Though intense heat remains in the cards for the balance of summer, near-term forecasts shifted cooler over the weekend

Analysts said still-strong summer temperatures should continue to drive exceptional levels of cooling demand

Weak liquefied natural gas demand remains a stubborn headwind

Though intense heat remains in the cards for the balance of summer, near-term forecasts shifted cooler over the weekend and had a dampening effect on natural gas futures Monday.

The August Nymex contract lost 6.6 cents day/day and settled at $1.739/MMBtu. September fell 5.0 cents to $1.797. 

NGI’s Spot Gas National Avg. advanced 1.0 cent to $1.720.

Bespoke Weather Services said that temperatures for the week ahead are not expected to be as high as previous forecasts called for, though the current month remains on track to set a record.

“This continues the theme we have seen recently where, despite a hotter pattern verifying, models have been shooting too high on temperatures in the medium range,” Bespoke said. “Offsetting this somewhat is the fact that we are locked into an above normal regime, so new days rolling into the back of the forecast are hotter than normal, keeping us on pace to edge out” July 2011’s record high gas-weighted degree day (GWDD) total. “But there is risk that modeling could be too hot next week as well, given this recent medium-range bias in play.”

Bespoke said total projected GWDDs for the current week now stand at just over 90, down from as much as 105 a little over a week ago.

Liquefied natural gas (LNG) volumes moved slightly higher in the weekend data, up 0.25 Bcf from levels reported late last week, Bespoke noted, though LNG volumes remain light relative to pre-coronavirus levels. The pandemic slowed economic activity and, by extension, energy needs in Europe and Asia, both important U.S. LNG export destinations.

Production levels were stable Monday, Bespoke added, while power burns continued to “be impressive” on both an absolute basis and a weather-adjusted basis.

“All in all,” the firm said, “we do not see the picture as inherently bearish here,” but the outlook for less intense overall heat in coming days was enough for traders to pull back on Monday.

Analysts, however, were not convinced a trend was developing, given that summer heat should continue to drive exceptional levels of cooling demand.

“Natural gas prices this week are likely to be heavily affected by the strength of cash market demand at Henry Hub,” EBW Analytics said. “Early this week, temperatures in Houston and Dallas are expected to reach 100” degrees. “This should help support prices in the day-ahead market at Henry Hub and limit the downside price risk” from the latest national forecasts.

“As the week progresses, scorching hot weather is expected to blanket much of the U.S. and temperatures in Texas should remain extremely hot,” the firm added. “Absent a change in the 15-day forecast or a substantial additional drop in LNG feed gas flows, the August natural gas contract is likely to strengthen significantly” with “the potential for further gains later this month if very hot weather continues.”

However, EBW views the LNG headwind as a persistent threat to prices this summer and likely into the fall, noting reports of little to no feed gas flows at several U.S. terminals so far in July. This follows a weak June, during which the number of vessels carrying U.S. LNG fell to 31 – less than half the 74-vessel peak in January, the firm said, citing Reuters.

Long-term, Simmons Energy “predicts that utilization at U.S. plants, which averaged 85-90% in 2019, will range between 60% and 70% for the next several years. If Simmons’ projection proves accurate, it would result in a loss of expected demand of as much as 1 Tcf/year, significantly affecting prices in the U.S. natural gas market,” EBW said. “This decline, if it occurs, would not be likely to be spread evenly over the course of the year. Instead, as is occurring in the current cycle, utilization would probably be high during the winter heating season, when LNG demand peaks globally, and then sink during the injection season, adding to the seasonality of prices in the U.S. gas market.”

Cash Called Higher

With the heat still blazing, spot prices climbed over much of the Lower 48 on Monday.

Notable gainers included SoCal Citygate, which surged 18.5 cents day/day to average to $2.295, and Tenn Zone 6 200L, which jumped 12.0 cents to $1.885.

Elsewhere, Dominion South gained 7.5 cents to  $1.320, while Kern Delivery rose 8.5 cents to $1.940.

Decliners, meanwhile, were spread across West Texas. Oneok WesTex fell 16.5 cents to $1.500, and Waha declined 13.0 cents to $1.450.

Despite the forecasts for less intense heat, lofty temperatures continue to develop and could fuel more upward momentum on spot prices.

“Sweltering heat in the Southwest over the last few days has already tied or set local temperature records for the month of July,” Genscape Inc. said. “Temperatures in parts of Texas and the Desert Southwest reached over 110 degrees over the weekend. This heat in the Southwest will continue into this week, and the National Weather Service has issued heat advisories of varying degrees in Southern California, across the Desert States, Texas, and reaching into Louisiana and Mississippi. Burns in the East have retreated recently due to cooler temps driven by Tropical Storm Fay in the Northeast and Mid-Atlantic, but the current Southern heatwave will expand into the East and Midwest as the week progresses.”

Genscape’s data shows that power sector gas demand for the South Central region will likely peak at 14.7 Bcf/d on Tuesday, but national power burns are forecasted to keep rising through the week as the heatwave spreads, likely peaking at 45.1 Bcf/d on Friday.

In pipeline news, Tennessee Gas Pipeline said that, on Tuesday and Thursday, it will perform pigging operations on its MLV 876-1 to MLV 871-1 segment, limiting flows near Station 110 to 1.52 Bcf/d. Flows through Kentucky may be impacted by as much as 0.6 Bcf/d, Genscape said.

However, “historically speaking, flow impacts in the past for similar sized maintenance events have failed to materialize in full – suggesting flow disruptions on Tuesday and Thursday are likely to come in slightly under the previously mentioned 0.6 Bcf/d.”

Additionally, beginning Monday and continuing through Saturday, Texas Gas Transmission said it will perform maintenance at its Harrison Compressor Station. As a result, Genscape said, capacity will be limited to 510 MMcf/d, reducing over 170 MMcf/d of southwestern flows out of Ohio relative to July 12.

“Since last Thursday, flows have increased significantly from 517 MMcf/d to 681 MMcf/d, inflating much of the observed day over day declines resulting from this maintenance event,” the firm said. “However, based on the prior seven days, flows at this location have only averaged 581 MMcf/d, suggesting average flow curtailments in the range of 70 MMcf/d.”