Boosted by late-season heat, domestic storage concerns and robust global demand, natural gas futures on Wednesday rallied for a fifth-straight session. The October Nymex gas futures contract spiked 83.0 cents day/day and settled at $9.114/MMBtu, marking its biggest jump in the latest bull run. November gained 83.3 cents to $9.167.

At A Glance:

  • Demand drivers firmly intact
  • Prompt month jumps 83 cents
  • Cash climbs a third session

NGI’s Spot Gas National Avg. rose 28.0 cents to $8.155, extending its rally to three days amid a reemergence of summer warmth in the nation’s midsection.

The natural gas market has been moving “from strength to strength,” analysts at Evercore ISI said Wednesday

They noted robust demand for U.S. LNG exports – hovering near capacity – as Europe scrambles to ward off an energy crisis hastened by Russia’s war in Ukraine. Russia, long a key supplier of gas to the continent, has cut off the bulk of its pipeline deliveries to countries throughout Europe. Asian countries are now ramping up calls for liquefied natural gas as they move with haste to fortify supplies ahead of winter.

What’s more, the Evercore team noted, coal-to-gas switching in the power sector continues to mount as the United States steadily retires coal plants. And, of course, seemingly endless summer heat continues to scorch much of the country into mid-September. Markets as far north as the Dakotas are forecast to endure highs in the 90s this week, keeping air conditioners cranking at the level once reserved for brief bouts from July to early August.

“We must acknowledge the strong support for both higher LNG send-outs” and “even more significantly a hot summer,” the Evercore analysts added.  

Rystad Energy’s Zongqiang Luo, senior analyst, expects both continued strong domestic gas consumption and enduring demand for LNG. He, too, noted fallout from Russia’s actions and expectations that Europe will need as much American LNG as it can get to ensure adequate supplies for the coming winter.

“Months of geopolitical wrangling have left the European gas market whiplashed, with volatile prices stemming from lack of supply, potential market intervention, and wider uncertainty,” Luo said. “In the view of most experts and policymakers,” the European gas market “is broken. But how it should be supported or fixed is an ongoing conversation with no clear resolution in sight.”

For now, however, he said LNG from the United States and elsewhere is at least a vital piece of the continent’s energy survival. Luo said total LNG imports to Europe over the first eight months of 2022 were 60% higher than during the same period last year. Russian supplies a year ago accounted for roughly one-third of Europe’s gas; they now make up less than 10%.

NatGasWeather noted that a threatened rail strike in the United States may also have boosted bullish sentiment in the market.

More notably, forecasts continue to show persistent heat. “The overnight data maintained unseasonably strong upper high pressure expanding to rule much of the U.S. next week, Sept. 18-22, resulting in widespread above normal temperatures,” NatGasWeather said Wednesday.

Storage Expectations

Against the strong demand backdrop, domestic supplies also remain precariously light for this time of year. The year-on-five-year storage deficit is likely to “only improve slightly” in the weeks ahead, according to NatGasWeather.

The U.S. Energy Information Administration (EIA) is scheduled to release its storage data for the week ended Sept. 9 at 10:30 a.m. ET Thursday.

A Bloomberg survey found a median prediction for a 71 Bcf increase. Injection predictions ranged from 62 Bcf to 80 Bcf. Reuters’ poll found estimates spanning builds of 64 Bcf to 78 Bcf, with a median estimate of 72 Bcf. The Wall Street Journal’s survey landed at an average injection expectation of 75 Bcf. Estimates ranged from 70 Bcf to 78 Bcf.

The actual build in the comparable week of 2021 was 78 Bcf, and the five-year average was 82 Bcf, according to EIA.

Should EIA print an injection in the low- to mid-70s, it would leave stocks more than 11% below the five-year average. With elevated demand across seasons, the market has maintained an inventory deficit throughout 2022.

Cash Market Momentum

Spot gas prices surged Wednesday, continuing an unabated win streak for the week, led by gains in the sun-soaked central United States.

Chicago Citygate jumped 32.5 cents day/day to average $8.080. Elsewhere in the Midwest, Defiance gained 28.0 cents to $7.990 and Consumers Energy rose 31.0 cents to $8.085.

In the Midcontinent, ANR SW spiked 45.0 cents to $7.920, and in Texas, Katy climbed 31.5 cents to $7.910.

NagGasWeather said that, aside from unseasonably lofty temperatures in parts of the Midwest and Northern Plains, a “messy pattern” of weather systems with rain would track across the United States late this week, bringing bouts of cooler air.

Still, hotter exceptions are to remain in Texas and across much of the South, the firm said, with highs in the 90s this week. Then, next week, forecasts show the eastern two-thirds of the Lower 48 warming above normal with highs in the 80s and 90s.

At the same time, Wood Mackenzie analyst Kara Ozgen noted that the United States has passed what the National Oceanic and Atmospheric Administration considers the peak of hurricane season – Sept. 10 – without major storms delivering widespread cooling winds and rain.

Still, she said, hurricanes are always a looming wildcard heading into fall.

“While it is promising to have made it this far in the Atlantic without anything significant developing and reaching the coasts, the threat of hurricanes in the Gulf and East Coast still remains,” Ozgen said Wednesday. “Currently, there is some activity, but nothing that looks too promising.”