Natural gas futures gave up ground Monday as worries mounted about declining international demand and lower feed gas flows to U.S. liquefied natural gas (LNG) export facilities. The July Nymex contract settled at $1.774/MMBtu, down 7.5 cents day/day. August fell 6.9 cents to $1.871.
Spot gas prices declined in a majority of regions, but NGI’s Spot Gas National Avg. ticked up a half-cent to $1.500.
Genscape Inc. on Monday estimated a 1.76 Bcf/d day/day decline in LNG feed gas volumes and cited the drop as the impetus that drove prices lower early Monday and prevented any late recovery.
“These precipitous declines come after an end-of-the-month head-fake as LNG feed gas deliveries rebounded sharply” off May 24 lows of 5.32 Bcf/d to weekly highs of slightly above 6.2 Bcf/d last Tuesday and Thursday, Genscape analysts Preston Fussee-Durham and Allison Hurley wrote in a note to clients.
Included in the pullback was a 1.96 Bcf/d day/day decline in demand from facilities operated by leading U.S. exporter Cheniere Energy Inc., Genscape said.
EBW Analytics Group analysts on Monday estimated a 2 Bcf/d drop in LNG feed gas from last week. The decline “could signal another major leg down in the market, since it could lead to a major further increase in the storage surplus versus last year and five-year average levels. Gas prices could drop to $1.50 or lower later this month,” the firm said.
The U.S. Energy Information Administration (EIA) last week reported an injection of 109 Bcf natural gas storage for the week ending May 22. Working gas in storage totaled 2,612 Bcf, 778 Bcf higher than the comparable week a year earlier and 423 Bcf above the five-year average, according to EIA.
Before the coronavirus pandemic, U.S. LNG shipments played an important role in balancing supply and demand. However, following stay-at-home orders across Europe and Asia, global demand tapered off quickly and the need for Lower 48 imports dropped in tandem, analysts have noted. In recent weeks, dozens of domestic gas cargoes have been canceled for summer delivery, and weak international prices point to continued supply and demand imbalance.
Even in countries that are not allowing businesses to reopen but encouraging increased economic activity, natural gas demand is expected to only gradually recover, according to EBW. Japan, for example, “is lifting its state of emergency, but the economy — particularly the tourism, industrial and retail sectors — is expected to struggle for much of the year,” the firm said. “Many Japanese importers have begun to defer or to cancel scheduled cargoes booked under long-term offtake agreements as result.
“The outcome, while not surprising, is straightforwardly bearish for the U.S. LNG industry,” the EBW analysts added.
Raymond James & Associates Inc. analysts adjusted their assumptions lower for domestic LNG utilization rates for the second time this year. They now project 5.5 Bcf/d of exports in 2020, up a mere 0.5 Bcf/d year/year. The analysts said “trends through the summer and fall months look bleak.”
Mixed weather forecasts on Monday, meanwhile, did little to support gas prices.
Bespoke Weather Services said models pointed to an overall net drop in gas-weighted degree days over the 15-day outlook, including cooler trends late this week and next.
“This week’s heat is stronger in the West and a little quicker coming eastward into the Midwest, but a weak trough drops into the Northeast at the end of the week, cooling temperatures back toward normal there,” Bespoke said.
The firm added, however, that it anticipates a relatively hot summer that could lead to increased air conditioner use and, as state’s ease their pandemic restrictions, U.S. commercial and industrial demand could rise, too, with businesses scaling up.
“We still have a long way to go yet, with many wildcards,” Bespoke said. “We will be watching the demand side to see if we see any strength there with more of the economy open now, along with the weather.”
Spot gas prices fell in most regions of the country, though declines were mostly modest and there were some bright spots.
In the West, SoCal Border Avg. prices rose 5.5 cents to $1.670.
On the pipeline front, from Tuesday through June 9, Millennium Pipeline Co. is scheduled to conduct annual maintenance work on its Corning, N.Y., compressor station. The work would limit deliveries to the Empire Pipeline at the Corning interconnect, where capacity is to be restricted by 88%, according to Genscape. Deliveries to Empire have averaged 151 MMcf/d over the last 14 days, for an average impact of 102 MMcf/d, the firm said.
“Empire has a variety of supply options, so this outage should not be deeply impactful,” Genscape analyst Josh Garcia said.
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