Natural gas futures resumed their climb on Monday, buoyed by near-record export demand and the arrival of chilly weather. With the latest forecast extending and intensifying the cooler temperatures, the May Nymex contract settled 6.9 cents higher at $2.749. June climbed 6.4 cents to $2.818.
Spot gas prices also moved higher in most areas outside of the Northeast, California and the Desert Southwest. NGI’s Spot Gas National Avg. rose 4.5 cents to $2.590.
Coming off a strong week in which Nymex futures put up gains on all but one day, the cooler shift in the latest weather models added to the momentum. Bespoke Weather Services said although the European model was the first model to show the chillier weather lasting through the end of the month, the other weather models have also caught on to the changes. The firm expects demand to remain above normal for the next 15 days, but it pointed out that this is a low demand time of year.
“Still, demand is demand, and the change is on the bullish side of the spectrum, thanks mostly to increasing the intensity of this week’s shot of cooler air,” the forecaster said.
The pattern may turn back warmer toward the beginning of May, although none of the modeling currently shows anything extreme that would lead to a notable ramp-up of cooling degree days. That said, Bespoke and other forecasters do expect another hot summer this year.
Exports also have surprised to the upside, keeping a firm floor under prices.
EBW Analytics Group noted that over the past 30 days, support for the May contract was tested on 10 days and held every time, even when cash prices fell as low as $2.36. With support solidly in place, there has been little apparent reason to short the market, it said.
Initially, prices stabilized. However, with the cooler weather, lower production and storage injections coming in lower than expected, bullish momentum started to gather steam. Last Thursday, the Energy Information Administration said U.S. stocks rose by 61 Bcf to 1,845 Bcf, which fell a little bit shy of expectations and put stocks at a 242 Bcf deficit to year-ago levels.
This week, NGI is modeling a smaller build of 47 Bcf, which would compare with last year’s 68 Bcf injection and the 26 Bcf five-year average.
Sustained strength in liquefied natural gas (LNG) demand also has provided key price support.
NGI data showed feed gas volumes holding near 11.8 Bcf on Monday, off a bit from the weekend high of around 11.9 Bcf but still holding not too far off the record.
Meanwhile, signs point to continued strong LNG demand in the coming months as European storage inventories trail historical levels following robust buying from Asian customers this winter. On Friday, analysts at Tudor, Pickering, Holt & Co. (TPH) said the global gas market was “flashing bullish indicators” with Title Transfer Facility futures at $7/MMBtu and Japan-Korea Marker (JKM) futures at $8/MMBtu.
Timera Energy analysts also noted on Monday that JKM prices and time charter rates have been rising across the last month. They pointed out that suppliers float cargoes into the stronger May and June Japan, Korea, Taiwan and China market, tying up tonnage. This is an indicator of stronger underlying demand.
“Netback prices into summer are also pointing to a recovery in Asia’s share of demand,” Timera analysts said.
However, it does appear that seasonal factors are starting to influence buying behavior. Asian LNG demand has fallen significantly since January, according to Timera. This is consistent with the usual seasonal decline as the winter subsides, but the softer demand is also a function of aggressive buying in January, particularly in Japan, which led to some overstocking.
Japanese utility restocking over the mid-January to mid-February time frame “was higher than any other month-on-month inventory build over the last 10 years,” Timera analysts said.
Meanwhile, Asia’s share of combined Asian and European LNG import volumes has declined to a level in March that points to a softer market, with surplus cargoes flowing to Europe. The March dip in the “Asian share” barometer flags a potential softening in global LNG demand, after a very strong start to the year, according to the Timera team.
“This is something to keep an eye on as the year progresses, but we wouldn’t read too much into the March data yet,” the analysts said.
Exports flowing south of the border to Mexico also have surprised to the upside this spring. Though demand in Mexico typically peaks in the summer, flows from the United States reached a record 7.1 Bcf/d on April 14 and averaged 7.0 Bcf/d for the entire work week.
The biggest impacts are caused by weak Mexican dry gas output, incremental flows downstream of Wahalajara, and increased Mexican power burn and industrial demand, according to Wood Mackenzie.
Local gas production in Mexico has dropped by around 400 MMcf/d since September 2020, mainly because of technical failures and maintenance events reported at the Ciudad Pemex, Nuevo Pemex and La Venta gas processing complexes, as well as high gas flaring and venting.
The Fermaca-operated system Wahalajara is showing increased receipts of Permian Basin gas recently, crossing the 1.0 Bcf/d threshold last week while averaging almost 0.8 Bcf/d in the first half of April, Wood Mackenzie said. Over 70% of Wahalajara’s flows are heading to the system’s lower end, Villa de Reyes-Aguascalientes-Guadalajara, effectively maintaining a near 100% replacement of LNG sendout from the Manzanillo terminal.
“Barring new disrupting events such as those hitting the U.S. and Mexican gas/power markets in mid-February, this substitution trend will likely continue throughout the summer,” Wood Mackenzie analyst Nicole McMurrer said.
Mexican power burn and industrial demand continue to be a driving factor of U.S.-to-Mexico flows, and are continued to increase alongside the growth of the country’s gross domestic product, which is expected to be 4.3% for 2021, according to the analyst. Gas burn for power generation is also sensitive to the seasonal uptick in cooling loads, and this month’s volumes are stronger than those of April 2020, when the Covid-19 pandemic had its hardest hit on Mexico’s economy.
Based on these trends, Wood Mackenzie is revising up its forecast of Mexican exports for this summer, setting U.S.-to Mexico pipeline exports at an average of 6.7 Bcf/d for April-October 2021. “This figure is 0.4 Bcf/d higher than what was projected in our February review, right after the weather-triggered U.S. gas supply shock,” McMurrer said.
Rain showers aren’t the only weather event April is bringing to the Lower 48.
The National Weather Service (NWS) said potentially record-setting cold and snow are expected to move into the Upper Midwest and Great Lakes on Tuesday. More than 2 inches of snow is likely across the northern half of Kansas and northwest Missouri. By Wednesday, much of the wintry precipitation and accumulating wet snow may be found across northern and western portions of New York State and the northern Appalachians.
“Unseasonably cold air behind this strong cold front will lead to widespread freeze and frost concerns” beginning Monday night across Midwest and central/southern Plains, NWS said. “Numerous daily record low temperatures are forecast to be tied or broken on Wednesday morning as temperatures dip to around 20 degrees below average.”
The late-season cold snap continued to drive next-day gas prices at the Chicago Citygate, which picked up 9.5 cents from Friday’s levels to $2.735. In the Midcontinent, OGT spot gas jumped 18.5 cents to $2.705.
Milder weather in store for the West and East coasts, however, sent prices lower in those regions on Monday. Huge losses were seen at Tenn Zone 6 200L, which plunged 24.5 cents from Friday to $2.380.
In California, SoCal Citygate prices tumbled 18.0 cents to $3.305.
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