• Natural gas futures steady as full LNG demand recovery still unclear
  • Weather outlook turns chillier
  • Cash weak on lackluster demand outside eastern U.S.

Natural gas futures struggled to maintain momentum early Friday as traders tried to determine whether liquefied natural gas (LNG) and weather demand would be enough to ward off a toppling of storage inventories by the end of October.

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With an increasingly chillier weather pattern emerging for the end of the month, the November Nymex gas futures contract took off midday, but then retreated to settle the day at $2.773, off two-tenths of a cent. December climbed 1.0 cent to $3.271.

Spot gas prices moved lower on soft weekend demand. NGI’s Spot Gas National Avg. fell 8.5 cents to $1.995.

With LNG demand not yet able to reach its full potential because of restrictions preventing deep draft traffic in the Calcasieu Ship Channel following Hurricane Delta, weather has become increasingly important to the storage trajectory for the remainder of October and into the early part of winter. Feed gas flows to U.S. terminals on Friday moved closer to 8 Bcf, but Cameron LNG may not resume full operations until the waterway restrictions are lifted.

Given the current rate of liquefaction, Genscape Inc. analyst Amir Rejvani said Cameron would need to shut down or decrease operations significantly over the weekend in order to not reach local LNG tank capacity.

Cameron spokesperson Anya McInnis told NGI the facility “continues to make progress toward resuming normal operations” and is “in contact with the U.S. Army Corps of Engineers, the U.S. Coast Guard and the Lake Charles Pilots to determine their timeline for restoring deep-draft vessel access to the waterway.”

Army Corps spokesperson Ricky Boyett told NGI at midday Friday that the previously submerged oil rig had been removed, and the removal of a recreational boat “was in the process.” Plans to remove the barge that was discovered late Tuesday were expected to be finalized over the weekend, and a dredger was currently working in the waterway.

“As long as the channel remains shut in, weak demand and low cash prices could limit the November contract’s upside potential,” said EBW Analytics Group.

As for weather, the midday Global Forecast System (GFS) continued to favor cold slowly easing across the northern and central United States Oct. 29-Nov. 1, and teasing cold air could hold longer, NatGasWeather said. However, the weather data was inconsistent after Oct. 24-25, and big changes were possible.

“What’s likely to be of greatest importance is how the weather data trends for Oct. 28-Nov. 1 and whether cold shots can prove to continue into the northern United States,” the forecaster said.

The European model favors a milder pattern gradually returning Oct. 28-Nov. 1, while the GFS has demand slowly easing but trying to hold a little stronger. NatGasWeather said it was important to consider that the GFS has had “credibility problems” to start the heating season by over-forecasting cold shots, which is evidenced by giving back a huge amount of demand for the coming week.

Any prolonged period of mild weather may keep a lid on prices for the near term, with storage inventories still sitting well ahead of historical levels. On Thursday, the Energy Information Administration (EIA) said stocks grew by 46 Bcf to 3,877 Bcf. This is 388 Bcf above year-ago levels and 353 Bcf above the five-year average.

Tudor, Pickering, Holt & Co. (TPH) analysts said the EIA figure reflected a 3.8 Bcf/d undersupplied market on a seasonally adjusted basis. If seasonal weather patterns hold, the coming week should represent trough demand as the gains in the residential/commercial sector more than offset the losses on power generation.

“This will be quickly followed by the start of injection season, which could begin as early as the first week of November, if the weather gods look favorably upon the gas market,” TPH said.

In terms of supply/demand fundamentals, production had ticked back up to around 87 Bcf/d as Northeast volumes nudged up and Gulf of Mexico volumes returned from storm-related shut-ins, according to TPH. The firm’s analysts expect production to continue to increase in the coming weeks to around 88 Bcf/d, a level expected to hold through the winter.

“As we prepare for withdrawal season, we’re forecasting 660 Bcf of draws through year-end 2020 versus norms of around 525 Bcf,” said the TPH team. “For the withdrawal season as a whole, we’re forecasting cumulative draws of roughly 2,300 Bcf versus norms of about 2,000 Bcf.

TPH is estimating an end-of-winter carryout of around 1,800 Bcf, which is roughly in line with the five-year average.

Cash Slides

Spot gas prices were overwhelmingly lower Friday as mostly comfortable weather conditions were on tap for the Lower 48.

The Midwest and Great Lakes were forecast to be chilly through the weekend as a cold shot dropped overnight lows into the teens to 30s, according to NatGasWeather. The southern and eastern United States were expected to be “comfortable to warm,” with daytime highs forecast in the upper 60s to 80s. Hotter weather was to remain from California to Texas.

“But with chilly nights across the Midwest and Ohio Valley through the weekend, national demand will be stronger than normal,” NatGasWeather said.

Prices moved lower despite the strong demand. Transco Zone 6 non-NY cash plunged 19.0 cents to $1.280, while Columbia Gas dropped 21.0 cents to $1.765.

Midwest prices also fell, though not as sharply. Chicago Citygate spot gas fell 7.5 cents to $2.135 for gas delivered through Monday.

The Midcontinent posted similar declines, while prices throughout Texas were mixed. In the Permian Basin, however, a steep sell-off occurred amid the widespread losses in downstream markets. Waha plunged 39.0 cents to average minus 31.5 cents for gas delivered over the three-day period.