Natural gas futures strengthened Tuesday, with demand continuing to increase as economies reopen amid the coronavirus pandemic and as weather models boosted heat in the coming weeks. The June Nymex gas futures contract climbed 6.2 cents to settle at $1.793. July picked up 6.4 cents to $1.945.
Spot gas prices also climbed following the Memorial Day holiday weekend, with sharp gains on the East and West coasts driving up NGI’s Spot Gas National Avg. 17.5 cents to $1.685.
After some big moves over the past week, the natural gas market continues to wrestle with a host of conflicting factors, and volatility may continue given the June contract’s expiration on Wednesday.
Working in favor of higher prices are weather models that are starting to show signs of warmer weather for June at the same time that demand continues to claw back from coronavirus-related shutdowns. The strongest changes to the warm side are in the central United States, although a little more warmth also is seen in parts of the South in the 11- to 15-day time frame, according to Bespoke Weather Services. This has kept the number of forecast cooling degree days above normal, which “generally fits with our expectations of an above-normal demand pattern for June.”
Meanwhile, production remained more than 10 Bcf below winter highs, but it has moved higher. Flow data showed U.S. natural gas supply increased by 1 Bcf/d over the Memorial Day holiday weekend, according to analysts at Tudor, Pickering, Holt & Co. (TPH). The increase was “entirely driven by Texas volumes,” through a combination of higher flows from the Haynesville Shale and associated volumes.
“With oil prices in the mid-$30s, we expect shut-in volumes to begin making their way back into the market, and it’s possible we’re seeing the first signs of this already,” the TPH analysts said. “In total, we estimate about 2-3 Bcf/d of production is shut-in, meaning last week’s average dry gas production of 89 Bcf/d may represent the low point on gas supply.”
On the demand side, Energy Aspects said some industries may be hitting virus-related setbacks as they attempt to resume operations. Ford Motor Co., for example, suspended operations at two plants after Covid-19 cases were diagnosed upon reopening. Meat packing plants in Texas also remain hotspots, according to the firm.
These setbacks “would likely mute near-term upside from industrial gas use,” Energy Aspects said.
The “wild card,” however, is U.S. liquefied natural gas (LNG) exports, according to EBW Analytics Group. The firm pointed out that prices at the Title Transfer Facility in Europe fell to $1.17/MMBtu last week, which is far below the short-term variable cost of importing gas from the Lower 48.
“Feed gas flows to U.S. facilities already have been plummeting, but could drop another 3-3.5 Bcf/d in June,” EBW said. “If this occurs, the near-month contracts might have much further to fall.”
On Sunday, feed gas deliveries to Lower 48 LNG facilities set a monthly low of nearly 5.35 Bcf/d, representing a decline of nearly 43% from the observed maximum single-day feed gas delivery of around 9.3 Bcf/ d on March 31, Genscape Inc. data showed. However, based on the timely cycle for Tuesday, LNG feed gas deliveries showed a slight recovery and neared the prior two-week high of 6.06 Bcf/d. NGI data showed a slightly larger bump in feed gas volumes at around 6.2 Bcf/d.
“As expected, this reversal has been led by some of the largest consumers of feed gas — Cameron LNG (plus 0.36 Bcf/d), Corpus Christi LNG (plus 0.17 Bcf/d) and Sabine Pass (plus 0.24 Bcf/d),” Genscape analyst Preston Fussee-Durham said. “However, Cameron’s gains come after a near weeklong decline from highs of 1.65 Bcf/d to Sunday’s low of 0.86 Bcf/d.”
Bespoke said although LNG concerns for the summer are “real,” with demand coming back, it no longer characterizes the market as “sell all rallies at the front of the curve.”
“That does not make us all-out bullish, but whereas before it was hard to find reasons to argue for any sustainable rally at the front of the curve, now it is not as clear cut.”
Bespoke noted that the market has not eliminated the risk of filling storage this fall, but it is at least “taking steps in that direction.” Further improvements in data “would make things much more interesting in that regard, especially if we do get the hotter summer that we are expecting.”
The firm is projecting an injection of 115 Bcf for the Energy Information Administration (EIA) storage report scheduled for Thursday. Energy Aspects issued a preliminary forecast of a 102 Bcf build, while EBW pegged the build at 113 Bcf.
As of May 15, total working gas in storage stood at 2,503 Bcf, 779 Bcf above year-ago levels and 407 Bcf above the five-year average, according to EIA.
After the injection season passes, the implications of dramatic gas supply reductions will become stark, according to EBW. “While a portion of recent declines may be reversed as curtailed output is restarted, lingering supply losses are likely to eventually push Calendar 2021 contracts notably higher.”
Cash prices moved solidly higher Tuesday, recovering from the low holiday weekend period and with warmer weather in some parts of the country.
West Coast markets posted some of the steepest increases as “excessive heat” builds in the region, with “widespread record high temperatures” expected in Central California, according to the National Weather Service (NWS). The potentially record-setting high temperatures should spread eastward into the Central Great Basin and Southwest by Wednesday, the forecaster said.
Rockies cash also strengthened, with most gains limited to less than 20.0 cents but slightly higher increases seen along the El Paso Natural Gas system, which climbed about 25.0 cents from Friday.
Spot gas prices throughout the country’s midsection also recovered on Tuesday, with most prices in Texas, the Midcontinent and Midwest climbing 10.0-20.0 cents, including at the Chicago Citygate, which tacked on 17.0 cents to average $1.705.
Louisiana and Southeast cash was up around 10.0 cents or so, while markets farther east were stronger.
In Appalachia, next-day gas at Dominion South climbed 17.5 cents from Friday to average $1.450. In the Northeast, Algonquin Citygate jumped a region-leading 43.5 cents to $1.720 as Algonquin Gas Transmission (AGT) was set to conduct pig runs Wednesday on its 30-inch diameter Main Line, from the Hudson River to its Cromwell, CT, compressor station.
During the work, capacity at the Stony Point compressor is to be reduced to 895 MMcf/d from 1.82 Bcf/d. Flows through Stony Point have averaged 1.02 Bcf/d over the last 30 days, meaning there could be an average impact of 125 MMcf/d, according to Genscape, although that has trended lower during the back half of the month.
“Flows for May 26 are elevated at the time of writing due to demand over-nominations, but this will be revised down,” Genscape analyst Josh Garcia. “This outage will add slight bullish pressure for Algonquin Citygate cash prices as capacity at one of AGT’s main constraint points is restricted.”
Meanwhile, the NWS is forecasting high temperatures coming in 10-25 degrees above average through Wednesday from the Great Lakes into the interior Northeast, as temperatures approach or exceed 90 degrees, which also could set records.
Also on the pipeline front, Texas Eastern Transmission (Tetco) late Friday pushed the return to service of Line 25 following an explosion earlier this month to Wednesday, rather than last Sunday (May 24). As of evening cycles for Tuesday, capacity at Owingsville remained at zero, and the return to service would restore around 800 MMcf/d of Appalachia export capacity, Garcia said.
In addition, Tennessee Gas Pipeline on Tuesday began performing its annual emergency shutdown test (ESD) at its station 96 location, restricting operational capacity to 2.0 Bcf/d at STA 111 to STA 114 and STA 111 to STA 200. The annual ESD test is expected to disrupt flows until Thursday (May 28), curtailing an average of 356 MMcf/d of natural gas flows into Kentucky based on the prior seven-day flow average, according to Genscape.
As of Monday’s timely cycle, flow impacts had already begun to materialize “in the neighborhood of 260 MMcf/d,” said Genscape’s Fussee-Durham. However, during an emergent repair last week, which disrupted export capacity out of Appalachia, “significant receipts from the Monroe storage facility in Alabama were observed, limiting downstream impacts. Similarly, day-over-day receipts from the Monroe storage facility have increased by 96 MMcf/d, helping to offset the lost northern molecules.”
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