Despite a slight reversal in trend Thursday spurred by a larger than expected injection into U.S. storage inventories, natural gas prices have been on a tear and are at eight-year highs.

exports

The October New York Mercantile Exchange (Nymex) contract jumped more than 50 cents between Monday and Wednesday, touching new highs for the year on each of the first three days of the week.

Still, the latest price action “may be just the tip of the iceberg as to what’s in store this winter,” NGI’s Price and Markets Editor Leticia Gonzales said during a recent conference. Demand for gas is soaring globally, and U.S. producers are keeping a lid on production. After closing 2019 at around 96 Bcf/d, U.S. output dropped to an average below 91 Bcf/d in 2020 and has held near that level so far in 2021.

“Producers are sticking to their word,” conserving cash and returning capital to shareholders rather than ramping up output to capitalize on higher prices, Gonzales said. 

The situation is such that some of Europe’s industrial power consumers could face blackouts this winter if natural gas prices climb any higher, analysts with Goldman Sachs Commodities Research warned in a recent note to clients.

“It is all fear in the market, owing to storage levels that are viewed as less than sufficient in the event of a cold winter, not just here in the U.S. but even more so over in Europe,” Bespoke Weather Services said.

Panicked Mexico Market?

That fear has spilled over into Mexico too. 

“The market is panicking,” a major gas buyer in Mexico City told NGI’s Mexico GPI. He said most buyers weren’t prepared and didn’t have hedges in place to smooth the increases.

Meanwhile, a trader involved in securing natural gas for a power generation plant said he was worried that power tariffs weren’t reflecting the rise in natural gas prices in Mexico.

“We’re worried because electricity prices remain really low. We aren’t seeing a reflection of the cost of natural gas in marginal prices,” the source said. Problems were noted in the methodology used by power system operator Centro Nacional de Control de Energía (Cenace).

Day-ahead power prices in Monterrey averaged $44.29/MWh on Wednesday, down $4.82, according to Cenace. NGI natural gas prices for Monterrey, meanwhile, were $5.714, up 21.2 cents.

Around 60% of Mexico’s power plants run on natural gas, and 70-80% of Mexico’s gas is imported from the United States.

Natural gas imports from the United States have remained strong even as the summer has ended in Mexico. NGI’s 10-day average of imports was 6.45 Bcf/d through Thursday.

Sistrangas 

Mexico’s Sistrangas five-day line pack average was 6.580 Bcf/d on Wednesday, well below the optimal line pack of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system.

Demand on the Sistrangas on Wednesday (Sept. 15) was 4.392 Bcf, compared with 4.382 Bcf a week earlier. Mexico gas production fed into the Sistrangas rose week/week to 1.412 Bcf on Wednesday from 1.358 Bcf. The processing centers at Nuevo Pemex (428 MMcf), Burgos (289 MMcf) and Cactus (372 MMcf) were the leading injection points.

According to Gadex calculations, pipeline imports from the United States into the Sistrangas were 2.921 Bcf on Wednesday, down from 3.075 Bcf on Sept. 8. Liquefied natural gas (LNG) imports into the Sistrangas on Wednesday were flat week/week to 8 MMcf.

Mexico Prices

At points key to Mexico trades, future prices charged forward this week through Wednesday. The Henry Hub October contract closed at $5.463 on Wednesday, up 20.0 cents. Agua Dulce was higher by 20.3 cents at $5.578, while Waha gained 18.8 cents to close at $5.197.

Houston Ship Channel prices for October settled at $5.544, up 20.3 cents.

On Thursday, cash prices pulled back after the storage print. NGI’s U.S. Spot Gas National Avg. shed 20.0 cents to $5.350.

In Mexico, NGI natural gas spot prices slipped in the northeast, with Los Ramones down 24.5 cents at close on Thursday to $5.588. Monterrey fell 24.2 cents to $5.472.

Tuxpan in Veracruz saw the spot price down by 24.4 cents on Thursday to $6.091. In the West, the Guadalajara price fell 23.0 cents to $6.189. Farther north in El Encino, prices were $5.753, down 23.0 cents from the previous day.

On the Yucatán Peninsula, the cash price at Mérida slipped $6.778 on Thursday, off by 24.6 cents.

U.S. Gas Injections

On Thursday, the U.S. Energy Information Administration (EIA) reported an injection of 83 Bcf into natural gas storage for the week ended Sept. 10. The result eclipsed market expectations and the five-year average, sending natural gas futures lower.

After two weeks of withdrawals, the South Central region injected 22 Bcf into storage which included a 13 Bcf injection into nonsalt facilities and an increase of 9 Bcf into salts.

For the week ended Sept. 10, total working gas in the South Central region stood at 965 Bcf, down from 1,271 Bcf for the same time one year ago. The figure was also 99 Bcf lower than the average 1,064 Bcf in storage for the same day between 2017-2021, EIA said.