Natural gas futures on Wednesday rallied for a third consecutive session, again touching a new high for the year as traders fixated on potentially sparse supplies in the United States and Europe ahead of the peak winter demand season. 

At A Glance:

  • Futures rally a third straight day
  • Storage worries weigh on markets
  • Cash prices extend upward climb

The October Nymex contract jumped 20.0 cents day/day and settled at $5.460/MMBtu. Over the two prior sessions, the prompt month surged nearly 33.0 cents. November gained 20.2 cents to $5.507 on Wednesday.

After spiking nearly 50 cents over Monday and Tuesday, NGI’s Spot Gas National Avg. climbed another 18.0 cents to $5.530.

“It is all fear in the market, owing to storage levels that are viewed as less than sufficient in the event of a cold winter, not just here in the U.S. but even more so over in Europe,” Bespoke Weather Services said. “Obviously, weather is going to have the final say, and we do feel warmth is more likely into October and November, which would bring headwinds to the market, but we have a few weeks to go before this will be something that is likely to move the market.”

The summer of 2021 has been consistently hot – galvanizing air conditioner use across the Lower 48 and driving domestic demand for natural gas. The heat has extended deep into September.

Bespoke said heating-degree days, which typically arrive by mid-September, are scarce so far in 2021. Cooling-degree days, however, remain above normal.

“The bias of the pattern remains to the warm side of normal, owing to the La Niña base state, which we expect rolls on into the month of October,” Bespoke said.

Liquefied natural gas (LNG) export levels, meanwhile, have been elevated for months, fueled by demand from Asia and Europe. Supplies of gas in Europe, in particular, are precariously light, necessitating steady calls for Lower 48 exports to fuel energy needs now and to avoid pilfering waning stockpiles needed for winter.

Bespoke said that, if U.S. demand proves exceptionally strong this winter, domestic buyers of gas may need to drive up prices even further to slow LNG exports and keep more gas in the Lower 48 to power homes and businesses through the coldest months of the year.

“It makes it very difficult to say when this rally could end, or how high we can go, as we have tons more upside potential if the market begins to worry more about the possibility of having to price out LNG this winter,” Bespoke said.

Natural gas markets will next turn their attention to the U.S. Energy Information Administration (EIA) storage report for the week ended Sept. 10. EIA is scheduled to release its latest storage data at 10:30 a.m. ET Thursday.

Energy Aspects estimated a 74 Bcf build and said this week’s report could launch a “string of more robust shoulder-season injections.”  

Polls pointed to a larger injection than what markets have grown accustomed to over the summer, potentially signaling an easing of demand as the country shifts to autumn, though most estimates put the storage increase below historic norms.

A Wall Street Journal survey landed an average build estimate of 74 Bcf, with a range of 59 Bcf to 80 Bcf. A Reuters poll found injection estimates spanning from 59 Bcf to 85 Bcf, with a median of 77 Bcf.  

NGI estimated a 72 Bcf increase.

The five-year average for this time of year is an increase of 79 Bcf. For the comparable week a year earlier, EIA reported a build of 86 Bcf.

Mizuho Securities USA’s Robert Yawger, director of Energy Futures, noted that 2020 storage peaked at nearly 3.96 Tcf last November, and 2019 reached a highpoint of 3.73 Tcf. At the start of September, the U.S. market was on track to finish the current injection season short of 3.5 Tcf.      

EIA last week said utilities injected 52 Bcf into storage for the period ended Sept. 3. The build put inventories at 2,923 Bcf, far lower than the year-earlier level of 3,515 Bcf.

Cash Cruises

Spot gas prices advanced for a third straight day, posting gains across the Lower 48 as supply/demand imbalance worries infiltrate physical markets.

Chicago Citygate jumped 36.0 cents day/day to average $5.485, and Joliet gained 33.5 cents to $5.440 to help drive up prices in the Midwest.

In the Southeast, Florida Gas Zone 3 advanced 28.0 cents to $ 5.710, while in Texas, Katy picked up 19.5 cents to $5.430.

PG&E Citygate was among notable gainers in California, rising 19.5 cents to $7.430. In the Rocky Mountains region, Cheyenne Hub advanced 32.0 cents to $5.330.

National Weather Service (NWS) data show heat is likely to remain the prevailing theme from West Texas to California over the next several days, with highs ranging from the 90s to above 100. The East is also expected to see ongoing summer-like conditions, with highs in the 80s and low 90s. Next week, heat persists in the West, and both the South and Midwest are expected to see above-average temperatures, as well.

Meanwhile, former Hurricane Nicholas, which arrived in the Gulf of Mexico (GOM) early this week, had at least some impact on LNG export operations. The storm knocked out power at the Freeport LNG terminal south of Houston. It remained offline Wednesday.

“As expected, Nicholas brought a significant amount of power outages to Texas, with the peak reaching about 500,000 customers,” Wood Mackenzie analyst Kara Ozgen added. By the time trading commenced Wednesday, though, utilities appeared to have “already resolved a majority of the issues.”

Nicholas was moving slowly over southeastern Texas as a tropical depression Wednesday, according to the National Hurricane Center. It was expected to continue moving slowly Thursday, affecting Louisiana along the way but weakening before dissipating by Friday, forecasters said.

As for Louisiana, still feeling the effects of Hurricane Ida, Nicholas “may tack on some more outages or delay current restorations,” but damages “will most likely be minimal compared to Ida,” Ozgen said. Ida had knocked offline nearly all of the natural gas production in the GOM, and recovery work was still in motion on Wednesday.

Apart from Nicholas, Ozgen added, “there are a few disturbances in the Atlantic to keep an eye on,” including a potential tropical storm that could head north-northeast over the coming days. “Farther out, another disturbance has been moving westward from Africa. This disturbance has a 90% chance of forming within the next five days and an 80% chance within the next two days.”