• Natural gas futures recover slightly as production slips 2 Bcf/d from Monday
  • LNG demand holding above 4.5 Bcf/d as arbitrage has improved
  • Cash continues to climb as heat seen continuing another day

Natural gas futures rebounded a bit Tuesday as production declined and liquefied natural gas (LNG) demand held firmly above the 4.5 Bcf/d mark. After swinging in a roughly 10-cent range, the September Nymex gas futures contract settled at $2.171, up 1.8 cents. October climbed 2.4 cents to $2.311.

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Spot gas prices continued to climb across most U.S. markets, with the Northeast leading the way and driving NGI’s Spot Gas National Avg. 8.5 cents higher to $2.035.

Though weather still rules the natural gas markets, Tuesday’s action along the futures curve was largely because of a sharp drop in Lower 48 production. Bespoke Weather Services said pipeline data pointed to a roughly 2 Bcf/d decline from Monday, although the firm expected some of the drop to be revised in the late-day cycle.

Meanwhile, LNG feed gas volumes continued to climb, moving above 4.6 Bcf/d for Tuesday, according to NGI’s U.S. LNG Export Tracker. The stronger LNG demand, driven by higher international prices, was the main culprit of last week’s Nymex futures rally. As Genscape Inc. pointed out, the 30-cent rally in Nymex Henry Hub futures on Aug. 3 was preceded by the National Balancing Point (NBP) prompt month rallying 45 cents.

“NBP gained a massive 81.0 cents, or 39% week/week, to finish the week of Aug. 7 at $2.86/MMBtu,” Genscape analyst Josh Garcia said. “NBP summer strip balance gained 75 cents to end the week at $3.01.”

With September Nymex finishing the past week at $2.24 and the balance of summer finishing at $2.31, the LNG export arbitrage improved despite still being out of the money, according to Garcia. The prompt-month arbitrage rose from minus 54 cents to minus 24 cents, while the balance-of-summer arbitrage rose from minus 42 cents to minus 17 cents. The arbitrage for the upcoming winter, however, stayed relatively unchanged.

Regarding the recent rise in LNG demand, the analyst said “the last time LNG feed gas was at this level was on June 27. These recent gains have been driven by Freeport LNG’s return to service after no nominations from July 7-29, and a ramp-up in deliveries to Corpus Christi LNG.”

However, even with the continued increases this week, levels are still far below the high of 8.0 Bcf/d recorded by the Energy Information Administration (EIA) in January, and the agency expects U.S. LNG exports to remain low for the next few months. Some 45 cargoes reportedly have been canceled for August and another 30 cargoes are estimated to have been scrapped for September.

Looking beyond 2020, the International Gas Union said recently global imports are expected to fall about 4.2% this year, but they “could rebound quickly to previous levels as soon as 2021, depending on the persistence and longevity of the pandemic.”

In the meantime, weather will become increasingly important in the storage trajectory of Lower 48 stocks in the final two months of the injection season. July proved to be a saving grace as intense heat kept injections smaller than normal, but any warmer weather starting next month would have more of a bearish impact on storage and likely lead to stronger builds just as the injection season draws to a close.

With less heat across the nation last week, in part because of Hurricane Isaias, estimates for the upcoming EIA storage report are converging near a build in the high 50 Bcf range. Bespoke said the supply/demand balance had weakened somewhat in the last couple of weeks, and it remained to be seen whether the higher price point priced out any demand, “all of which suggests that, while low, the risk for containment has not completely gone away.

“It still appears likely that we reach 4.0 Tcf by the end of the season, and there are still many unknowns, such as the level of LNG volumes that will return, future production trends and of course, weather.”

The firm is projecting a build of 58 Bcf for the next EIA report, which is much larger than last week’s 33 Bcf figure and solidly above the five-year average, “though the biggest reason for this is the last week was a much cooler week, with gas-weighted degree days below normal for the week as a whole.”

As for the latest weather outlooks, Bespoke said the models held onto the cooler forecast for next week, but indicated some heat could return for the last week of August. Tropical activity also could ramp up, though, as the peak of the Atlantic Hurricane Season is nearing.

Scorching Heat, OFOs

Temperatures continue to soar across most of the country besides the Midwest, where weather systems were forecast to bring showers and comfortable highs of 70s to 80s, according to NatGasWeather. The scorching temperatures expanded into the eastern United States as well, with highs in the upper 80s to lower 90s expected in New York City and Washington, DC.

Given the strong national demand, prices in the region continued to post strong gains Tuesday. Algonquin Citygate spot gas jumped 14.0 cents to $2.105, while farther upstream, Columbia Gas climbed 8.5 cents to $1.885.

Prices in the Southeast were mixed, but Dominion Energy Cove Point rose another 7.5 cents to $2.015.

Along with the heat, several Northeast pipelines declared or extended operational flow orders (OFO), including Adelphia Gateway Pipeline, Algonquin Gas Transmission, Iroquois Gas Transmission, Texas Eastern Transmission, specifically in the M3 zone, and Transcontinental Gas Pipe Line, in zones 4-6, which are all “demand-heavy hubs,” according to Genscape’s Garcia.

“Recent temperatures (and therefore, demand) in the Northeast have been lower due to the lingering effects of Tropical Storm Isaias, but this heat wave began in earnest” on Sunday (Aug. 9), the analyst said. “Despite cooling degree days decreasing over the last two days, demand is forecasted to peak Tuesday at 26.6 Bcf/d.”

NatGasWeather said temperatures are expected to ease slightly late in the week as cooler air over the Midwest reaches the Northeast. National demand is expected to continue falling this coming weekend and especially early next week as weather systems bring heavy showers and thunderstorms over East Texas, the Midwest, the east-central United States and South.

“This will also shift the core of the hot upper heat dome over the West, where highs will reach the 90s and 100s across most states, hottest over California and the Southwest for very strong regional demand,” NatGasWeather said.

Warmer temperatures are expected to regain ground across the eastern half of the United States Aug. 23-26, which is where the European model has trended a little hotter.

Outside of the East, most Lower 48 markets posted small gains of around a nickel or so. West Texas markets were stronger, however, with El Paso Permian next-day gas rocketing up 28.5 cents to $1.395.

On the regulatory front, the North Carolina Department of Environmental Quality (NCDEQ) on Tuesday denied a water quality certification needed to build an extension of the Mountain Valley Pipeline (MVP) into the state.

MVP’s Southgate Project received its Federal Energy Regulatory Commission certificate in June, but the NCDEQ cited uncertainty surrounding the natural gas project in its denial. Several permits associated with the main line have been suspended or are in litigation, the department said in a letter to developers.

Southgate is designed to provide up to 375 MMcf/d of additional capacity, receiving gas from MVP in Virginia and transporting it to delivery points in North Carolina’s Rockingham and Alamance counties.

Equitrans Midstream Corp. had expected to bring the project into service by 4Q2020, but the 303-mile, 2 Bcf/d MVP also has faced significant legal and regulatory challenges that have pushed back its in-service date to 2021.