Natural gas futures moved back above $3.00/MMBtu Monday as export demand reached fresh highs and weather models added back some previously lost demand for the 15-day period. With expiration looming later this week, the November Nymex contract climbed 5.3 cents to $3.024. December edged up 5.8 cents to $3.253.
Spot gas prices surged at the start of the week, driven by strong demand in the country’s midsection. NGI’s Spot Gas National Avg. leapt 50.0 cents to $2.990.
Wednesday’s expiration of the November Nymex futures contract may incite some erratic price behavior this week, but Monday’s move higher appeared to be justified given the tightening supply/demand balance. On the export front, NGI data showed feed gas deliveries to U.S. liquefied natural gas (LNG) export facilities rose to 9.17 Bcf on Monday, up from 8.69 Bcf on Friday.
Weather data, particularly from the more trusted European model, also grew more supportive. Bespoke Weather Services said the European data is now 15 gas-weighted degree days colder than the American model. However, some of this colder trend may be because the European model is overdoing cold over regions that were expected to have some snow cover in the near term. The last couple of model cycles also have been a little slower with bringing projected ridging eastward.
“The combination of near-record LNG feed gas flows and a strong cold front could result in net withdrawals from storage later this week, strengthening prices at Henry Hub,” said EBW Analytics Group.
The firm said there is “significant room for further gains” at Cameron LNG once fully laden vessels can navigate clear passage through the Calcasieu Ship Channel. Freeport also has room to grow as demand has fallen 0.7 Bcf/d below maximum levels.
With strong economic signals from soaring natural gas prices abroad at both the Japan Korea Marker and Dutch Title Transfer Facility hubs, LNG may reach near capacity for extended periods this winter, potentially nearing 11.0 Bcf/d, according to EBW. Although the past two months have shown several “fits and starts” for different LNG facilities, demand at new record highs may lead analysts to revise winter estimates higher, “leading the way for further gains in natural gas futures.”
Analysts at The Schork Group said “bulls still have room to roam.” They cited the latest Commodities Futures Trading Commission (CFTC) data, which showed that hedge fund shorts in the primary Nymex and IntercontinentalExchange markets fell below 400,000 contracts for the first time since April 2019. As a result, their net length climbed 10.5% to the highest level, 362,260, since May 2017. Prop desk traders lowered their length, while swap deals held all of the market’s net shorts.
Since the start of the summer, the percentage of hedge fund longs, relative to swap dealers, moved up to 40% from 14% as of Oct. 20, the CFTC data showed. At the same time, the percentage of the prop’s longs to swaps fell from 13% to 3%. Lastly, the net length held by producers, relative to swaps, moved down from 70% to 54%.
“Bottom line, since summer, a lot of money has poured into this market, with hedge funds holding one of their most bullish positions ever,” Schork analysts said.
On the supply front, another disruption to offshore Gulf of Mexico (GOM) production may be looming. The National Hurricane Center (NHC) said recently upgraded Hurricane Zeta was forecast to move near or over the Yucatan Peninsula by Monday night, then into the southern GOM on Tuesday before approaching the northern Gulf Coast Wednesday. As of 4 pm CT, Zeta had maximum sustained winds near 80 mph and was projected to weaken as it moved over the Yucatan. However, it may restrengthen once it moves into the GOM, according to the NHC.
Shut-Ins Ramping Up
The Bureau of Safety and Environmental Enforcement said as of 11:30 a.m. CT Monday, about 16% of the oil and 6% of natural gas produced in the GOM had been shut in. Personnel were evacuated from a total of 10 production platforms, or 1.56% of the 643 manned platforms. No personnel had been evacuated from nondynamically positioned rigs, but six dynamically positioned rigs were moved off location out of the hurricane’s projected path as a precaution.
Genscape Inc. said GOM dry gas production for Monday’s gas day declined to 1.23 Bcf/d from Saturday’s value of 1.59 Bcf/d. Most notably, receipts on Destin Pipeline declined by 145 MMcf/d as deliveries from the Okeanos-to-Destin meter had been reduced to zero. The pipeline also was in the process of removing all nonessential personnel from the Main Pass 260 platform.
Furthermore, declines of nearly 97 MMcf/d have been observed on Transcontinental Gas Pipe Line over the weekend as production was shut-in from the Tubular Bells platform, jointly owned by Hess Corp. and Chevron Corp.
Enbridge Inc. said staff from the Ship Shoal (SS) 207 platform tentatively were to be evacuated late Monday, at which time the Anaconda @ SS207 (meter NA003) and the Manta Ray @ SS207 B (NA037) receipt meters would be closed until further notice. Scheduled quantities at affected receipt and delivery points were to be reduced to zero for Tuesday’s gas day until further notice.
“Currently, operators have begun securing offshore facilities and evacuating personnel from many of their platforms. As such efforts are undertaken, production is expected to decline further in the coming days,” said Genscape analyst Preston Fussee-Durham.
BP plc “is closely monitoring Tropical Storm Zeta to ensure the safety of our personnel and operations in the deepwater Gulf of Mexico,” spokesperson Megan Baldino told NGI. “With forecasts indicating the storm will move across the Central Gulf of Mexico in the next few days, BP has begun evacuating personnel from its platforms and assets and is beginning to shut-in production.
“The four Mobile Offshore Drilling Units contracted to BP are in the process of securing their wells to safely evade the storms,” Baldino said. “In addition, BP is securing and preparing to close our Houma Operations Learning Center in Louisiana. Safety is our top priority and we will continue to monitor weather conditions closely to determine next steps.”
Royal Dutch Shell plc also was monitoring Zeta’s path, spokesperson Cindy Babski told NGI. “As a precautionary measure, we will be limiting the movement of nonessential personnel to offshore assets. We have safely paused some of our drilling operations and there are currently no impacts to our production. We will continue to monitor weather reports and respond accordingly.”
As for Sabine Pass LNG, spokesperson Jenna Paltry told NGI that Zeta appears to be tracking “very far east” of the facility but it would continue to monitor the storm’s progress. Cameron LNG did not respond by deadline.
Spot gas prices started off the week on strong footing as an early season polar front continued to impact the interior West, Plains and Midwest with rain, snow, and frosty conditions. Overnight temperatures were forecast by NatGasWeather to range from below zero to the 30s, with snow expected in North Texas.
The rest of the Lower 48 was forecast to be mostly mild, with temperatures on the East Coast in the 60s to 80s, similar to areas along the Gulf Coast, where heavy rains were expected as Zeta approached.
The modest decline occurred as Pacific Gas & Electric Co. implemented another round of rolling blackouts to mitigate wildfire risk. More than 100,000 customers in California were without power Monday, and the utility said more than one million customers could be affected by the planned outages.
AccuWeather said an unusual combination of weather conditions was culminating in an extreme fire danger across Southern California, one that prompted the National Weather Service (NWS) to issue rare urgent red flag warnings. The NWS warned that the tinder dry conditions with relative humidity expected to drop off and potentially damaging winds would stir up “the most dangerous fire weather conditions since October 2019” in Los Angeles and Ventura counties.
Widespread wind gusts of 40-60 mph were expected in the mountains and passes of Northern and Southern California, as well as the upper and lower deserts in Southern California, according to AccuWeather. “This can lead to extremely fast-moving fires that are extremely difficult for firefighters to control.”
Gas prices in the Desert Southwest jumped upward of 60.0 cents for Tuesday’s gas day, while more prominent gains occurred farther upstream in the Permian Basin. Waha rose $2.865 to average $2.045.
Benchmark Henry Hub climbed 18.5 cents to $3.080.
Most Midwest hubs climbed less than 20.0 cents from Friday. In the Midcontinent, some gas flow restrictions because of Northern Natural Gas Pipeline maintenance resulted in a $3.195 jump for Ventura, which averaged $6.390.In the Southeast, cash prices mostly were up between 10.0 and 35.0 cents, and in Appalachia, gains ranged from around 30.0 cents to more than $1.100. In the Northeast, Transco Zone 6 non-NY rose 97.0 cents to average $2.010.
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