Natural gas futures dipped into the red early Tuesday and remained there on demand concerns tied to mixed weather forecasts and diminished natural gas exports. The July Nymex contract settled at $1.767/MMBtu, down 2.2 cents day/day. August was down 2.9 cents to $1.863.
Intense summer heat across swaths of Texas and the Southwest, along with forecasts for higher temperatures elsewhere later in June, have fueled optimism for increased gas demand to run air conditioners. However, projections for weaker weather systems next week and strong rains over much of the country, along with cooler temperatures in the East, chilled enthusiasm some on Tuesday.
NatGasWeather expects conditions to drive moderate overall demand most of this week, but expectations for showers over Texas, the South and Mid-Atlantic coast next week could taper cooling needs. “As such,” the firm said, “until more impressive heat builds, weather patterns will remain bearish biased.”
Liquefied natural gas (LNG) export concerns, meanwhile, continue to fester. Levels of gas flowing to export plants are depressed relative to pre-coronavirus pandemic conditions, a result of low prices in Europe and Asia, with a notable demand drop from Japan, the world’s largest importer.
Over the past weekend and early this week, LNG feed gas demand from Lower 48 pipeline systems stagnated near 3.7 Bcf/d. For Tuesday, total feed gas demand sat at 3.68 Bcf/d, according to Genscape Inc.
“LNG volumes remain anemic,” Bespoke Weather Services said Tuesday. “Power burns continue to show recovery,” but Tuesday “is the hottest day we see in the forecast until late next week, so we expect some drop-off in absolute terms.”
What’s more, EBW Analytics Group said, “there are signs” that “LNG produced elsewhere could start to flow into the United States as a destination of last resort.” The firm noted that a shipment from Trinidad was unloaded at the Dominion Cove Point terminal in Maryland this week.
“This marks the first time since the pandemic began that a cargo that previously was expected to be sold into the global market has wound up on U.S. shores. Other cargoes from Trinidad are likely to follow.”
Additionally, EBW said, a Nigerian LNG cargo appears to be heading toward Kinder Morgan Inc.’s Elba Island export terminal in Georgia, though it could still be redirected.
“Nigeria reportedly has had difficulties in reducing its natural gas production,” EBW said. “In a weak market, it may have been unable to find customers in Europe and had no alternative other than to liquefy the gas and send it to the United States at a distressed price. The possibility that Nigeria will export a significant amount of LNG to the U.S. over the next few months cannot be ruled out.”
While too early to determine that likelihood, EBW added, “if flows into the U.S. start to increase, downward price pressure could resume.”
Ahead of the Energy Information Administration (EIA) storage report for the week ending June 5, Energy Aspects issued a preliminary estimate for a 90 Bcf injection. That would mark a notable decline from the 102 Bcf injection for the prior week. It was the fourth triple-digit build in five weeks and another indicator that supply remained well ahead of demand from the commercial and industrial sectors, where energy use is slowly coming back as governments lift coronavirus-related restrictions.
Though EIA prints appear likely to remain in or near double-digit territory over the summer months, Energy Aspects is braced for a supply/demand imbalance heading into the fall shoulder season. “The market is clearly on a path for bloated inventories come end-October,” the firm said.
Amid favorable current weather conditions, spot gas prices climbed nationally, though gains were mostly modest. Declines peppered the Midwest, where heavy rains and cooler winds are expected to keep temperatures in check in the coming days.
“It remains hot over the Southwest and Texas with highs of 90s to100s, while also very warm from the Midwest to the Southeast, with highs of 80s to lower 90s, combining to aid strong power burns near 35 Bcf/day,” NatGasWeather said.
However, in addition to looming rains in Texas and the South, locally heavy showers were nearing Chicago from remnants of former Tropical Storm Cristobal, and a larger weather system was tracking through the Plains and Midwest this week, the firm said.
“This system will bring showers and comfortable highs of 60s and 70s, easing national demand even though [it is] still quite warm over the southern and eastern U.S., where highs of 80s to 90s continue,” NatGasWeather said. “A secondary weather system will track into the East this weekend with highs of 60s to 80s, dropping demand over this important region to below normal and why the pattern late this week through mid-next week isn’t quite hot enough to impress.”
Kern Delivery rose 7.5 cents to $1.760.
In pipeline news, Texas Eastern Transmission (Tetco) on Monday declared its fourth active force majeure, citing an unplanned outage at its Hanover, NJ, compressor station. It did not immediately provide an estimated date for return to service.
Genscape said Tetco is limited to 341 MMcf/d of net receipts from Algonquin Gas Transmission (AGT), affecting the interconnects at Lambertville and Hanover as well as leased capacity at AGT’s Mahwah and Ramapo interconnects. However, the firm said while net receipts from AGT have increased to average 310 MMcf/d, they have maxed at 407 MMcf/d.
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