Natural gas forward prices continued to fall at the front of the curve during the trading period ending Wednesday (July 14), pressured by inconsistent summer weather and fluctuating production. However, Northeast markets rebounded as another heat wave drove up regional demand, stalling a more pronounced rebuilding of storage inventories that is needed ahead of the winter, according to NGI’s Forward Look.
Concerns over supply adequacy were reflected in other regions too, driving small gains at the majority of U.S. pricing hubs further out the forward curve, Forward Look data showed. Winter prices rose 3.0 cents on average, while summer 2022 prices added an average of 2.0 cents.
Meanwhile, market observers and analysts have been more vocal in recent weeks about the need for producers to step up to avoid a potential supply shortfall this winter.
On Thursday, participants on The Desk’s online energy chat Enelyst discussed the latest round of government storage data by the Energy Information Administration (EIA). Some said the East inventories rose more than expected, but the week ending July 9 included the Fourth of July holiday, which was a bit trickier to project.
The EIA reported that East stocks increased by 22 Bcf for the week; most estimates had the build below 20 Bcf. Regional inventories hit 543 Bcf, which was 19% below year-ago levels and about 9% below the five-year average, according to EIA.
Total working gas in storage as of July 9 stood at 2,629 Bcf, which was 543 Bcf below last year and 189 Bcf below the five-year average.
The tepid pace of injections since April puts total U.S. stocks on pace to end October at around 3.4-3.6 Tcf, according to early estimates. Even with the next couple of EIA reports expected to bring similarly small injections, Enelyst managing director Het Shah said producers appear to be holding out for $4.00 gas before they bring online more supply.
However, the Enelyst chat participants were divided on whether prices would reach the $4 level ahead of the winter season, or when the first blast of chilly air arrives in the Lower 48.
In the meantime, there is a slew of pipeline maintenance events that appears to be taking a toll on Appalachian production, albeit temporarily.
Rockies Express Pipeline (REX) is facing an operational issue that could limit up to 112 MMcf/d of westbound flows in Ohio starting Friday and continuing until further notice. Because of an issue identified at two units at the Chandlersville Compressor Station during maintenance, REX has shut both units down until further notice, thereby limiting flows through SEG 390 to 2,825 MMcf/d.
“Over the past 30 days, flows through SEG 390 have averaged 2,813 MMcf/d and maxed at 2,937 MMcf/d,” according to Wood Mackenzie analyst Anthony Ferrara. “Based off these historical values, we could see flow cuts of up to 112 MMcf/d.”
Meanwhile, Tennessee Gas Pipeline continues to make emergent repairs at Station 317, curtailing flows through the station by around 210 MMcf/d. The pipeline has indicated it would keep the compressor station offline until repairs are completed, and no end date has been provided.
The two maintenance events are the latest in a string of curtailments in Appalachia this summer. Earlier this month, Columbia Gas Transmission (TCO) reported that about 2 Bcf/d of output had been wiped off its system following an upstream issue at MarkWest Energy Partners LP’s facilities in West Virginia.
However, analysts pointed out that Appalachia production fell much more than that.
EBW Analytics Group said a leak on MarkWest’s natural gas liquids pipeline near its Majorsville, WV, natural gas processing plant prompted the pipeline to be shut down. Operations were also curtailed at the Majorsville (1.3 Bcf/d), Sherwood (2.0 Bcf/d) and Mobley (0.9 Bcf/d) gas processing plants, with aggregate capacity of 4.2 Bcf/d.
At the same time, Texas Eastern Transmission’s 30-inch diameter line was operating at a reduced pressure. The TCO and Tetco issues have since been resolved.
Nevertheless, the fluctuations in output were reflected in regional forward curves. Transco Zone 6 non-NY August forward prices climbed 4.0 cents over the July 8-14 period, settling at $3.226, according to Forward Look. This is still a substantial 43.5-cent discount to benchmark Henry Hub prices, though. Further out the curve, the balance of summer (August-October) picked up 8.0 cents during the period to average $2.860, 80 cents back of Henry Hub.
Basis price action in the winter strip tells a much different story, Forward Look data showed. Transco Zone 6 non-NY winter 2021-2022 (November-March) prices stayed flat for the trading period through Wednesday at $4.710, a 94.0-cent premium to Henry Hub.
As the region is typically winter peaking, the higher prices are not a surprise. Still, a look at last year’s prices for the winter revealed that spot gas averaged only around $2.850 for the November-March period. In fact, prices only spiked above $4.00 briefly in mid-December, late January and again in mid-February. Even more interesting, cash prices were under $1.00 on several days in early November, NGI data showed.
Upstream in Appalachia, gains were larger at the front of the forward curve. Transco Leidy August prices jumped 9.0 cents from July 8-14 to sit at $2.749, according to Forward Look. The balance of summer also rose 9.0 cents, averaging $2.560, while the upcoming winter strip was up 8.0 cents to $3.020.
More gains for the Northeast markets could lie ahead in the near term.
Forecasts are calling for a continuation of the humidity that has been suffocating the region in recent weeks, along with downpours. Light steering winds have allowed showers and thunderstorms to erupt in the heat of the midday and afternoon, according to AccuWeather. They also have moved at a snail’s pace, “unloading copious amounts of rain in the process.”
More rain was possible through the next week, but the wet conditions are expected to have little bearing on temperatures. Major cities in the Northeast were expected to reach the mid-90s ahead of the weekend, with only a little relief expected over the next week, AccuWeather said.
As for the upstream segment, it remains unclear whether production would take a meaningful step higher later this year.
EBW pointed out that although natural gas supply has been stronger than widely anticipated earlier in 2021, it has struggled to move materially above highs reached last November. Its view is that significant production increases are unlikely, eventually putting upward pressure on gas futures prices as the market focuses on the winter storage trajectory.
“Some analysts, however, are projecting production increases to rescue the market from current undersupply,” EBW said. “If gains fail to materialize by the end of August, upside risks may slowly become increasingly difficult to ignore.”
Over the long term, though, there is at least some expectation that Appalachia production may grow.
Developers of the PennEast Pipeline, a 1 Bcf/d proposed conduit to move supply into New Jersey and parts of Pennsylvania, were tossed an olive branch by the U.S. Supreme Court. The high court ruled last month that the joint venture may use federal eminent domain power to condemn and acquire 42 parcels in New Jersey to complete the 120-mile interstate pipeline project.
PennEast had petitioned the high court in 2020 to review a lower court ruling. That ruling concluded that a FERC certificate issued under the Natural Gas Act (NGA) did not allow a private company to use eminent domain to seize state-owned land. Federal Energy Regulatory Commission authorization under the NGA, however, generally allows private operators to take property by eminent domain. The Supreme Court agreed.
RBN Energy LLC analyst Sheetal Nasta said PennEast offers more capacity and optionality for producers in northeastern Pennsylvania that have limited takeaway options. Some face worsening pipeline constraints even as prices and downstream demand are taking off.
“PennEast is among the greenfield projects that have faced some of the staunchest opposition,” Nasta said. “It’s also one of few still left in the fight to cross the finish line.”
With a target in-service date of 2022 for the first phase of the pipeline project, there’s still another winter to get through in the Northeast without enough takeaway capacity. However, where there are challenges, there are opportunities, and small-scale liquefied natural gas (LNG) and compressed natural gas (CNG) providers have stepped up to the plate.
For Sapphire Gas Solutions, the biggest driver of Northeast growth is peak-shaving services during the winter when cold weather stresses the pipeline grid. Rev LNG LLC, meanwhile, expects to see a growing need for LNG bunkering, or marine refueling services, along the eastern seaboard as the shipping sector aims to clean up its environmental footprint.
Given the dependence on small-scale LNG across the Northeast, a glut of liquefaction capacity has developed at key import terminals and plants throughout the region. However, there is a shortage of service companies to move smaller volumes of the super-chilled fuel and vaporize it for consumers. Thus, the shortage leaves more room for growth in the space.
“We see the demand continuing to increase across the Northeast, as well as across the United States for all this type of work,” Rev CEO David Kailbourne told NGI.
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