Natural gas futures fell on Thursday in the wake of demand destruction imposed by Hurricane Ian and another stout storage injection. The November Nymex gas futures contract, debuting as the prompt month, lost 8.1 cents day/day and settled at $6.874 /MMBtu. December shed 5.8 cents to $7.142.

At A Glance:

  • EIA prints 103 Bcf storage print
  • Storm hits demand
  • U.S. production near highs

NGI’s Spot Gas National Avg. fell 17.5 cents to $5.130.

After hammering the west coast of Florida late Wednesday as a Category 4 hurricane, Ian barreled across the Sunshine State on Thursday as a tropical storm. It left millions of people without power, according to state officials. The storm delivered punishing winds, massive storm surges, torrential rains and widespread flooding.

The National Hurricane Center (NHC) said the center of the storm was projected to move off the east-central coast of Florida Thursday and then approach the coast of South Carolina on Friday. NHC said it was possible that Ian could gather fresh momentum and regain hurricane force. Heavy rains and winds were forecast to punish Georgia and the Carolinas through the weekend.

Ian sidestepped major production facilities in the Gulf of Mexico, leaving minimal impact on output. Bloomberg estimated production at 100 Bcf/d on Thursday – down slightly from the 101 Bcf/d record reached earlier this month. Instead, the storm’s cooling and destructive winds dampened natural gas demand, creating downward pressure on prices.

“We are in the heart of hurricane season,” and “Ian is a bleak reminder,” said Rystad Energy’s Emily McClain, vice president. She said “substantial gas demand reductions” in Florida were likely to be repeated as the storm knocks out power and chills the air while moving up the East Coast in coming days.

A robust storage print released Thursday added to bearish price sentiment.

The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 103 Bcf natural gas into storage for the week ended Sept. 23. The result exceeded expectations and matched the largest build of the season – posted the previous week.

Prior to the report, results of major surveys showed analysts expecting a mid-90s Bcf increase. For the year-earlier period, EIA recorded an injection of 86 Bcf. The five-year average injection was 77 Bcf. 

McClain said U.S. inventories are now on track to narrow deficits notably and bolster supply to levels “adequate to withstand a normal winter.” However, the market needs production to hold up to insure against “downside risk if the country experiences a harsh or prolonged winter.”

Production Supports Big Injections

A combination of rising production and fading weather-driven demand amid fall temperatures enabled utilities to reserve more gas in storage for the coming winter. 

In the near term, the U.S. market should see more supply become available when the Cove Point LNG facility in Maryland goes offline early in October for planned annual maintenance, McClain said. The facility is expected to be offline for 17 days and would add 700 MMcf/d to the market, she said.

The production-fueled storage increase for last week boosted inventories to 2,977 Bcf. That compared with the year-earlier level of 3,157 Bcf and the five-year average of 3,283 Bcf.

By region, the Midwest and East led with injections of 35 Bcf and 31 Bcf, respectively, according to EIA. The South Central followed with a build of 23 Bcf. It included an 18 Bcf injection into nonsalt facilities and an increase of 5 Bcf in salts. Mountain region stocks increased by 8 Bcf, while Pacific inventories gained 6 Bcf.

Looking to the next EIA inventory report, early estimates submitted to Reuters for the week ending Sept. 30 ranged from injections of 87 Bcf to 119 Bcf, with an average increase of 96 Bcf. That compares with an injection of 114 Bcf a year earlier and a five-year average of 87 Bcf.

Analysts on the online energy platform Enelyst, however, said estimates for the next print could be revised upward, given the demand destruction imposed by Ian this week in the Southeast.

Russian, Recession Wildcards

On the demand side, winter is not far off, of course. In the meantime, potential for increases in already strong European demand for U.S. liquefied natural gas and the specter of economic recession are wildcards.

Notably, officials in Sweden said the country’s Coast Guard found another leak in the undersea Nord Stream pipeline system that delivers Russian natural gas to Europe. It marked the fourth such leak discovered this week.

The North Atlantic Treaty Organization (NATO) on Thursday said the incidents were the result of “deliberate, reckless and irresponsible acts of sabotage” by Russia.

The Kremlin already had halted most of the gas sent via the Nord Stream system in retaliation against European Union sanctions against Russia because of its invasion of Ukraine. The leaks – and NATO’s assertion – fueled concern that Russia had moved to permanently cut off Europe ahead of winter. Russia this week also threatened to halt gas deliveries to Europe via a major link through Ukraine.

“The timing of these incidents could hardly be worse,” said Rystad’s McClain. “While the investigation into the cause of the pipeline damage is ongoing, a near-guaranteed supply cutoff will inevitably affect Europe’s gas supply this winter – but even more concerning is the impact on gas storage inventories ahead of next winter.”

While bad news for Europe, the developments fortify the likelihood of robust long-term demand for U.S. LNG.

Supporting bears’ case is the specter of recession, Goldman Sachs analysts said this week. Soaring inflation and interest rates in the United States threaten an economic downturn. Those factors, along with disruption caused by Russia’s war, threaten Europe’s economy, too. A slumping economy could diminish energy demand.

“Investors face a maze of uncertainty going into winter that understandably dissuades investment across the commodity complex,” the Goldman team said.

Spot Prices Sink

Next-day cash prices on Thursday declined for a second-consecutive session as Ian doused demand across the Southeast, and benign autumn conditions curbed consumption elsewhere.

Southeast prices had already dropped Wednesday – ahead of the storm – and hubs there on Thursday were treading water or down. Tenn Zone 1 100L shed 15.5 cents day/day to average $4.920, while Florida Gas Zone 3 ticked up 3.5 cents to $6.265.

Ian made landfall west of Fort Myers packing sustained maximum winds of 155 mph, according to AccuWeather. Only four hurricanes on record have made landfall over the Lower 48 with even greater sustained winds, the firm said.

By Thursday, rainfall totals topped 20 inches in some areas, and wind and flood damage were pervasive, according to televised reports from Florida. Power outages exceeded 2.6 million in the state, according to PowerOutage.US.

AccuWeather forecasters warned that Ian could strengthen into hurricane force again before making landfall near Charleston, SC, on Friday. Officials in Georgia, South Carolina, North Carolina and Virginia declared states of emergency Thursday.

Markets farther up the coast were likely to be impacted over the weekend.

“Areas from northeastern North Carolina and southeastern Virginia to coastal Maryland, Delaware and New Jersey will be subject to stiff easterly winds that will lead to above-normal tides, beach erosion and coastal flooding from Friday through Sunday,” AccuWeather meteorologist Joe Lundberg said.

Elsewhere, National Weather Service (NWS) forecasts called for high temperatures the rest of this week and next to hover in the 70s and 80s across large swaths of the Mountain West, Midwest and Northeast.

Prices in each of those regions fell Thursday. Emerson in the Midwest lost 34.0 cents to $4.280. Kingsgate in the Rocky Mountains slid 39.0 cents to $3.960, and PNGTS in the Northeast fell 32.5 cents to $5.750.

Looking farther out to the second week of October, NWS meteorologists look for more of the same in the northern half of the country. Southern markets are expected to see mostly average temperatures in the upper 70s to low 90s, for modest demand.