weather starting to take hold in parts of the country, this week’s gains in the spot gas market are notable. The largest price increases week/week were seen in California, which continued to bake under extreme heat. With tight pipeline capacity to move supply West, the SoCal Citygate shot up $1.400 to average $10.790. By comparison, the PG&E Citygate in the northern part of the state climbed 41.5 cents to $9.400.

Rockies cash prices also strengthened ahead of more hot weather heading to the region.

AccuWeather said another heat wave was in the works for the Pacific Northwest. Temperatures are projected to surge from 5-10 degrees above average early in the coming days to 10-20 degrees or more above average beginning around Wednesday. The extreme heat is likely to last until Saturday west of the Cascades, but it could persist longer across the interior Northwest, according to AccuWeather meteorologist Alex DaSilva.

“Widespread highs at or above 100 are likely east of the Cascades to the lower western slopes of the Rockies for at least a several-day stretch later next week,” DaSilva said.

Northwest Sumas cash jumped 28.0 cents on the week to average $7.775, while Transwestern San Juan picked up 30.5 cents to average $7.895.

On the flip side, several markets in the eastern United States retreated from recent highs in the teens amid a cooldown. PNGTS spot gas prices plunged $2.680 week/week to average $9.960. Transco Zone 5 was down $1.220 to $9.275.

Ongoing Futures Volatility

Pockets of heat notwithstanding out West and in the South Central United States, Nymex futures action was largely driven by factors other than weather.

That’s not to say weather didn’t have at least some influence on pricing. To be sure, Monday’s 47-cent slide at the front of the curve was in direct response to cooler-trending weather models. But even as long-range forecasts continued to cool throughout the week, Nymex futures charged higher.

Initially, this was because after holding near recent highs of around 98 Bcf/d late last week, production took a tumble Tuesday amid several maintenance events in key basins.

Wood Mackenzie said its top day estimates showed production falling 2 Bcf day/day to around 96 Bcf on Tuesday. About 850 MMcf/d of the decline was seen in Texas, with about 590 MMcf/d off in the Northeast, roughly 150 MMcf/d down in the New Mexico portion of the Permian Basin and around 120 MMcf/d off in the Rockies.

By Friday, output had failed to recover much ground and remained well below all-time highs.

Midweek, the market’s favorite F-word – Freeport – was making waves again along the Nymex curve. Nothing changed regarding operational plans at the liquefied natural gas export facility, but the removal of Freeport’s force majeure declaration following the June incident at the terminal helped send futures prices higher nonetheless.

Het Shah of Analytix.AI told NGI that while he believes the market may have put more confidence in the planned early October start-up, it takes little to drive huge price swings in either direction.

“The market is quite illiquid relative to last year – I think a function of traders being stopped out” and trading exchanges raising margin requirements, Shah said.

Indeed, Thursday brought about another big rally for Nymex gas. This time, some of the massive 67-cent increase could be attributed to confirmation that supply/demand balances would likely remain far out of sync ahead of winter.

The Energy Information Administration (EIA) said inventories for the week ending Aug. 5 rose by 44 Bcf, which was slightly higher than expected but did nothing to close the gap to the five-year average.

By region, the South Central delivered the biggest surprise to the market with a net 9 Bcf increase in inventories, according to EIA. This included a 10 Bcf build in nonsalt stocks and a 2 Bcf withdrawal from salts.

Storage inventories elsewhere rose by 20 Bcf in the Midwest and by 15 Bcf in the East, according to EIA. The Mountain region picked up 1 Bcf, while the Pacific lost 1 Bcf.

The Schork Group pointed out that season-to-date refills are now at 1.119 Tcf. For this point in the summer, the market generally wants to see a refill of at least 1.024 Tcf.

“However, the strong pace of injections is not strong enough,” Schork analysts said.

Per the EIA’s monthly Short-Term Energy Outlook, end-of-season storage is forecast to reach 3.433 Tcf, which is 6.1% below the five-year average. As of Aug. 5, inventories stood at 2.501 Tcf.

As such, the EIA expects 932 Bcf to be injected from now until Oct. 31. The average injection from this point until that point is 776 Bcf, plus or minus 54 Bcf, according to the Schork team.

“We have assigned a 15% probability of hitting the EIA’s forecast,” Schork analysts said. “To compound matter, we are now moving into the peak hurricane season, a situation which could propel the forward curve to unprecedented levels.”

Higher Cash Prices

Spot gas prices spiked again Friday as wind generation plummeted even lower than the already soft levels seen earlier in the week. With little improvement in the next several days, elevated power burns were expected to remain propped up a bit longer.

However, it is also worth mentioning that there is a weak tropical system along the U.S. Gulf Coast that has small odds of developing within the next several days. Any rain resulting from the system could lower cooling demand and possibly boost wind output.

In a Friday afternoon update, the National Hurricane Center (NHC) said disorganized showers and thunderstorms over the north-central Gulf of Mexico are associated with an area of low pressure centered just offshore of the southern coast of Louisiana. Development, if any, of this system is expected to be slow to occur as it drifts west-southwestward and approaches the Texas coast over the weekend.

Regardless of development, locally heavy rains were possible along portions of the Texas coast through the weekend, according to NHC. The agency gave the system a 10% chance of formation by Wednesday.

Despite the chances for rain along the Gulf Coast, natural gas cash prices rallied on Friday for weekend through Monday delivery. NGPL S. TX spot gas prices climbed 24.5 cents to average $8.265. Transco Zone 2 picked up 60.5 cents day/day to average $9.000.

Henry Hub cash was up 21.5 cents to $8.750, while Florida Gas Zone 3 tacked on a half-cent to hit $9.110.

Prices throughout Appalachia and the Northeast were a mix of gains and losses, but the majority of locations shifted less than 20.0 cents day/day. Iroquois Zone 2 jumped 13.0 cents to average $8.420.

Small changes were seen farther West as well. Rockies locations shifted less than 15 cents, but bigger moves took place in California. PG&E Citygate cash jumped 25.5 cents to average $9.960 for the three-day gas period ahead of a heat wave, while prices in the southern part of the state crumbled on cooler weather ahead.