• Feed gas flows to U.S. LNG terminals dipped below 4.0 Bcf
  • Expectations for storage surpluses came into sharper focus 
  • The Atlantic hurricane season continued to complicate supply and demand

Natural gas futures on Tuesday effectively punctuated the steep losses posted a day earlier, as markets absorbed news of lower liquefied natural gas (LNG) levels and expected demand impacts from Tropical Storm Beta, the latest severe weather development to menace the Gulf of Mexico (GOM).

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The October Nymex contract fell a tenth of cent day/day and settled at $1.834/MMBtu, one day after it plunged more than 21 cents. November dropped 11.3 cents to $2.597 as forward expectations about storage surpluses came into sharper focus and weighed down prices along the winter strip.

Spot gas prices, meanwhile, recovered from losses a day earlier. NGI’s Spot Gas National Avg. rose 11.5 cents to $1.525.

Scheduled feed gas flows to U.S. LNG terminals dropped more than 20% from Friday to Monday, and declined further Tuesday, dipping below 4.0 Bcf after topping 7.0 Bcf for several days last week. Annual fall maintenance work at the Dominion Energy Cove Point LNG terminal and a resulting hit of more than 700 MMcf/d of feed gas deliveries to the facility, coupled with Beta’s arrival on Tuesday, hindered LNG at a time when markets are looking for it to fill a demand void left by fading summer weather over parts of the Lower 48.

Additionally, with Beta making landfall along the Texas coast, “demand in the South Central region is likely to remain deeply depressed” moving into the middle of the week, “preventing the October contract from rebounding significantly” and putting “downward pressure on November-March prior to this week’s storage report on Thursday,” EBW Analytics Group said.

Beta on Tuesday brought heavy rain to the Gulf Coast and localized flooding before weakening to a tropical depression later in the afternoon. This lowered production “slightly,” NatGasWeather said, but not enough to offset demand declines and the storm’s impacts to LNG facilities at Freeport, Sabine Pass and elsewhere amid “bouts of heavy squalls.” 

Looking at weather in the rest of the country, much of the United States is expected to see “comfortable highs of 70s and 80s for light national demand,” the forecaster said. “Hotter exceptions continue over the Southwest into California, with 90s and 100s, while cool exceptions will arrive into the Northwest Wednesday to Thursday as a weather system brings much needed rain.”

Absent widespread cooling demand or stronger LNG levels, anticipation mounted for another robust storage report this week after the U.S. Energy Information Administration (EIA) last Thursday reported an injection of 89 Bcf  for the week ending Sept. 11. The figure eclipsed the high end of expectations found in major polls and pushed inventories up to 3,614 Bcf – well above the five-year average of 3,193 Bcf. Another hefty build for the week ended Sept. 18 could all but ensure storage would exceed 4.0 Tcf before fall ends, some analysts say.

The Schork Report’s analysts said Tuesday it was “a forgone conclusion” that the Lower 48 would not only exceed 4.0 Tcf – widely viewed as a glaring warning sign of containment woe – but would enter winter “with a record amount of supply in the ground.”

This explains why gas futures were under heavy pressure, they said. “Wall Street is in a panic, selling out their bad guess” in the prompt month and beyond, the Schork analysts said.

Bespoke Weather Services, which preliminarily projected an injection of 92 Bcf for the Sept. 18 reference week, provided a similarly skeptical assessment.

“Things still look bearish at the front of the curve with record storage levels, and now another plunge in LNG volumes,” the firm said. “While likely brief, every Bcf matters when in this potential containment situation.”

A bump in industrial energy demand would certainly help. But it is dependent on economic recovery driving activity and greater energy needs, and analysts say the protracted coronavirus pandemic – and the specter of a second global wave as temperatures chill – make any forecasts of an industrial rebound difficult at best.

Jefferies Inc. analysts said the U.S. economy’s recovery is likely also contingent on another round of federal stimulus spending. However, while lawmakers are floating plans, the odds of a bill in the near term “fell sharply” after the death last Friday of Supreme Court Justice Ruth Bader Ginsburg because the Senate will now be consumed with vetting a nominee to replace her, the Jefferies analysts said.

Without additional stimulus, disposable personal income would contract by roughly 10% during the fourth quarter, they estimated, “creating significant downside risk” for the economic recovery.

Cash Climbs

Spot gas prices advanced Tuesday, rebounding from the pressure they were under a day earlier and the week before, despite anticipated demand loss from Beta and as Hurricane Teddy loomed.

Beta flooded parts of Houston, according to the National Weather Service, closing highways and continuing to deliver rains despite diminishing in force as it crept along the Gulf Coast toward Louisiana Tuesday. Some parts of the region were expected to get up to 20 inches of rain in total.

Meanwhile, Teddy was expected to bring destructive waves and heavy rain to Canada’s Atlantic Coast into Wednesday, according to the National Hurricane Center (NHC). In the process, the “extremely large” storm, as NHC described it, was packing winds of 100 mph and was expected to create problems along swaths of the U.S. East Coast.

In the Northeast, Algonquin Citygate prices jumped 21.0 cents day/day to an average $1.260, while PNGTS surged 70.0 cents to $3.815.

Elsewhere, Dominion North advanced 37.5 cents to $1.115, and Texas Eastern M-2, 30 Receipt spiked 47 cents to 95.5 cents.

Out West, where wildfires continue to ravage California and neighboring states, prices were mixed Tuesday after several days of volatility. In California, Malin gave up 1.5 cents to $2.195, but SoCal Citygate soared 48.0 cents to $3.005.