Coming off a steep decline over the past two trading sessions, natural gas futures attempted to regain some footing on Tuesday. A sharp drop in production aided the rebound, lifting the November Nymex gas futures contract by 9.9 cents to $5.088/MMBtu. December settled at $5.350, up 11.4 cents on the day.

Forward Basis Curves

At A Glance:

  • Production drops on pipeline work
  • Power burns still strong
  • Bomb cyclone heading for Pacific Northwest

Spot gas prices, however, remained firmly in the red amid a near-perfect temperature backdrop that is expected to last into November. NGI’s Spot Gas National Avg. fell another 29.5 cents to $4.660.

After shedding roughly 70 cents in the prior two sessions, and with weather models continuing to show a mild near-term outlook, futures were poised for a third straight drop early Tuesday. The November contract opened the session slightly below Monday’s close at $4.985 and went on to fall to an intraday low of $4.825. That’s where the prompt month found support, eventually clawing its way back above $5.000.

In examining the technical factors at play, ICAP Technical Analysis zeroed in on two price levels. The firm noted that $4.876 is the 50-day moving average; from there, $4.666 is another important level to be watched.

“Should the bulls engineer a reversal from either one of these levels, we will have to promptly assess the potential for a recovery,” analyst Brian Larose said.

Bulls got some ammunition in the latest production figures. Bloomberg data showed output tumbling more than 2 Bcf/d day/day to slightly below 90 Bcf. Wood Mackenzie also estimated production lower day/day, but it put the official tally at around 91.4 Bcf.

In both sets of data, Texas and the New Mexico portion of the Permian Basin posted notable declines, with maintenance events contributing to some of the reductions.

For example, El Paso Natural Gas Pipeline (EPNG) began maintenance on Line 1300, restricting westbound flows. Whistler Pipeline flows are down around 265 MMcf/d at roughly 300 MMcf/d, compared to about 565 MMcf/d for Monday’s gas day, according to Wood Mackenzie.

East Texas output was down about 300 MMcf/d along Natural Gas Pipeline Co. of America (NGPL) in the Panola area. NGPL began maintenance on Segment 25, with firm transportation restrictions possibly impacting flows upstream, Wood Mackenzie said.

Meanwhile, Permian New Mexico output is down around 275 MMcf/d because of EPNG’s Line 1300 event. There also is work underway at the Eunice compressor station that is limiting flows at the ITEXNEUN receipt. Line 2000 on the EPNG system also remains out of service following an explosion this summer.

Is There Still Upside For Prices?

With the production drop likely temporary, the analyst team at Tudor, Pickering, Holt & Co. said beyond the continued warm forecasts, it has seen limited fundamental catalysts for the recent sell-off. With varied early-November forecasts, the market appears to be repricing the risk premium for winter in North America — even as Europe awaits higher Russian supplies as heating demand picks up.

TPG analysts noted that power generation demand in the Lower 48 has trended lower this week, but a closer look at the data revealed continued support for prices. The sector kicked off the week at around 27 Bcf/d, the lowest this shoulder season, but the figure is in line with the five-year average of around 27 Bcf/d despite robust pricing. The gas share of thermal generation remains “sound” at 64% as of Monday versus a September average of 61%, the analysts said.

[Actionable Insight: Did you know that NGI is one of only two Price Reporting Agencies that include trade data from the Intercontinental Exchange. Find out more.]

Residential/commercial demand has tracked modestly ahead of the five-year average week-to-date at roughly 15.8 Bcf/d, versus the five-year average of 15 Bcf/d, according to TPH. This is particularly notable since weather has been mostly mild across the country over the past month.

On the supply front, TPH said that aside from the fluctuations in production, Canadian net imports have trended higher, toward 5.8 Bcf/d in recent days. The increase in imports has occurred even as Western Canadian receipts have retreated from recent highs of 12.75 Bcf/d toward 12 Bcf/d over the weekend.

“For the U.S., we continue to forecast dry gas supply rising towards 94 Bcf/d in December,” the TPH team said. “Looking ahead to next year, the outlook for pricing still remains at the whims of this winter’s weather, in our view, which could drive significant 1Q2022 upside and materially reprice the curve.”

More Losses For Cash

Spot gas prices extended their losing streak another day as widespread highs of 60s to 80s did little to drum up demand. Losses were most pronounced on the East and West coasts, with prices tumbling 50.0 cents or more at several locations.

The steep declines occurred even as the West Coast was in store for “a beast of a bomb cyclone” later this week. AccuWeather said the storm could bring damaging winds from the northwestern tip of Vancouver Island, BC, as the storm rapidly intensifies midweek. Wind gusts of 40-60 mph are expected.

The monster storm was expected to act as an anchor or an axle for other storms, according to AccuWeather. Plenty of moisture and wind energy are forecast to “whip around like spokes on a giant wheel,” with the Pacific coasts of the United States and Canada in the crosshairs.

Each storm is to have a separate level of strengthening but won’t likely reach the same intensity of the offshore bomb cyclone, according to AccuWeather. However, winds are forecast to increase over the coastal Northwest into Thursday.

“Strong wind gusts of 40-50 mph can also be expected for coastal sections of Washington and Oregon from Wednesday to Thursday,” AccuWeather meteorologist Randy Adkins said. But with the center of the bomb cyclone forecast to remain offshore, wind damage will be relatively minor and will certainly pale in comparison to the bomb cyclone from Thanksgiving week in 2019.”

Conditions are likely to remain stormy in the coastal Northwest into next week, likely expanding southward through the coast of Southern California into next week.

Cash traders on the West Coast turned a blind eye to the parade of storms coming for the region. Northwest Wyoming Pool next-day gas plunged 59.5 cents to $4.850 for Wednesday’s gas day, while Malin dropped 61.5 cents to $4.845.

In Western Canada, NOVA/AECO C cash was down a much more modest 6.5 cents to C$4.690/GJ.

Big losses also were seen on the East Coast. Algonquin Citygate spot gas fell 67.0 cents to $4.230 for Wednesday gas delivery.

The rest of the country generally posted decreases of 15.0-30.0 cents on the day. Benchmark Henry Hub averaged $4.775 for Wednesday’s gas day.