Natural gas futures jumped higher Wednesday, building on the prior day’s gains, as traders absorbed news of the production disruption imposed by Hurricane Ida and fixated on the specter of inadequate inventories ahead of winter.

Storage Estimate

At A Glance:

  • Futures hit fresh 2021 high
  • Production remained precarious
  • Storage concerns festered

The October Nymex contract surged 23.8 cents day/day and settled at $4.615/MMBtu, a high for the year. A day earlier, the prompt month gained 7.2 cents. November also gained 23.8 cents on Wednesday and closed at $4.663.

Spot gas prices advanced as well, led higher by gains in the nation’s midsection. NGI’s Spot Gas National Avg. rose 16.0 cents to $4.355.

Ida left in its wake more than one million utility customers without power – more than half still lacked power Wednesday — and the vast majority of Gulf of Mexico (GOM) production offline. Oil and gas drillers on Wednesday worked to restore production in the GOM, days after Ida crashed ashore in Louisiana as a Category 4 hurricane on Sunday. As of midday Wednesday, however, the Bureau of Safety and Environmental Enforcement said operator reports indicated that around 83% of gas production in the GOM remained shut in. Nearly 80% of GOM oil output was shuttered.

Bespoke Weather Services noted that natural gas production estimates Wednesday hovered under 90 Bcf, more than 2 Bcf off pre-Ida levels, and the timing of a full return of the lost output remained dubious. This followed a summer riddled with scorching heat and robust cooling demand across much of the Lower 48 that left underground stocks depleted relative to historic averages.

Prior to Ida, Bespoke had consistently warned that inventories were running precariously light and that production would need to rise to around 93 Bcf/d to offset the threat. Ida amplified the concern, the firm said.

GOM production “could be offline for some time if it takes longer to restore power,” Bespoke said. “Numerous power outages remain.”

Throughout the summer, government storage reports showed demand outstripping supply, leaving markets concerned that, if winter arrives early or proves especially harsh, supplies could be inadequate.

Strong demand for U.S. liquefied natural gas (LNG) has added to supply/demand imbalance worries. U.S. LNG feed gas volumes have hovered between 10 Bcf and 11 Bcf most of the summer, and demand from both Europe and Asia for U.S. exports for the super-chilled fuel is expected to be strong through the winter. 

One of Freeport LNG’s three liquefaction trains was put on hold Tuesday for maintenance work, cutting feed gas volumes there and pushing overall levels toward the lower end of the recent range Wednesday. However, the work was expected to be completed this week and did not imply lower demand. LNG deliveries were largely unaffected by Ida.

“Higher demand and low gas storage levels in all major gas markets abroad continues to signal a tighter U.S. gas market throughout the remainder of the year,” said Rystad Energy analyst Emily McClain.

Storage Outlook

Inventories as of Aug. 20 stood at 2,851 Bcf. That was 563 Bcf shy of year-earlier levels and 189 Bcf below the five-year average, according to the U.S. Energy Information Administration (EIA).

Ahead of the next EIA storage report, slated for 10:30 ET Thursday, analysts again anticipated an anemic result. A Bloomberg survey found injection estimates ranging from 22 Bcf to 29 Bcf, with a median of 25 Bcf. A Reuters poll produced the same median figure and found estimates spanning from a build of 19 Bcf to an increase of 34 Bcf.  

A Wall Street Journal poll landed at an average injection of 25 Bcf, with estimates ranging from 19 Bcf to 33 Bcf.

NGI modeled a 28 Bcf injection. Last year, EIA recorded a 36 Bcf build for the period. The five-year average increase is 53 Bcf.

Ida’s impacts, meanwhile, could affect balances for weeks to come.

When Ida first made landfall in Louisiana, it directly hit Port Fourchon, a key staging area for oil and gas service companies as well as several major natural gas processing plants in the GOM, EBW Analytics Group noted. With “the main road into and out of Port Fourchon in shreds, the Port was still largely inaccessible, impeding efforts to helicopter crews to offshore platforms,” the EBW team said Wednesday.

“Continued power outages and damage to facilities and equipment at Port Fourchon could significantly delay inspection and start-up of offshore platforms, and delay restart of natural gas processing plants,” the EBW analysts added. “Depending upon the time required to restore power, it is possible that considerable offshore production of oil and gas will remain shut down for much of September. While this lost production is likely to be largely offset by losses in demand, the prospect of a prolonged production shut-down could have a major bullish impact on the gas market.”

Cash Climbs

Spot gas prices jumped higher Wednesday, with the national average lifted by gains in the Midwest and Texas, where lofty summer temperatures and strong cooling demand extended into September.

Chicago Citygate gained 21.5 cents day/day to average $4.400, while Consumers Energy in Michigan spiked 22.5 cents to $4.390.

In Texas, El Paso Permian advanced 26.5 cents to $4.300 and Katy rose 29.5 cents to $4.570. Waha rose 24.0 cents to $4.300 and Carthage picked up 23.0 cents to $4.430.

Pipeline interruptions likely added upward pressure on Texas prices.

Kinder Morgan’s El Paso gas pipeline on Wednesday declared a force majeure at the Waha station. It cited an equipment failure and did not specify a timeline to resolve the matter.

A day earlier, Williams Cos.’s Discovery Gas Transmission issued a force majeure as a result of downstream constraints from Ida, Wood Mackenzie analysts said. Discovery said it would assess damages before providing a date for return to service.

NatGasWeather said remnants of Ida would bring heavy rains across the East through the remainder of the trading week, with highs of 70s to 80s. Weak cool fronts were pushing through the Northwest, as well, with comfortable highs of 70s to 80s, the firm said.

However, summer conditions persisted elsewhere in the West and throughout most of the central United States, supporting cash prices.

“California to Texas and the Plains remain very warm to hot,” with highs of mid-80s to 100s, NatGasWeather said. “Much of the U.S. will briefly become very warm this weekend as high pressure strengthens with highs of 80s and 90s before stronger fall-like cool fronts sweep across the northern and eastern U.S. next week with showers and highs of 60s to lower 80s.”