• Futures lost ground amid profit taking after skyrocketing the two prior days
  • Liquefied natural gas volumes continued to improve
  • Forecasts called for a cold shot that could jumpstart heating demand

Natural gas futures on Friday gave up ground amid profit-taking after skyrocketing over the two prior trading days, when liquefied natural gas (LNG) volumes improved and forecasts called for a cold shot across the East that could jumpstart heating demand.

markets

The October Nymex contract settled at $2.139/MMBtu, down 10.9 cents day/day. The prompt month had advanced more than 40 cents over the two previous days. November shed 9.2 cents to $2.807.

EBW Analytics Group attributed the day/day volatility to “traders closing out positions and taking profits” ahead of the prompt contract’s expiration on Monday.

Spot gas prices floundered, as well, after advancing for three consecutive days. NGI’s Spot Gas National Avg. dropped 24.5 cents to $1.620.

The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 66 Bcf into storage for the week ending Sept. 18. This was below the low end of estimates found by major polls and far below the prior week’s build of 89 Bcf, which spooked markets and elevated containment concerns.

“Order has been restored as the 66 Bcf build aligns with our supply/demand model…and suggests that the prior week’s surprise build was a one-off event,” analysts at Tudor, Pickering, Holt & Co. (TPH) said.

Still, the latest build kept the industry on course for storage to exceed 4.0 Tcf this fall. Inventories stand at 3,680 Bcf. With seven more weeks in the traditional storage season, an average weekly injection of 45.71 Bcf would put storage on track to hit 4.0 Tcf, a threshold that would trigger pressing concerns that storage could run out. Early estimates for the next storage report hovered above 80 Bcf.

“We are of the…Herculean opinion that we will begin the heating season with a record amount of gas — well above 4.0 Tcf — in the ground,” The Schork Report said Friday.

TPH analysts were more optimistic, noting to clients that regional storage balances currently under pressure “look like they will sneak by.” Yet the TPH analysts are keenly focused on LNG levels from here, looking for continued demand improvements to balance the market.

Tropical Storm Beta on Tuesday brought heavy rain to the Gulf Coast and localized flooding. Before weakening to a tropical depression, it forced production cuts at LNG facilities at Freeport, Sabine Pass and elsewhere. This, combined with annual fall maintenance work at the Dominion Energy Cove Point LNG terminal and a resulting hit of more than 700 MMcf/d of feed gas deliveries to the facility, pushed LNG volumes below 4.0 Bcf Tuesday. They had approached 8.0 Bcf the previous week.

However, as Beta faded, volumes bounced back and pushed feed gas demand above 6.0 Bcf by early Friday. 

“We expect it to be range-bound between 6-7 Bcf/d until Cameron begins ramping up again, which we expect to start in early October,” the TPH analysts said of LNG volumes.

LNG flows had recovered from the lows recorded this summer amid the economic malaise imposed by the coronavirus pandemic. However, the Gulf Coast was pounded by four significant tropical storms in September, including Hurricane Laura, which caused widespread power outages in Louisiana and forced the Cameron facility offline.

Markets are anticipating that once the hurricane season eases and disruptions diminish, LNG could gain greater momentum as winter approaches and export demand from Asia and Europe normally increases.

This is a unique year, however, and demand for U.S. exports is in part dependent on continued economic recovery amid the coronavirus pandemic. Some economists warn that virus outbreaks could worsen during the winter months as people are indoors more often and as the influenza season arrives. That could restrict activity and, by extension, commercial and industrial energy demand.

“Progress on the pandemic has been a mixed bag of late — one step forward, two steps back,” said Raymond James & Associates analyst Chris Meekins. He noted that while infection rates may decline in one area, they could spike in others, prolonging the economic uncertainty caused by the virus.

Stumbling Spot Prices

Spot gas prices tumbled Friday amid evolving supply and demand dynamics that have injected volatility into several regions.

Colder-than-normal temperatures were forecasted for the eastern half of the Lower 48 beginning next Wednesday (Sept. 30) and continuing for several days, while heat is expected to persist in the West, according to a National Weather Service forecast. That could set the stage for heating demand in swaths of one half of the country and continued cooling needs in the other half.

On Friday, however, comfortable highs of 70s and 80s spanned much of the country, minimizing near-term weather demand.

Prices dropped in every region, though the declines were most pronounced in the East and in West Texas.

Domestic natural gas production plunged more than 3 Bcf at one point in the week leading up to Friday’s trading, in part because of Gulf Coast production temporarily pushed offline by Beta, following previous storms. The decline was more pronounced because of planned fall maintenance and near-term curtailments in the East amid uneven demand and storage challenges, according to RBN Energy LLC analyst Sheetal Nasta.

“Storage levels are soaring, not just in the Northeast but also in downstream markets, reducing flexibility to navigate supply congestion and forcing production curtailments,” Nasta said.

The result: price volatility.

Ahead of Friday, cash prices in the East and overall strengthened as production pulled back, Nasta noted, but the advances appeared overdone, and cash clunked to close the week.

In the Northeast, Algonquin Citygate prices slumped 41.0 cents day/day to an average $1.155, while Iroquois Zone 2 shed 31.5 cents to $1.570.

In West Texas, prices had also climbed earlier in the week but crashed Friday as production levels recovered. El Paso Permian dropped 74.5 cents to 69.5 cents, and Waha lost 70.0 cents to 68.5 cents.

In California, meanwhile, prices continued to prove volatile as they have for most of September. Late summer heat continues to drive cooling demand in the West, but scorching wildfires in the Golden State have interrupted commerce, forced evacuations and caused power outages.

On Friday, Pacific Gas & Electric Co. (PG&E) cautioned that over the weekend, 21,000 Northern California customers could see power shutoffs because new fire conditions were ripening. “Hot and dry conditions combined with expected high wind gusts pose an increased risk for damage to the electric system that has the potential to ignite fires,” PG&E said.

As was the case over several previous days, prices climbed at certain California hubs and fell at others as fire dangers shifted. Malin lost 21.5 cents to $2.240, while SoCal Citygate jumped up 20.0 cents to $3.040.