Natural gas futures retreated Monday in a move that was not completely unexpected given the quick pace at which prices rallied last week. With pressure from cooler weather outlooks and weaker power burns, the September Nymex natural gas futures contract settled 8.5 cents lower at $2.153. October fell 8.9 cents to $2.287.

Evening markets

Cash prices, however, bounced a bit after the weekend, leading NGI’s Spot Gas National Avg. up 15.5 cents to $1.950.

On the futures front, bullish sentiment is building for natural gas, although analysts expect volatility to remain front and center over the next several weeks. Cash market demand is likely to weaken considerably during that time, which should put significant downward pressure on Henry Hub futures as storage continues to build, according to EBW Analytics Group. In this context, analysts see support likely being frequently tested.

“But upward momentum has become strong,” said EBW analysts. Even small upticks in liquefied natural gas (LNG) feed gas flows or production declines “could trigger steep gains. While we do not expect the front-month to fall much below $2.00, we urge caution since volatility is likely to be high.”

On Monday, LNG feed gas deliveries climbed to around 4.5 Bcf/d, but production also increased to about 0.5 Bcf/d over last week, according to Bespoke Weather Services. 

Meanwhile, the storage trajectory over the remaining summer months is still unclear, but the risk of containment lessened in July amid intense, widespread heat across the United States. However, weather models have been indecisive in projecting the amount of heat for August, with models turning cooler a couple of weeks ago, then turning hotter last week and now moving back cooler again over the weekend into Monday.

Bespoke said both the American and European models dropped several gas-weighted degree days in the two-week period, shifting the focus of heat more into the West and allowing for variability in the eastern half of the nation. The firm continues to see a “notable drop in global angular momentum coming up, indicating a reinvigoration of the La Niña base state.

“This keeps the pattern biased hotter than normal even with the weekend change, though more western-focused than we typically see at this time of year. We suspect the final week of the month maintains the hotter-than-normal lean.”

With the cooler two-week outlook, storage inventory builds are likely to trend higher than they have in recent weeks. This past Thursday, the Energy Information Administration (EIA) said that U.S. stocks grew by 33 Bcf, and early projections for the coming EIA report are pointing to a more robust build in the 50 Bcf range.

Powerhouse CEO Alan Levine noted that the average rate of injections into storage is 10% higher than the five-year average so far in the refill season, which runs through October. If the rate of injections into storage matched the five-year average of 9.5 Bcf/d for the remainder of the refill season, total inventory would be 4,152 Bcf on Oct. 31, which is 429 Bcf higher than the five-year average of 3,723 Bcf for that time of year.

Weather remains an important unknown, according to Levine, especially as the 2020 Atlantic Hurricane Season advances. Last week, the National Oceanic Atmospheric Administration updated its outlook with a projection for an even busier season, with 19-25 named storms and seven to 11 of them potentially becoming hurricanes.

“These numbers are substantially higher than those released in May,” Levine said, “which called for “a 60% likelihood of an above-average season, with a 70% chance of 13 to 19 named storms, six to 10 of which would become hurricanes.”

Once the market moves past the fall shoulder season, the winter-month contracts could move meaningfully higher as the balance of 2020 and 2021 forward curve “is still at an early stage of a major repricing,” according to EBW. As the natural gas market starts to better understand the possibility of a significant tightening next year, and the potential storage deficits that could arise if the forward curve doesn’t price itself to incentivize injections, analysts see significant further gains possible this fall.

[Plan for natural gas pricing 10 years out with NGI’s Forward Look data.]

“This doesn’t mean that prices will go straight up,” said the EBW team. “With summer heat fading by the end of this month and LNG exports not likely to fully rebound for two more months, sell-offs are still possible. The market may be in a mood, however, to buy dips, limiting declines.”

Recovering Cash

Spot gas prices were higher across the board Monday as heat returned to key demand regions following a cool span in the wake of Hurricane Isaias.

NatGasWeather forecasters said that “very warm to hot conditions” were expected to rule much of the United States to open the week, with daytime temperatures in the upper 80s to mid-90s and in the 100s across the Southwest deserts into California. Cooler exceptions were to continue across the Midwest as weather systems were forecast to track through with showers, leaving daytime highs at comfortable levels in the 70s to lower 80s. A cooldown was forecast to hit the Northeast by Thursday, easing national demand.

On the West Coast, SoCal Citygate spot gas led with a substantial 50.5-cent increase to $2.430, while Northwest S. of Green River jumped 14.0 cents to $1.880.

Upstream in the Permian Basin, Waha shot up 39.5 cents to $1.080, part of a basin-wide rally likely due to improved flows out of the region after pipeline maintenance. Smaller gains were seen elsewhere in Texas.

Chicago Citygate next-day gas picked up 5.0 cents to $1.940, and Dominion Energy Cove Point jumped 24.0 cents to $1.940.

Texas Eastern M-3, Delivery also posted a sharp 67.5-cent increase to $2.065, which was similar to most other pricing hubs in the Northeast. Transco Zone 6 NY cash was up 56.0 cents to $1.955.

Along the Gulf Coast, Corpus Christi Pipeline is set to perform maintenance from Tuesday to Thursday at the TGP-Sinton location. As a result, deliveries from Tennessee Gas Pipeline (TGP) to Corpus Christi Pipeline are to be unavailable for the duration of the maintenance event, suggesting flow impacts of 268 MMcf/d could occur based on the prior seven-day average, according to Genscape Inc.

“Since the start of the month, we have seen increased utilization of the TGP interconnect as feed gas demand from Corpus Christi LNG has ramped up significantly from 204 MMcf/d to Monday’s value of 688 MMcf/d (an increase of 292 MMcf/ d since Friday (Aug. 7),” said Genscape analyst Preston Fussee-Durham.

In order to maintain current feed gas volumes delivered to Corpus Christi liquefaction facilities, the analyst said increased deliveries from the Transcontinental Gas Pipe Line, Natural Gas Pipeline Co. of America or Kinder Morgan Tejas Pipeline interconnects would be required.