The latest government storage data swiped the rug out from underneath natural gas futures on Thursday, with a larger-than-expected injection highlighting the fragility of the gas market. The July Nymex futures contract settled at $6.239/MMBtu, down 61.9 cents on the day. August futures tumbled 58.9 cents to $6.283.

At A Glance:

  • Output slipped nearly 2 Bcf day/day
  • Analysts predict bearish storage print
  • Europe’s gas supply woes fester

Spot gas prices were mostly lower despite the continuation of a blistering heat wave. NGI’s Spot Gas National Avg. fell 10.5 cents to $6.395.

With production data fluctuating and weather models maintaining a cooler pattern beginning next week, futures prices were down early. The July Nymex contract opened only a few pennies behind Wednesday’s close at $6.829 but quickly dropped another 20-plus cents.

By mid-morning, though, the market’s first glimpse into the impact an outage at the Freeport liquefied natural gas (LNG) facility may have on supply made traders’ heads spin – and prices crater even further.

The Energy Information Administration (EIA) said inventories during the week ending June 17 rose by 74 Bcf, much more than the market had expected. Ahead of the EIA report, market surveys had pointed to a total injection in the 60 Bcf range.

Reuters polled 13 analysts, whose storage injection estimates ranged from 56 Bcf to 76 Bcf, resulting in a median increase of 66 Bcf. A Bloomberg survey produced a lower median projection of 59 Bcf, though the range of estimates was the same. A Wall Street Journal poll, meanwhile, had a tighter forecast range, with an average build of 66 Bcf. 

The EIA’s 74 Bcf figure compared with the five-year average injection of 82 Bcf and the year-earlier build of 49 Bcf.

Market reaction was swift.

The July Nymex futures contract was trading at around $6.640 in the minutes leading up to the EIA report. As the print crossed trading desks, the prompt month plunged to $6.480. Within a half-hour of the EIA report, July futures had sunk to $6.259.

“Down, down and away,” said a market observer participating on The Desk’s online energy chat Enelyst.

The biggest miss, according to Enelyst managing director Het Shah, was in the South Central region. Nonsalt facilities posted a 16 Bcf increase in stocks, while salts posted a 3 Bcf withdrawal, according to EIA.

Shah noted that Permian Basin production in West Texas is likely higher than what is being reported. Much of the output flows on intrastate pipelines for which data is not made public. The impact of Freeport LNG’s outage following an explosion earlier this month also is influencing storage dynamics, with up to 2 Bcf/d of gas now available for storage.

Several Enelyst participants also noted that Southeast markets served by Transcontinental Gas Pipe Line Co. (aka Transco) have been tight. They questioned whether salt facilities were withdrawing gas in order to sell to Transco. “Houston Ship Channel has been weak, but Transco has been really strong, comparatively,” one market observer said.

Elsewhere around the country, Midwest stocks rose by 24 Bcf, and East inventories climbed by 23 Bcf, EIA said. Inventories in both regions continue to track more than 10% below the five-year average. The Pacific added 10 Bcf to storage, while the Mountain region added 6 Bcf.

Shah questioned whether producers would grow volumes this summer given the low storage levels in the East. However, Enelyst participants said some exploration and production companies may be “getting hosed by their hedge books” while others would likely refrain from deploying more capital now that gas prices are tumbling.

Total working gas in storage as of June 17 stood at 2,169 Bcf, which is 305 Bcf below year-ago levels and 331 Bcf below the five-year average, according to EIA.

Will Prices Fall Further?

With the prompt month shedding some serious weight in the weeks since the Freeport explosion, Bespoke Weather Services said it was trying to resist reading too much into only one EIA storage number. However, it noted that if the data were to be extrapolated forward, the road ahead for market bulls becomes “very tough.”

Bespoke pointed out that the EIA has been grappling with data issues in recent days, which leads to concerns. Power burns also may be impacted given the lower price environment, while weather uncertainty continues given recent modeling and expectations for an overall hotter-than-normal summer.

“With prices down so much, it’s difficult to have a bearish lean, for sure,” Bespoke said. “Though if this number is confirmed, balance wise, as we move forward, then we could in fact wind up lower. Confidence remains rather low in this current market.”

Regardless of the near-term direction of prices in light of escalating storage injections stemming from Freeport, it is the winter storage outlook that matters more, according to EBW Analytics Group. By the end of summer, the combination of a clearer trajectory for production and storage, including any further disruptions from weather or hurricanes, as well as information regarding the timing of Freeport’s return will likely emerge as predominant price drivers for natural gas.

“As the market focus eventually shifts from October 2022 to March 2023 – likely at the end of summer or early fall – the likely winter storage shortfall suggests a renewal of significant upward pressure for Nymex futures may be in the offing,” EBW senior analyst Eli Rubin said.

Spot Gas Down Despite Heat Wave

Spot gas prices fell Thursday despite several more days of intense heat across much of the Lower 48.

Temperatures have been particularly steamy in the southern two-thirds of the country, with a portion of DuSable Lake Shore Drive in Chicago buckling as temperatures soared close to the century mark. The heat index climbed to 106 degrees at O’Hare International Airport.

By the weekend, though, temperatures are expected to moderate. AccuWeather said temperatures may max out near 90 degrees on a few occasions through Saturday, but the 100-degree temperatures should steer clear of Chicago and much of the Midwest through the weekend.

Given the expected drop in cooling demand, Chicago Citygate next-day gas prices fell 15.0 cents to $6.410. Michigan Consolidated dropped a steeper 26.0 cents to $6.260.

Farther south, AccuWeather said the atmospheric furnace can be expected to go full blast into this weekend. Some cities in the South Central region that have not yet hit 100 degrees this year will likely do so in the coming days. Other cities would add several more days to their string of century-mark highs.

“The dome of extreme heat will tend to contract toward the South Central states into this weekend, but some spikes in temperature will occur farther to the north and east,” AccuWeather lead long-range meteorologist Paul Pastelok said.

Following record-challenging, near-100-degree highs as far to the east as the Carolinas and Georgia at midweek, another brief surge of heat is likely on Saturday over the middle Mississippi Valley and the lower part of the Ohio Valley. Record highs may fall from Tennessee, Mississippi and Louisiana to Texas as temperatures soar as much as 15 degrees above normal.

Despite the scorching weather, prices dropped sharply from Louisiana to the East Coast. Tennessee Zn 4 313 Pool cash plunged 50.0 cents to $5.500.

Interestingly, Houston Ship Channel was the lone pricing hub in East Texas to finish the day in the black, picking up 21.0 cents to average $6.385. All other locations were down anywhere from a dime to nearly 50 cents on the day.

West Texas points strengthened amid strong regional and downstream demand, with El Paso Permian tacking on 12.0 cents to average $6.155. There were also some gas flow restrictions on El Paso Natural Gas Pipeline after the pipeline declared another force majeure at the ELPASO C constraint. This force majeure was to limit up to 90 MMcf/d of westbound flows starting Thursday and lasting until further notice. Another force majeure at the same constraint ended last week.

ELPASO C sends gas onto the south high pressure line, according to Wood Mackenzie. This line transports most of the gas from West Texas to the California border. Past 30-day max flows through ELPASO C were roughly 563 MMcf/d and averaged 489 MMcf/d.

The flow restrictions into California may have led to modest gains there. The SoCal Border Avg. picked up 7.5 cents to reach $7.490.