Natural gas futures, fresh off a massive 12-cent climb, retreated a bit Friday as Hurricane Laura’s destruction slowly came into focus. Aided by a cooler weather outlook over the coming weeks, the October Nymex gas futures contract fell 5.3 cents to $2.657. November lost 2.7 cents to hit $2.916.
Spot gas prices also were lower outside of West Texas, where prices for the three-day period through Monday climbed around 40.0 cents on average. NGI’s Spot Gas National Avg. fell 11.0 cents to $2.075.
With extensive power outages remaining in the wake of Laura, along with lower temperatures brought on by the storm’s winds and rain, a pullback at the front of the Nymex futures curve was to be expected. Perhaps most important to the gas market, the former Category 4 storm also brought liquefied natural gas (LNG) demand to a halt. Both the Sabine Pass and Cameron export terminals shut down operations before Laura washed ashore.
Production also was shut-in leading up to Laura’s landfall, though much of that is expected to be brought back online in the days ahead. Genscape Inc. said Gulf of Mexico (GOM) production was down at least 1.5 Bcf/d from pre-storm levels, but pipeline notices indicated remanning efforts would be underway beginning Friday.
“Pipes posted several notices indicating that storm-related restrictions would be lapsing soon as crews inspected infrastructure in the area,” Genscape said.
Murky LNG Recovery
The speed of LNG recovery is more uncertain, according to NatGasWeather.
NGI data showed feed gas deliveries at around 2.8 Bcf/d for Friday, which is up from the 2.3 Bcf/d low recorded on Wednesday, but sharply off the 5.0 Bcf/d highs seen the previous week.
Cameron LNG’s response team was on site throughout Friday assessing Laura’s impact on the plant, according to spokesperson Anya McInnis. The work is ongoing and would continue over the next few days.
“Our focus is to secure the site, address any safety hazards and assess the integrity of the facility. When the assessment is complete, we can progress a timeline of activities to restart operations,” she said.
All Cameron employees are safe, and the company was working to provide recovery assistance for those impacted personally by the storm.
“By being on the ‘right’ (i.e., west) side of the storm, Sabine Pass was spared the worst impact,” according to EBW Analytics Group. “The storm surge that developed was a few feet lower than expected, and the storm was far enough west of Henry Hub that it too was spared.”
Though several other questions remain regarding the extent of damages, if any, to pipelines and processing plants, the resumption of LNG exports could have a material impact on gas prices, according to EBW, though with less at stake than perhaps the market assumes.
“If LNG terminals had been operating at capacity, even a few days of lost operation could result in a major loss of demand, and there would be no way to reschedule the lost cargoes,” said analysts. “At current capacity factors, though, the only question is timing. The vessels are sitting in the GOM waiting to be loaded.”
As soon as some trains can be restarted, gas would flow and the vessels loaded, according to EBW. Furthermore, Cheniere has the right to substitute cargoes from Corpus Christi “and has already started to do so.”
Bloomberg data showed seven vessels floating in the GOM Friday, unchanged from Thursday, though more were heading that way.
Strong Bullish Sentiment
There’s no doubt that market sentiment has turned increasingly bullish over the past month, especially as, prior to Laura, LNG demand had been steadily rising from the summer lows brought on by healthy global storage inventories and exacerbated by Covid-19.
Market observers also were growing more confident in the storage trajectory for Lower 48 stocks, with strong power burns keeping a lid on injections in recent weeks. The latest storage data also painted a tighter supply/demand picture.
On Thursday, the Energy Information Administration (EIA) reported a 45 Bcf injection into U.S. inventories for the week ending Aug. 21. Though the figure did little to move the needle on the year/year surplus, it was tighter week/week.
Tudor, Pickering, Holt & Co. (TPH) analysts said the build was 3 Bcf below seasonal norms, with all the heavy lifting was done in the Pacific region, where the 7 Bcf withdrawal compared to norms of a 2 Bcf injection.
The TPH team is currently forecasting a total build of around 35 Bcf for the next EIA report, which would be roughly half seasonal norms as constructive weather continues to support strong power burns. On the whole, analysts said weather has been “incredibly supportive” this injection season, with cumulative degree days the highest in five years and 10% above the five-year average.
“However, cumulative injections are still 20% above the five-year average,” TPH analysts said. “This has largely taken storage risk out of play, allowing an early run in gas pricing.”
Further fluctuations in Nymex pricing are certainly on the table in the coming weeks, but upward momentum is strong, analysts said.
With October taking over the prompt position, ICAP Technical Analysis’ Brian Larose said he wanted to see the contact move “decisively above” the $2.71-2.795 range on a closing basis. “If the bulls can accomplish that, there’s really nothing in the way of resistance, other than the prior high of $2.905, all the way up to $3.18. So there should be room to run.”
However, weather remains key. The latest weather outlooks indicated that Friday may have been the hottest day remaining this summer. Bespoke Weather Services said demand could fluctuate between normal and “somewhat above normal” heading into the first half of September. This is a little cooler than what forecasts had been suggesting even a few days ago, with all guidance pointing to cooler weather in the central United States and heat mostly back in the West.
“This looks similar to what we have seen this month as well, spatially, although this month wound up another hot one, as western heat overwhelmed any cooling farther east,” Bespoke said. “It is not the ‘typical’ La Niña pattern, however, which may be the atmosphere’s way of suggesting this indeed will be a weak La Niña heading into the cold season.”
With demand set to ease beginning over the weekend, spot gas prices across most of the country fell. Losses were led by the Northeast, where what’s left of Laura was expected to bring heavy showers to the region, with additional weather systems moving through in the coming days.
Southeast prices for gas delivered through Monday also dropped by the double digits at several hubs, but Transco Zone 4 slipped only 4.5 cents to $2.500.
Henry Hub also lost 4.5 cents to average $2.460, while prices farther west continued to post substantial declines. El Paso S. Mainline/N. Baja plunged 56.5 cents to $3.230, and SoCal Citygate fell 17.5 cents to $3.865.
In the Permian Basin, Waha gas for delivery through Monday jumped 41.0 cents to $1.465, a move that was in line with other hubs in the region.
Cash prices across the border in Western Canada retreated a bit, with NOVA/AECO C slipping 5.0 cents to $2.575.
TPH reported that AECO storage inventories, which entered the injection season at a 28% deficit to the five-year average, are now on pace to hit capacity at the end of September. The refill has been supported by 2Q2020/3Q2020 basis of roughly 35 cents/Mcf, which is inside transport costs of 70-90 cents, depending on the pipeline. “This has incentivized gas to remain in basin rather than be exported,” said analysts.
The impact is 231 Bcf of being tucked away so far this season, putting inventories at 433 Bcf and about 50 Bcf shy of capacity of around 480 Bcf, according to TPH. “To be clear, we don’t see this derailing the gas thesis, as a potential crunch would be short-lived, and 2021 balances are expected to be kept in check by lower production levels and rising exports to the United States.”
However, the TPH team sees September basis of 53 cents being “too tight,” given the current situation. With recent AECO basis blowouts all too fresh in most people’s minds, “we think a subtle heads up should prevent any potential sticker shock, should a short-term correction be required to clear storage.”
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