Natural gas futures lost momentum on Thursday after a fierce rally that sent the prompt month more than 50 cents higher over the three previous sessions. Traders took profits after weather forecasts shifted cooler and a government inventory report showed a larger storage injection than expected.

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At A Glance:

  • Weather models not showing cold just yet
  • Global factors less influential to U.S. prices
  • Lower 48 storage deficit set to tighten

The October Nymex contract declined 12.5 cents day/day and settled at $5.335/MMBtu. November also fell 12.5 cents and closed at $5.382.

Cash prices pulled back as well. NGI’s Spot Gas National Avg. shed 19.0 cents to $5.340.

Forecasts backed off “the level of heat projected in the pattern over the next couple of weeks, drastically lowering” expected cooling-degree days without significantly increasing any heating-degree days, Bespoke Weather Services said. “The source of the change comes with more eastern U.S. troughing, erasing above normal temperatures for most areas east of the Mississippi River in the medium range” and “leaving us with what is now a weak overall demand picture” for the rest of September.

Liquefied natural gas (LNG) export volumes were also down on the day to around 9 Bcf after hovering near 11 Bcf for much of the summer. This came after power outages caused by former Hurricane Nicholas, which arrived in the Gulf of Mexico (GOM) early this week. The storm knocked out power at the Freeport LNG terminal near Houston, interrupting flows of the super-chilled fuel.

Additionally, the U.S. Energy Information Administration (EIA) on Thursday reported an injection of 83 Bcf into natural gas storage for the week ended Sept. 10. The print was higher than expected.

Participants on The Desk’s online energy platform Enelyst said the aftershocks of Hurricane Ida – cooling rains and flooding — appeared to impact demand during the covered week more than estimated. That resulted in a solid increase in South Central storage, in addition to gains in the Midwest and East. Ida crashed into Louisiana on Aug. 29.

The Midwest and East regions led with builds of 34 Bcf and 29 Bcf, respectively, according to EIA. The South Central build of 22 Bcf followed.

Surveys had pointed to expectations for a build in the 70s Bcf. NGI estimated a 72 Bcf increase. The prior five-year average was an increase of 79 Bcf. For the comparable week a year earlier, EIA recorded a build of 86 Bcf.

However, “we do not feel this number tells us much, as some of the bigger build is still due to Ida’s impact,” Bespoke said of the EIA print. It is “not something the market is likely to view as a game-changer that solves the storage situation as we head toward the winter season.”

Despite the market pullback Thursday, analysts noted that injections have generally been light throughout the summer as scorching heat fueled elevated domestic cooling needs and robust demand for LNG. Buyers in Europe are paying a premium for U.S. LNG to address depleted stockpiles throughout that continent before winter. With demand strong, EBW Analytics Group said, the storm-induced decline in LNG volumes this week is expected to reverse in coming days, renewing pressure on supplies.

[Tune In: Catch NGI’s Hub & Flow podcast where LNG Insight editor Jamison Cocklin sits down with Abaxx Exchange’s CCO Joe Raia to chat about price transparency in the global LNG market.]

The United States is on track to fall short of 3.5 Tcf of gas in storage by the close of October, when injections typically end. That compares with more than 3.9 Tcf last year. If the coming winter proves harsh, supplies could run low, and that possibility ignited the futures rally earlier this week.

“Things could get dicey…heading into this winter,” said Criterion Research analyst James Bevan.

The build for the Sept. 10 week lifted inventories to 3,006 Bcf. However, it left stocks notably below the year-earlier level of 3,601 Bcf and the five-year average of 3,237 Bcf. 

EBW analysts said U.S. gas buyers may need to drive up prices even further than the highs reached earlier this week to slow LNG exports and keep more gas in the Lower 48. They also noted that with surging LNG prices around the world, countries in Europe and Asia may need to burn fuels derived from oil this winter instead of gas.

“Japan already announced it may start up oil-fired power plants this winter to reduce reliance on expensive LNG,” the EBW team said. “As natural gas prices face the risk of significant further violent moves higher this winter, it is possible that fuel oil may increasingly become an economic option in the United States as well.”

This could add to upward pressure on crude prices.  

“My new view is that oil and gas prices are just gearing up. This winter will be a doozie,” The Desk’s John Sodergreen said. “This winter may be the wildest price ride for oil and gas products we have seen since the old Enron days of the late 1990s early 2000s.”

Spot Prices Sputter

Cash prices dipped lower Thursday after soaring 67 cents over the three previous days.

NatGasWeather said through the weekend and early next week the northern United States will be comfortable with highs of 70s to 80s “as weak cool fronts track through with showers.” From Texas to California, heat is expected to continue, with peak temperatures in the 90s and 100s “as high pressure rules.” The East, meanwhile, “will be warm to very warm with highs of 80s to near 90” besides New England.

However, over the final seven days of September, the Midwest to Northeast is also forecast to be warmer than normal, and “this late in the season that means perfect highs of 70s-80s” and light demand, NatGasWeather added. The Northwest and Rockies will also be mild, with highs in the 60s and 70, “as Pacific weather sweeps through.”

The outlook eased the upward price pressure that had permeated physical markets for several days. Prices declined throughout the Lower 48.

In the West, SoCal Citygate shed 10.5 cents day/day to average $7.920 and KRGT Del Pool lost 53.0 cents to $6.205.

Prices in Texas also moved lower. El Paso Permian fell 24.0 cents to $5.055, while Waha gave back 23.0 cents to $5.060.

In the Midwest, Chicago Citygate declined 23.0 cents to $5.255, and in Appalachia, Millennium East Pool fell 11.5 cents to $4.985.

Wood Mackenzie noted that production this week made a “noticeable comeback since Ida.” Output in the GOM had remained largely offline through last week. As of Thursday, though, the Bureau of Safety and Environmental Enforcement (BSEE) estimated that 39.40% of gas production in the region remained shut in – a substantial improvement from nearly twice that level a week earlier. 

Remnants of Nicholas, meanwhile, hovered over southern Louisiana on Thursday, delivering heavy rainfall and strong winds, as well as the potential for flooding. “Nicholas is expected to do so through Friday,” Wood Mackenzie analyst Kara Ozgen said.