• Scheduled gas flows to U.S. LNG terminals dropped more than 20% from Friday to Monday
  • The prompt month closed below $2.000 for first time since early August
  • Spot gas prices declined as overall weather patterns diminished cooling demand

Natural gas futures plunged on Monday as traders digested weaker liquified natural gas (LNG) volumes, potential demand destruction from a new tropical storm and forecasts for milder temperatures in the Midwest.

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The October Nymex contract settled at $1.835/MMBtu, down 21.3 cents day/day. It marked the first time since early August that the prompt month closed below $2.000. Futures had rallied last month and reached a high amid the coronavirus of $2.743 on Aug. 28, despite festering supply/demand imbalance concerns imposed by the pandemic.

November advanced 7.7 cents to $2.710, however, as markets expect demand conditions to improve later in the fall.

Spot gas prices declined as overall weather patterns diminished cooling demand. NGI’s Spot Gas National Avg. declined 3.0 cents to $1.410.

Scheduled gas flows to U.S. LNG terminals dropped more than 20% from Friday to Monday and were well below recent averages. Genscape Inc. analyst Allison Hurley noted the start of annual fall maintenance work at the Dominion Energy Cove Point LNG terminal and a resulting cut of more than 700 MMcf/d of feed gas deliveries to the facility. She added that fall outages at the Cove Point facility lasted 24 days in 2019 and 21 days in 2018.

“Implied feed gas deliveries to Cove Point LNG for the last 14 days have been stable, averaging 716 MMcf/d,” Hurley said. “Feed gas has plummeted to zero for today.” 

As markets opened Monday, Genscape estimated total U.S. LNG feed gas deliveries at 5.08 Bcf/d, down 1.64 Bcf/d from the previous seven-day average. The firm also found delivery declines to the Freeport and Sabine Pass LNG terminals.

Tropical Storm Beta, meanwhile, threatened to cloud the demand picture on Monday, bringing heavy storm conditions and 50 mph winds to portions of the Texas coast during the day before likely making landfall at night, according to the National Hurricane Center (NHC). Beta, whose winds extended outward up to 175 miles from its center, was expected to lose strength as it moved inland but retain enough structure to cool temperatures for much of the week across areas of the central coast of Texas.

Beta emerged as portions of the Texas and Louisiana coasts were still recovering from Hurricane Laura in late August, and as areas of Alabama and Florida were dealing with the aftermath of Hurricane Sally last week.

Genscape said gas production in the Gulf of Mexico (GOM) declined after both hurricanes and remained low to start the current week – around 1.11 Bcf/d, down from a monthly high of 1.68 Bcf/d on Sept. 10, prior to Sally.

Additionally, encouraging signs of looming LNG improvement also materialized.

With spot prices in Europe and Asia rising, lifting their premiums to the U.S. Henry Hub benchmark, U.S. LNG exports to both continents are poised to rise this fall. Raymond James & Associates analysts said European and Asian natural gas prices are now up more than 100% from the bottoms set earlier this summer – in the wake of demand destruction caused by the pandemic – “creating a better set-up for U.S. LNG players.”

Traders on Monday, however, were focused on the near-term demand weakness.

While heat continues to cook much of the West, with wildfires persisting in California, cooling demand early this week was expected to be above normal. But moving into next week, much of the eastern and northern regions of the United States are likely to experience comfortable temperatures ranging from the 70s to 80s, minimizing energy demand.

Additionally, a weather system moving across the Midwest near the end of September is projected to drop daily highs into the 60s over swaths of the nation’s midsection, according to the National Weather Service.

Absent stronger weather demand, markets are looking for more robust LNG levels to compensate and ward off containment threats. The U.S. Energy Information Administration (EIA) last week reported an injection of 89 Bcf natural gas storage for the week ending Sept. 11. The build lifted inventories to 3,614 Bcf, well above the five-year average of 3,193 Bcf and increasing the likelihood that storage could exceed 4.0 Tcf in October.

Monday’s LNG data amplified concerns.

“Storage is bloated,” said Robert Yawger, director of energy futures at Mizuho Securities USA LLC. “The slaughter in the natural gas space is a classic example of what happens” when overly speculative trading “hijacks a market and rallies it to supersized highs in the face of weak market fundamentals.”

Spot Prices

Spot gas prices lost ground Monday, overall, but prices did advance in regions where near-term cooling needs held up.

Demand diminished in the Midwest, areas of Texas and parts of the East along with cooler temperatures and impacts from storms.

Carthage prices dropped 15.0 cents day/day to an average $1.335, while Defiance shed 10.5 cents to $1.290, and Florida Gas Zone 3 fell 31.0 cents to $1.405.

Conditions in the Lower 48 for the current week are forecast to result in six cooling degree days more than the long-term normal for this time of year, according to forecasts and averages published by the National Oceanic and Atmospheric Administration. That is due to relatively strong demand in parts of California, the Southwest and the Mountain West.

Cash prices climbed in the West. El Paso S. Mainline/N. Baja jumped 52.0 cents to $1.975, while Malin advanced 32.5 cents to $2.210, and Kern River climbed 33.0 cents to $2.200.

On the pipeline front, Genscape noted that Columbia Gas Transmission (TCO) would be performing two separate maintenance events beginning Tuesday that could limit up to 1.26 Bcf/d of westbound flow in Ohio, as well as 0.5 Bcf/d of gas flowing to an interstate interconnect with Columbia Gulf Transmission.

“Due to planned pipeline maintenance on Line LEX (LXP) between the Summerfield and Crawford compressor stations, flows through LXPSEG MA41 will be reduced to zero for the duration of the maintenance lasting from Tuesday through Sept. 29. Over the past 30 days of restriction free flows, LXPSEG has averaged 1.09 Bcf/d and maxed at 1.26 Bcf/d.”

Additionally, TCO was to conduct a planned power outage through Wednesday at the Ceredo compressor station. “For the duration of this event, flows through Leach MA19 will be limited to 1.99 Bcf/d,” down from a previous 30-day average of 2.33 Bcf/d and maximum of 2.49 Bcf/d.