Natural gas futures on Tuesday traded sideways as markets weighed modest weather-driven demand and rising production against continued strength in exports.
The December Nymex contract flipped between slight gains and losses throughout much of Tuesday’s session and ultimately settled at $2.692/MMBtu, down a half-cent day/day. January fell 2.0 cents to $2.844.
A day earlier, the prompt month dropped nearly 30 cents, wiping out gains made the previous week.
Amid mild fall temperatures, NGI’s Spot Gas National Avg. declined 8.5 cents to $2.545.
Liquefied natural gas (LNG) volumes have hovered near or above 10 Bcf in November – around record levels – and have kept supply/demand balances tight. Still, production this week has ticked up to a recent high at the same time that the weather is expected to prove unseasonably warm into early December.
“Production is hovering around the 90 Bcf/d mark for the first time since the end of April,” Genscape Inc. analyst Joe Bernardi said Tuesday. He noted that associated gas production dropped last spring as the pandemic took hold and oil prices plunged, bringing total Lower 48 gas output below the 90 Bcf/d threshold at the time.
“It hasn’t yet returned above that 90 Bcf/d level, but the recent five-day average (subject as always to revisions) is hovering at 89.6 Bcf/d,” the analyst said. “Northeast production has rebounded significantly over the last several weeks, fueling the gains.”
Forecasts are calling for little near-term help from weather on the demand side, with mild temperatures throughout the southern half of the country and chilly but above-average conditions in many areas of the northern United States over the next three weeks.
“The overall pattern still looks very hostile toward any cold and continues to point toward warm to very warm risks as we move into the early part of December,” Bespoke Weather Services said.
Increased storage levels are also weighing on prices.
The U.S. Energy Information Administration (EIA) last week reported an 8 Bcf injection into storage for the week ending Nov. 6. The increase boosted inventories to 3,927 Bcf, ahead of the five-year average of 3,751 Bcf. Preliminary forecasts point to another increase for the week ended Nov. 13.
“Supply/demand balances continue to run strong enough so that it would be supportive if only we did not have the high-end warm pattern in place,” the forecaster added. Because of the comfortable temperatures, “the balance is not as tight as it had been, with last week’s EIA report as well as projections for this week’s number both indicating some loosening due to weaker weather-adjusted power burns and some uptick in production.”
EIA said this week Lower 48 storage finished the traditional injection season, which runs from April 1–Oct. 31, at 3,920 Bcf, near the record-high of 4,047 Bcf reached in 2016.
U.S. LNG exports to fuel heating needs in Asia and Europe could help to use up extra supplies. Export demand, however, may prove contingent in part on sustained economic recovery in the key LNG destinations of Asia and Europe as uncertainty lingers.
In Europe, in particular, the virus outbreaks have increased in number and strengthened in intensity this fall, leading to new government restrictions in several countries and major cities. If residents are spending more time at home than in commercial and office settings this winter, increased residential heating demand may offset declines elsewhere or even bump up demand. However, if economic malaise along the lines of what much of the globe experienced last spring resurfaces, fallout from recessions could ultimately dampen energy use and adversely affect gas demand, analysts said.
News this month of two vaccines proving effective and potentially near distribution provide hope for next spring and summer, should shots get widely distributed by then. U.S. health officials, however, have cautioned that it will take several months to inoculate enough people.
“Overall the atmosphere is still positive but as the euphoria about possible routes out of the crisis begins to fade the focus will shift, to a degree at least, to the manufacture and distribution of the vaccines,” said IG Group’s Chris Beauchamp, chief market analyst.
“Neither of these things is likely any time soon,” however, leaving markets to wait and see “how much further the second wave will spread and how bad things could actually get over the course of the winter,” Beauchamp said.
In the United States, officials tallied more than 166,000 new cases for Monday, according to Johns Hopkins University, up from more than 133,000 a day earlier. The United States has now reported more than 11.2 million infections. Cases have climbed for several weeks.
New federal data suggest the rising infection rates are affecting domestic economic activity. For example, the U.S. Department of Commerce said Tuesdayretail sales rose at a seasonally adjusted rate or 0.3% in October from September. That was still down considerably from the 1.6% gain made in September from the prior month.
Spot gas prices Tuesday declined across the Lower 48 as comfortable conditions pervaded southern and western regions and were forecasted to move into the Upper Midwest and Northeast before the end of the trading week, delaying winter and minimizing heating demand.
Prices were down across the nation’s midsection. El Paso Permian dropped 35.5 cents day/day to an average $1.960, while Joliet shed 15.0 cents to $2.285, and Columbia Gulf Mainline lost 22.5 cents to $2.165.
On the pipeline front, Genscape said unplanned maintenance by Southern California Gas Co. (SoCalGas) cut imports through Needles starting Tuesday.
SoCalGas announced late Monday that its North Needles Sub-Zone would reduce operating capacity beginning Tuesday to zero – an 800 MMcf/d reduction – in response to a safety-related condition on Line 235-1. It expects the work to culminate Monday.
“This is a parallel but distinct line from SoCal’s L235-2, which exploded in Fall 2017, triggering a force majeure that significantly cut…import capacity and led to heightened price volatility,” Genscape said. However, “this is the first such event to take place in 2020: the last L235-1 work was planned maintenance in May 2019.
SoCalGas “is currently experiencing milder-than-normal temperatures for this time of year, but our forecasts call for cooling by the end of this week and this weekend,” Genscape said. “We are expecting this colder weather to linger in southern California throughout all of next week, so this unplanned event could push up on SoCal Citygate basis prices if it remains in place, cutting import capacity, while demand picks up in response to cooler weather.”SoCal Citygate prices on Tuesday climbed 9.5 cents to $3.945.
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