- Northeast leads 2.4 Bcf day/day drop in production
- Export demand still strong ahead of May contract’s expiration
- Cash higher on multiple weather systems bumping up demand
A massive day/day decline in U.S. production drove more gains for natural gas futures despite a modest pullback in exports and continued outlooks for moderate early May temperatures. The May Nymex futures contract settled at $2.873, up 8.3 cents day/day. June rose 6.8 cents to $2.942.
Spot gas prices also bounced Tuesday ahead of a cool weather system set to move into the central United States midweek. NGI’s Spot Gas National Avg. climbed 13.0 cents to $2.735.
With the May futures contract set to roll off the board Wednesday, some volatility along the Nymex curve was expected. However, with pipeline maintenance leading to a huge day/day decrease in production, price gains mounted early in Tuesday’s session.
The May contract opened nearly flat on the day but quickly climbed a few pennies as a slew of pipeline maintenance events in the Northeast resulted in a 2.4 Bcf day/day drop in production. Wood Mackenzie said unannounced operator field maintenance also likely contributed to the decline in output.
“Northeast Pennsylvania flows are down by 0.6 Bcf/d day/day,” according to Wood Mackenzie analyst Nicole McMurrer. There is planned maintenance on Millennium Pipeline at the Highland Compressor Station on the WAGONERW segment that is impacting close to 50 MMcf/d of production, the analyst said. However, “the majority of the decline is appearing on the same points where we saw large field outages last week” along Tennessee Gas Pipeline and on Transcontinental Gas Pipe Line.
“This looks like field maintenance to our team, as fluctuations in receipts follow a similar pattern across the group of points that are located close together geographically,” McMurrer added. “Of course, this region in particular typically sees high daily revisions, so we will be able to tell with more certainty” what is occurring on Wednesday.
Meanwhile, a one-day maintenance event Tuesday on Nexus Gas Transmission cut production in Ohio. In addition, ongoing work on Rockies Express Pipeline was limiting nominations through segment 380 in the southeastern part of the state.
On the demand side, liquefied natural gas (LNG) feed gas volumes dipped slightly day/day. NGI data showed that flows to U.S. LNG export terminals slipped to around 11.47 Bcf on Tuesday, down from around 11.54 Bcf on Monday.
Despite the modest retreat, U.S. LNG exports are expected to remain robust through the summer as Asia and Europe need to refill seasonally below-average storage inventories. Furthermore, it doesn’t appear as if the growing number of Covid-19 cases in India poses much risk to U.S. exports.
Tudor, Pickering, Holt & Co. (TPH) analysts said in the depth of Covid-19 lockdowns, India’s imports dropped last April by 30% year/year to a monthly low of 1.5 million tons (mt). Using this as a guide, the TPH team said the at-risk amounts are around 0.7 mt/month if similar policies are enacted to fight the current wave.
“To put this in context, on Monday, Equinor announced its single-train Hammerfest LNG export facility will remain down until March 2022, taking an incremental 1.2 mt out of our 2021 supply forecast,” TPH said. The firm had previously modeled the terminal returning to service before year’s end.
Despite extended strict lockdowns in 2020, India still managed to post an impressive 13% increase in LNG imports year/year, importing a record 27 mt in 2020, according to TPH. However, the firm is modeling only 6% growth this year, or roughly 1.7 mt in absolute terms. It could trend closer to zero if lockdowns continue for several months.
“While this may take some near-term pressure off rising spot prices, we still model an undersupplied LNG market for the balance of 2021 and expect competition for cargoes to pick back up as we move into summer and cooling demand increases and Europe struggles to re-stock ahead of winter,” TPH said.
Poised For Profit Taking?
Fundamentals aside, NatGasWeather noted that Tuesday’s move higher along the Nymex futures curve also could have been influenced by major gas players repositioning ahead of May options and futures expiration. A ramp in seasonal buying ahead of what is expected to be a hotter-than-normal summer also could have fueled the price rally.
“But with weather patterns remaining unimpressive most days the next two weeks for a bearish lean, and after a more than 40-plus-cent rally over the past month, some profit taking is certainly possible, if not warranted,” NatGasWeather said.
Marex North America LLC’s Steve Blair, a senior account executive, agreed that traders could take profits on Wednesday after the upside technical breakout of the past two sessions. However, he noted that while some forecasters may view the upcoming spate of warmer weather as not driving significant demand, traders may have other opinions.
Blair told NGI high temperatures are forecast in the 80s in the Northeast on Wednesday. With above-normal forecasts for most of the country, it appears that most people are seeing these temperatures flip very quickly from cold to hot.
“We’ve had our heat on every single night the past two weeks,” Blair said. “Now, the traders and hedges in the market see that we’re heading to the opposite situation where we have our AC on during the day.”
Of course, if the forecasts don’t materialize, then Wednesday’s price action could be a case of “buy the rumor, sell the fact,” according to Blair. “But if the forecasters are right about the next two weeks, we could move into the cooling demand season pretty quickly. It’s a little bit of a different shoulder month than we normally see.”
Before the warmup, though, conditions may temporarily turn a bit cooler.
NatGasWeather said demand is expected to remain light for the next few days, but a “minor” bump could occur by Friday as the chillier weather heads east. The Great Lakes and Northeast could see overnight temperatures drop into the 30s and 40s during this time, with the latest weather models showing the cool front arriving quicker than previously expected.
However, the forecaster noted that the cold snap’s quicker-than-expected arrival also speeds up its exit from the region. Warm high pressure is seen springing back over most of the southern and eastern halves of the country late this weekend into next week. Daytime highs are likely to be in the 70s and 80s, which is “very nice” for this time of year, NatGasWeather said.
Conditions could get “a touch hot” with highs of 90s at times next week across portions of Texas and the Southern Plains, according to the forecaster, although not widespread enough to intimidate. Meanwhile, portions of the West are expected to be cool to start May as weather systems bring showers, then moderate as the systems shift eastward.
The cooler outlook, which lifted cash prices on the West and East coasts at the start of the week, boosted prices throughout the rest of the country Tuesday.
On the East Coast, the big production drop lifted prices in Appalachia. The largest increase occurred at Tennessee Zone 4 Marcellus, where next-day gas shot up 86.0 cents to $2.055.
Downstream, Transco Zone 6 NY spot gas ticked up only 1.5 cents to $2.400.
Out West, chilly temperatures in the region continued to support cash prices. Northwest S. of Green River climbed 21.5 cents to $2.700, and PG&E Citygate hit $4.185 after tacking on 15.0 cents day/day.
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