Natural gas futures pulled back Tuesday after mid-range heat forecasts eased slightly and a new outlook called for record production on the horizon, ending a rally that had been fueled by sizzling summer heat. The August Nymex gas futures contract settled at $7.264/MMBtu, down 21.5 cents day/day. September fell 23.2 cents to $7.150.

Southeast prices

At A Glance:

  • EIA posts 103 Bcf injection
  • Build marks biggest of 2022
  • Production proves strong

The prompt month had gained nearly 88 cents over the two previous regular trading sessions amid widespread high temperatures in the 90s and 100s.

NGI’s Spot Gas National Avg. forged ahead Tuesday, rising 18.5 cents to $7.930 after bigger gains in recent days.

“The overnight data did back off slightly on the amount of heat across the northern U.S. for the seven- to 15-day period,” NatGasWeather said Tuesday.

Both the American and European weather models shed three cooling-degree days (CDD). Still, intense heat is expected to permeate most of the Lower 48 through July and into next month, the firm said.

“The weather data would need to lose numerous more” CDDs “to prevent strong bullish weather sentiment when considering accumulated 15-day national CDDs are still more than 50 degrees hotter than normal,” NatGasWeather said.

Meanwhile, Rystad Energy analysts said in a report Tuesday that they forecast U.S. natural gas production would climb to an all-time high in the coming months, topping 100 billion Bcf/d and helping to meet robust global demand amid scorching summer temperatures and supply shortages in Europe.

Rystad noted the demand has fueled prices surges and galvanized producers in the Haynesville and Appalachia regions to invest in growth. This is paired with expected increases of associated gas volumes from the Permian Basin, the firm said.

Rystad’s projection surpasses the official growth expectation of the U.S. Energy Information Administration (EIA). The agency has called for output to approach 100 Bcf/d in 2023.

EIA estimated output would average 96.2 Bcf/d for full-year 2022, a 3% increase year/year.

“Already the top gas producer in the world, the U.S. stands ready to boost output further to meet the global demand, but takeaway constraints are a serious risk,” said Rystad’s Kristine Vassbotn, senior analyst.

Notably, the Freeport LNG outage that followed an early June fire cut U.S. export capacity by about 2.0 Bcf/d through at least early fall. This affects U.S. exporters’ ability to meet European liquefied natural gas demand, in particular. Calls from Europe are robust amid Russia’s war in Ukraine because of efforts on the continent to minimize reliance on Kremlin-backed gas.

Europe also is now grappling with exceptional heat waves in July, adding to supply/demand imbalance concerns there.

American LNG export volumes have held comfortably above 11 Bcf/d throughout July, keeping U.S. facilities, aside from Freeport, operating near capacity.

In the near term, however, production has proven choppy.

U.S. output estimates from Wood Mackenzie on Tuesday showed a roughly 2.1 Bcf/d day/day decline, with total output down to around 95.4 Bcf/d. 

However, the drop also reflected a roughly 1.4 Bcf/d upward revision to the prior day’s estimate, Wood Mackenzie analyst Laura Munder noted, and renewed production momentum is expected soon.

“The decline is concentrated in the Northeast, down around 1.1 Bcf/d at roughly 33.9 Bcf/d,” including declines of around 385 MMcf/d in southwestern Pennsylvania, 360 MMcf/d in northeastern Pennsylvania, 195 MMcf/d in Ohio and 175 MMcf/d in West Virginia, Munder said. 

The weaker output coincides with various short-term pipeline maintenance events in the region, according to the analyst, and upward revisions “are expected” this week.

Spot Prices Sustain Momentum

Physical gas prices advanced again Tuesday – though not as much as Monday’s $1.145 surge – as hubs in the East continued to accelerate.

Cove Point spiked $1.940 day/day to average $12.760, and PNGTS jumped $2.575 to $13.755 to help lead the charge.

National Weather Service (NWS) data showed hot high pressure covering much of the West and central United States early this week, with forecasts calling for such conditions to expand to the East over the next several days.

Temperatures are expected to be hottest in the Southwest deserts and parts of Texas – approaching or eclipsing 110 degrees at times – but highs in the 90s or higher are likely to span the Plains, Midwest and much of the East this week, according to NWS forecasts.

AccuWeather’s Alex Sosnowski, senior meteorologist, noted that the Interstate 95 corridor of the northeastern United States has largely escaped the worst of the July heat. But that is expected to change.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

“The building heat will bring a prolonged stretch of 90-degree temperatures to several major cities that have not experienced many prolonged heat waves so far this summer,” Sosnowski said, including major markets such as Philadelphia, New York City and Boston.

He said the jet stream pattern helps to safeguard the Northeast from the bouts of 100-degree heat that have dogged much of the Lower 48 and, more recently, western Europe.  

Still, “locations in the Interstate 95 corridor from Virginia to Massachusetts will significantly add to their number of 90-degree days this week and perhaps right through next week,” Sosnowski said. “Temperatures will average 5-10 degrees above normal, following near-average temperatures for most days since early June.”

This would come on top of the hit to production in the region this week. 

In the Northeast, Algonquin Citygate soared $1.320 to $9.370, while Tenn Zone 6 200L rallied $1.750 to $9.690 and Transco Zone 6 NY gained $1.155 to $8.915.