Natural gas futures advanced for a second straight day on Wednesday amid expectations for summer production to trail demand, potentially pressuring storage supplies. The June Nymex gas futures contract gained 25.5 cents day/day and settled at $7.640/MMBtu. July rose 26.0 cents to $7.727.

At A Glance:

  • Robust supplies loom large
  • Cold weather shift lies ahead
  • Freeport LNG lingering wildcard

NGI’s Spot Gas National Avg. climbed 79.5 cents to $7.305.

The prompt month’s advance Wednesday followed a 36-cent jump a day earlier, though futures fell far short of fully recouping the nearly $2.00, two-day slump that preceded the latest gains.

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Bespoke Weather Services said forecasts for the next two weeks – and beyond – call for seasonally strong heat and robust cooling demand over large parts of the South. Cooling degree days (CDD) are expected to accumulate as the month wears on, providing price support.

“We have now reached the point where CDDs become the key driver in demand,” the firm said. “Southern heat is still the focus heading into this weekend and early next week, with the risk of 100-degree highs in places like Dallas and San Antonio very impressive for the middle of May.”

Wind also is expected to prove modest in Texas this weekend, Bespoke added, “which could make power burns quite strong. While the southern heat weakens after that, we suspect the bias will remain to the above side of normal heading into the end of May and into June.”

Meanwhile, despite interruptions caused by spring maintenance work, U.S. liquefied natural gas (LNG) exports volumes are holding above 12 Bcf/d in May. European countries are scaling back on their calls for Russian gas in opposition to the Kremlin’s war in Ukraine. U.S. supplies are helping to fill the void.

Production, meanwhile, has been choppy in recent days – contributing to the recent volatility and likely to future swings in trading, Bespoke noted.

Against the backdrop of increased cooling demand and uncertain output, the Natural Gas Supply Association’s (NGSA) 2022 Summer Outlook, released Wednesday, projected upward price pressure on the natural gas market. It cited expectations for robust industrial demand this summer, relatively low storage inventories, and “the ripple effect on energy commodities caused by Europe’s energy crisis as it struggles for independence from Russian oil and gas.”

Fundamentals point to “strong demand for natural gas at home and globally” through the summer months, said NGSA Chairman David Attwood. He is also ExxonMobil’s vice president of the Americas, global gas optimization and trading.

Should that prove the case, it could prevent U.S. utilities from refilling storage this summer to adequate levels. That is driving bullish price sentiment, the U.S. Energy Information Administration (EIA) said this week.

Storage Under Pressure

Henry Hub prices, for example, are forecast to average $7.83 for the second quarter after averaging $6.59 for April, EIA said in its latest Short-Term Energy Outlook. The average last month represented a $4.90 increase over the April 2021 average of $2.66, the agency said.

With storage levels expected to lag the five-year average this summer, Henry Hub natural gas spot prices could spike to $8.59/MMBtu on average in the second half of this year, EIA said.

In the wake of the recent forecasts, “even small bullish catalysts can send natural gas steeply higher with little warning,” said EBW Analytics Group’s Eli Rubin, senior analyst.

EIA last week reported a 77 Bcf injection into natural gas stockpiles for the week ended April 29. The build left inventories at 1,567 Bcf, 306 Bcf below the five-year average. The agency is scheduled to post its print for the period ended May 6 at 10:30 ET on Thursday. 

Analysts are expecting an injection in the low 80s Bcf. Bloomberg’s survey, for one, spanned estimates of 64 Bcf to 85 Bcf, and landed at a median expectation for an injection of 81 Bcf. That would compare with an injection of 70 Bcf during the same week last year and a five-year average increase of 82 Bcf.

Cash Prices Climb

Spot gas prices, after a slump of their own earlier in the week, advanced as southern heat fueled cooling needs.

NatGasWeather said strong early season demand spread across Texas and the southern Plains on Wednesday and was expected to continue through the trading week, with highs of upper 80s to mid-90s.

Prices popped across Texas Wednesday. Carthage cruised ahead 96.0 cents day/day to average $7.315, while Waha spiked $1.060 to $6.960. Katy gained 74.0 cents to $7.400.

“It’s also very warm from the southern Great Lakes to the South, with highs of 80s to lower 90s,” NatGasWeather said. “The East will be nice despite a stalled weather system off the coast that will eventually track into the Southeast later in the week.

“For late this week through mid-next week, the northern U.S. will be comfortable with highs of 60s and 70s, while the southern U.S. remains very warm,” including temperatures in the 100s across Southwest deserts, the firm said. Heat in the South is expected to extend through much of May.

On the production front, Wood Mackenzie analysts also noted that, in addition to regular spring repairs, several unplanned maintenance projects popped up this week, adding to recent volatility. The firm said Tennessee Gas Pipeline, Garden Banks Gas Pipe Line and Creole Trail Pipeline all reported the need for ad-hoc maintenance.

On that foundation, cash prices jumped across several Lower 48 regions.Algonquin Citygate near Boston rose 93.5 cents to $7.460. In the Mountain West, Cheyenne Hub gained 91.0 cents to $7.250, and in California, PG&E Citygate packed on 48.5 cents to $9.035.