With a flip of the calendar and a notably warmer outlook for June, natural gas futures prices roared back after the Memorial Day holiday weekend. A sharp decline in supply — though seen as possibly temporary — also influenced pricing, with the July Nymex futures contract settling Tuesday at $3.104/MMBtu, 11.8 cents higher than Friday’s close. August jumped 11.9 cents to $3.126.
At A Glance:
- Futures shed 12.5 cents day/day
- Forecasts call for mild conditions
- EIA prints 83 Bcf storage injection
Spot gas prices also leapt higher as demand returned following the extended holiday weekend. NGI’s Spot Gas National Avg. climbed 14.5 cents to $2.850.
Bullish momentum has been festering for weeks in the natural gas market, with strong export demand and tepid production growth fueling projections for higher prices this summer. However, a lack of summer heat repeatedly has taken the wind out of any price spikes, and prompt-month Nymex prices have remained firmly entrenched in a sub-$3.00 trading pattern for at least a month.
“Basically, weather is about as bullish as it can get, and even though weather is not known as *the* driver of prices in the warm season, as it often is in winter, at this magnitude, it certainly cannot be ignored,” said Bespoke Weather Services.
The forecaster said the 15-day outlook turned “notably hotter” over the weekend, particularly in the six- to 10-day period in the Midwest and East. The firm said some 90-plus degree high temperatures are now expected as far north as Minneapolis to Boston in that time frame.
This boosts gas-weighted degree days (GWDD) to “near-record levels” on at least a couple of days early next week, despite the fact that the West cools off after the next few days and there is no notable heat (relative to normal) in Texas and much of the South, according to Bespoke.
“With GWDDs running just over 20 above normal over the next 15 days, assuming the current forecast is correct, a back half of June that is just near the five- or 10-year normal would be within a few GWDDs of the hottest on record, based on the national GWDD count, quite an impressive feat if it holds,” the forecaster said. “Intensity of heat does lower somewhat in the 11- to 15-day, but not yet even back to normal levels.”
The weather component is the final piece in what is a supportive backdrop for prices.
After a couple of weeks of maintenance, liquefied natural gas (LNG) export facilities have ramped up capacity and feed gas demand. NGI data showed feed gas deliveries to U.S. terminals held at around 11.1 Bcf on Tuesday, up from a weekly low of around 9.5 Bcf set May 26.
Exports to Mexico also have consistently tracked above 6 Bcf/d, with an early record 7.1 Bcf/d achieved ahead of the summer season.
On the supply side, Wood Mackenzie estimated that production on Tuesday was down 2.3 Bcf/d from Monday. About 1.0 Bcf/d of this decrease is coming from the Northeast, mainly concentrated (roughly 800 MMcf/d) from Northeast Pennsylvania (NEPA).
Wood Mackenzie analysts Nicole McMurrer and Laura Munder noted that Tuesday marked the first of the month, when large daily declines in the morning are oftentimes followed by significant revisions the following day, usually near 1 Bcf/d. However there is also some maintenance on Tennessee Gas Pipeline in NEPA, accounting for about 365 MMcf/d of the decline. This maintenance event is only expected to last through Wednesday’s gas day, with a much smaller impact estimated for the day.
The futures trading pattern for the past few weeks and the increase in speculative long positions indicate that a significant change in market sentiment occurred in May, according to EBW Analytics Group.
However, the firm noted that price increases may be tempered in part by continued high storage injections. It sees large injections continuing for three more weeks.
Early estimates for Thursday’s EIA storage report point to an injection in the range of 87 Bcf to 103 Bcf. NGI modeled a 95 Bcf build.
This would compare with last year’s 103 Bcf injection and the 96 Bcf five-year average injection, according to the Energy Information Administration (EIA).
Last Thursday, EIA reported a much larger-than-expected 115 Bcf injection into storage inventories for the week ending May 21. The build lifted inventories to 2,215 Bcf, which compared with the year-earlier level of 2,596 Bcf and the five-year average of 2,278 Bcf. But the increase nevertheless signaled some easing in demand.
“With solid support now in place near $3.00, futures are likely to post gains this week, driven higher by increases in weather-related demand over the holiday weekend and the expected return of warmer-than-normal weather by the end of this week,” EBW said. “With EIA anticipated to report large injections over the next three weeks, though, the steepest gains are not likely to occur until later in the summer, when the fall- and winter-month gas contracts could make a serious run at $4.00.”
More Cash Gains
Spot gas prices continued to rise Tuesday as demand was seen continuing to recover from the Memorial Day holiday, even without significant widespread heat on the weather maps.
NatGasWeather said national demand was expected to be light through Saturday, with “comfortable” highs in the 70s and 80s ruling east of the Rockies as weather systems bring showers and thunderstorms. There may be locally stronger demand over the West amid strong upper high pressure, according to the forecaster, with the hottest weather forecast over California and the Southwest, “where some record highs could be broken.”
The National Weather Service (NWS) also called for “simmering and record-breaking heat” for the beginning of June.
The scorching conditions would be particularly likely Tuesday from central California to northwest Oregon, before expanding into the northern Great Basin on Wednesday, according to NWS. Highs are expected to reach into the triple digits across the Sacramento and San Joaquin valleys of California, as well as portions of southwest Oregon and the Desert Southwest.
High temperatures into the 90s should spread into central Washington and potentially north-central Montana on Wednesday, with several cities including Fresno, CA, Portland, OR, Spokane, WA and Boise, ID potentially seeing daily record high temperatures this week.
The steamy outlook was already being reflected in the spot gas market on Tuesday. SoCal Citygate next-day gas prices shot up 20.0 cents to $4.915, and El Paso San Juan jumped 23.5 cents to $2.940. Opal spot gas climbed 18.0 cents to $3.015.
The demand throughout the Western United States buoyed prices in the West Texas portion of the Permian Basin as well. Waha next-day gas traded 27.5 cents higher at an average $2.890.
East Coast prices did not experience the same level of enthusiasm, with falling demand softening prices across the region.
“The combination of a storm moving away and a northward retreat of the jet stream will allow more seasonable temperatures and dry weather conditions in the short term this week,” said AccuWeather meteorologist Mary Gilbert.
On the pipeline front, Texas Eastern Transmission (Tetco) declared a force majeure on the 30-inch diameter system beginning Tuesday’s gas day and lasting until further notice. This restriction is due to a corrective action order from the Pipeline and Hazardous Material Safety Administration (PHMSA) which would require a 20% reduction, or around 0.75 Bcf/d, in line pressure until the work is completed.
Wood Mackenzie said Tetco is uncertain what will be required by PHMSA before capacity can be restored. The pipeline has engaged PHMSA to “fully understand their concerns and what actions are required to return the system to its full operating pressure.” Once Tetco has clarity on the course of action required, it plans to “post information about the work plan necessary to return the system to its full operating pressure on these lines.”
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