In the aftermath of last week’s heavy sell-off, natural gas futures were trading lower early Tuesday as forecasts shed cooling demand over the weekend. The August Nymex contract was off 35.5 cents to $5.375/MMBtu as of around 8:45 a.m. ET.
After a brutal slashing, natural gas bulls licked their wounds and managed to churn out a respectable rebound along the natural gas futures curve to close out last week. The August Nymex futures contract settled Friday at $5.730/MMBtu, up 30.6 cents on the day. September futures climbed 32.0 cents to $5.712.
Cash prices continued to decline, however, amid a soggy forecast for the Independence Day holiday weekend. NGI’s Spot Gas National Avg. plummeted 77.0 cents to $5.460.
The fireworks show in futures trading was bright throughout Friday’s session, with the August contract coming within a nickel of the $6.00 mark early before bears trimmed some of those gains.
“We are now $4 off the highs, all thanks to what has happened at Freeport,” Bespoke Weather Services said.
That’s not to say bulls have nothing working for them.
To be sure, the first half of July is forecast to be a scorcher. NatGasWeather said the overnight data was hotter trending July 5-15, while the midday Global Forecast System (GFS) model trended even hotter July 5-8. In the latest run, the GFS showed an “impressively strong” upper dome of high pressure over most of the interior United States. It was cooler across the Northeast July 10-13 to give back a few cooling degree days, but on a national level, they should still average normal, according to the forecaster. That said, odds are the GFS trended a little too hot in recent runs and has the potential to give a few CDDs back.
With recent storage data indicating notably looser balances in the wake of the Freeport outage, “bulls need widespread heat to hold as long as possible to offset what’s proving to be notably greater supply,” NatGasWeather said.
The Energy Information Administration (EIA) said inventories for the week ending June 24 grew by a larger-than-expected 82 Bcf. This was the second storage report in a row in which the data surprised to the high side.
“Freeport is kicking back around 2 Bcf/d seven days a week,” Mizuho Securities USA LLC’s Robert Yawger, director of Energy Futures, told NGI. “Storage is closing the big deficit that had rallied natural gas futures to a 14-year high of $9.664 on June 8, the day that Freeport blew up.”
Meanwhile, the LNG export terminal’s return is being called into question after the Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a proposed safety order in light of its preliminary findings into the cause of the explosion. Freeport said in mid-June it was aiming to return to partial service in three months and expected full service to resume by the end of the year.
On Thursday, the company said it expects to resume partial liquefaction operations by early October. At that time, the company said it expects to be able to deliver all baseload production volumes. It continues to target year’s end for a return to full production.
“With the new timeline for when Freeport becomes operational extending into October, if not longer, weather patterns will eventually become less favorable since they can’t hold this much heat forever,” NatGasWeather said. “And when that happens, deficits are likely to improve.”
Until then, the market may have sold off too much too quickly, according to Bespoke. The last two EIA figures have been “solidly bearish,” enough so that if balances do not tighten back up soon, the market could easily still slide lower.
However, with the combination of lower prices, which should help power burns, and a weather pattern that still has some solid heat in it, now seems too soon for the market to have enough comfort to head much lower, according to Bespoke. If the market gets through the next few weeks with no retightening, and heat does not materialize as much, then it could see the market being more comfortable with the supply picture.
“As discussed previously, however, there have just been too many land mines in this market lately to have much confidence either way, especially heading into a long holiday weekend,” Bespoke said.
Spot gas prices continued to soften ahead of the holiday weekend, even with some pipeline maintenance restricting gas flows.
Great Lakes Gas Transmission (GLGT) issued a force majeure on Thursday because of equipment failure at Unit 201 at the Thief River Falls Compressor Station 2. As a result, effective through July 10, operational capacity at Emerson Eastbound in Kittson County, MN, has been reduced by 392 MMcf/d. This leaves an operational capacity of 1,630 MMcf/d.
However, according to the timely cycle for Friday, Wood Mackenzie said operational capacity was reduced to 1,568 MMcf/d. In the last 30 days, flows through Emerson Eastbound averaged 1,624 MMcf/d and maxed at 1,800 MMcf/d. GLGT expects this force majeure to have a 6% impact on firm primary service.
Looking ahead, Creole Trail Pipeline is scheduled to perform work at its Gillis Compressor Station from July 6-12. The maintenance would likely cut around 342,319 MMBtu/d of deliveries to Sabine Pass Liquefaction based on the past seven-day average. Wood Mackenzie noted that in the past 30 days, Creole Trail-SPLIQ averaged 1.35 Bcf/d and maxed at 1.54 Bcf/d on June 20.
Despite the pipeline work, gas prices cratered across the Lower 48.
Northeast prices came off the most, with New England locations shedding more than $1.00 on the day. PNGTS dropped $1.665 to $5.970 for the four-day gas delivery. Transco Zone 6 NY was down 79.5 cents to $5.155.
Appalachia markets posted hefty declines as well, with hot weather on the East Coast giving way to soggier conditions over the weekend. Eastern Gas South was down 54.5 cents to $5.010.
Southeast locations fell by more than 70.0 cents at a couple of points, which was in line with decreases seen at Henry Hub. The benchmark dropped 73.0 cents to $5.730 for gas delivery through Tuesday.
Huge losses extended across Texas, where Houston Ship Channel came off 97.0 cents to average $5.360.
In California, the SoCal Border Avg. plunged $1.065 to $5.315.
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