Natural gas futures, which plummeted more than $1.40 early in the week, rallied for a second day on Thursday. Mounting global demand began to overshadow an expected boost to domestic supplies following a fire at a liquefied natural gas (LNG) terminal on Quintana Island, TX, last week.

At A Glance:

  • Front month loses 5.8 cents
  • Demand poised to ease
  • Supplies remain elevated

The July Nymex gas futures contract settled at $7.464/MMBtu on Thursday, up 4.4 cents day/day. August gained 3.2 cents to $7.438. Trading proved erratic throughout the day, but the prompt month did eclipse the $8.00 threshold at one point in the day.

NGI’s Spot Gas National Avg. rose 8.5 cents to $7.625.

To be sure, the explosion earlier this month at the Freeport LNG export terminal, and the operator’s caution that it likely will not return to full service until late 2022, rattled markets. The roughly 2.0 Bcf/d of feed gas sent to Freeport for eventual export can now be used to help refill depleted storage supplies this summer. U.S. inventories this spring have consistently trailed the five-year average.

The anemic supply picture had bolstered futures through much of 2022. Still, the shut-in Freeport facility raised the potential for ample gas in storage, signaled that prices were inflated, and sent futures plunging Tuesday.

The market, however, recovered momentum over the next two sessions as traders shifted their focus back to the demand drivers that ungirded the market and sent futures to a 14-year high in early June: a combination of “soaring” prices in the international market, record heat and strength in LNG feed gas demand, according to EBW Analytics Group.

Europe, in particular, has an almost insatiable hunger for U.S. exports. Countries across the continent are shunning Russian gas in protest of the war in Ukraine and need American LNG to compensate.

“Despite the Freeport LNG outage vastly improving the U.S. storage outlook, the steep price gains overseas are contributing to rising risk premiums in Nymex futures,” said EBW senior analyst Eli Rubin.

European demand remains fully intact, regardless of available supply. At the same time, Asian countries are increasingly clamoring for LNG, too, as summer weather settles in. This intensifies already heated competition for the temporarily curbed flow of LNG. Global prices have spiked this week in response, and the bullish sentiment carried over to U.S. trading.

The Freeport outage comes “at a time when Europe is still taking in huge volumes of LNG to offset declines in Russian supplies and bolster storage ahead of winter. This is all happening as another large exporting nation, Australia, is facing a critical winter energy crisis of its own and South American demand is headed toward its seasonal high, straining an already tight market,” RBN Energy LLC analyst Lindsay Schneider said Thursday.

In-line Injection

The current storage picture remains cloudy.

Utilities injected 92 Bcf of natural gas into storage for the week ended June 10, the U.S. Energy Information Administration (EIA) reported Thursday.

The print was essentially on par with market expectations for an injection of around 90 Bcf. However, it was notably higher than the 28 Bcf during the same week last year and the five-year average increase of 79 Bcf.

Still, it did not cut bulls off at the knees Thursday. NatGasWeather noted that production, struggling to muster momentum through the spring, hovered around a lackluster 94-95 Bcf this week. At the same time, scorching heat has fueled robust cooling demand this month, and forecasts continually call for June 2022 to be among the hottest — if not the hottest — June on record. Long-range forecasts predict the summer overall will feature above average temperatures nationally.

“To our view, until U.S. production increases to over 97 Bcf/d, the supply/demand balance remains tight enough where deficits won’t improve much without prolonged bearish weather patterns,” NatGasWeather said. The firm did note that the unexpected shuttering of the Freeport LNG facility provides some breathing room.

The increase in storage for the June 10 week lifted inventories to 2,095 Bcf, but it left stocks below the year-earlier level of 2,425 Bcf and the five-year average of 2,418 Bcf.

By region, the East and Midwest led with injections of 31 Bcf and 28 Bcf, respectively, according to EIA. The South Central increase of 20 Bcf followed. Pacific inventories rose by 10 Bcf, while Mountain region stocks increased by 4 Bcf.

Notably, EIA also on Thursday revised estimates for the East, Midwest and Pacific regions to reflect resubmissions of data during the three-week period ended on June 3. The reported revisions caused inventories for June 3 to change from 1,999 Bcf to 2,003 Bcf, while stocks for the week ended May 27 changed from 1,902 to 1,901 Bcf. As a result, EIA noted, the implied net change between the May 27 and June 3 periods changed from 97 Bcf to 102 Bcf. 

Early estimates for the week ending June 17 submitted to Reuters ranged from injections of 51 Bcf to 90 Bcf, with a mean increase of 66 Bcf. That compares with the five-year average injection of 82 Bcf.

The next two EIA prints will likely get a boost from the freed-up Freeport gas but could still be held in check because of “impressive heat setting up this week and remaining hotter than normal into late June,” NatGasWeather said.

Spot Prices Spring

Cash prices also rallied for a second day amid the robust cooling demand throughout the nation’s midsection and the South.

Chicago Citygate gained 10.5 cents day/day to $7.520, while Henry Hub climbed 17.5 cents to $7.890 and El Paso Permian rose 19.5 cents to $6.900.

“Strong national demand continues through Friday as impressively hot high pressure extends from Texas to the Ohio Valley and across the Southeast with highs of 90s and 100s, including highs again reaching the upper 90s for Chicago,” NatGasWeather said.

Rain showers and cooler air were forecast to canvass the East over the coming weekend, easing overall national demand, the firm said. But lofty temperatures were expected to persist in the interior United States “as upper high pressure holds firm with highs of 90s from Texas to the Dakotas.”

Looking to next week, NatGasWeather sees strong national demand “as the hot upper ridge regains ground to rule” much of the Lower 48, with “widespread highs of 90s and 100s, including ominous heat and humidity across the Southeast.”

On Thursday in the Southeast, Florida Gas Zone 3 jumped 41.5 cents to $8.825.