• Futures finished the trading week on a high note, despite concerns about lofty storage levels and moderating demand when fall weather arrives
  • While slow in the wake of Hurricane Laura, markets anticipated a stronger recovery for U.S. liquefied natural gas exports
  • Cash prices continued to cruise in California as scorching heat blanketed the state

After rallying late last week on the prospect of recovering liquefied natural gas (LNG) demand, October gas futures lost ground in early trading Tuesday even as estimates showed the anticipated recovery in export activity coming to fruition. The October Nymex contract was down 3.9 cents to $2.549/MMBtu at around 8:45 a.m. ET.

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Natural gas futures finished the trading week on a high note, despite festering concerns about lofty storage levels, moderating demand when fall weather moves in, and a slow recovery for U.S. liquefied natural gas (LNG) exports in the wake of Hurricane Laura.

After trading in the red on Friday morning, the October Nymex contract rebounded and settled at $2.588/MMBtu, up 10.1 cents day/day. November climbed 6.0 cents to $2.987.

Next day cash prices, meanwhile, continued to cruise in California as scorching heat blanketed the state, but prices retrenched elsewhere amid profit taking and moderating temperatures. NGI’s Spot Gas National Avg. fell 9.0 cents to $2.170, following strong overall gains earlier in the week.

Futures capped a see-saw week as markets shrugged off the latest storage report by the U.S. Energy Information Administration (EIA). It showed a light injection of 35 Bcf into underground stockpiles for the final full week of August, when late summer heat fueled robust cooling demand. Though the result was in line with analyst expectations, traders instead focused Thursday and early Friday on the anticipated arrival of fall weather. Forecasts call for cooling across the central United States moving into the second week of September — and the likelihood of decreased demand for gas-powered air conditioner use.

Against that backdrop, early forecasts called for a storage injection in excess of 60 Bcf when EIA reports next Thursday (Sept. 10), and an even higher build the following week. Bespoke Weather Services preliminarily is anticipating a build of 62 Bcf for the next report and 77 Bcf for the following week. Such levels could renew worries about fall containment issues, particularly if LNG export activity does not hasten in coming weeks.

Storage levels at the end of August were 13% above the five-year average.

“The market is struggling to pin down where fair value is,” Bespoke said. “It is difficult for us to see a bullish case for the October contract, given some risk that containment creeps back into the picture.”

However, while temperatures have begun to cool in the Midwest and forecasts call for broadly milder conditions in mid-September, late summer heat permeates the West and parts of the East, propping up near-term demand.

“Given the time of year,” Bespoke said, “heat needs to be strong, relative to normal, in order to significantly move the needle.”

LNG export demand, meanwhile, shows signs of improvement following a months-long slump during fallout from the coronavirus pandemic. Still, the recovery is gradual, and analysts are concerned consumption may not accelerate quickly enough to support gas prices this fall.

Notably, a pair of key gas export facilities on the Gulf Coast remained shut-in Friday following nearby destruction to refineries and industrial plants caused by Hurricane Laura. Other sites stepped up to fill some of the void, but with feed gas flows to the Sabine Pass and Cameron LNG export facilities in Louisiana still near zero, analysts say LNG has been slow to ramp up so far in September. That is important because increased exports could prove essential on the demand front if autumn temperatures are too low to get air conditioners cranking.

However, EBW Analytics Group noted “increasing signs” that Cheniere Energy Inc.’s Sabine Pass terminal could gain momentum as soon as Tuesday (Sept. 8).

“While Cheniere has not released any information regarding its restart plans, with the Labor Day holiday about to begin, the likelihood that Sabine Pass will be at least partially up and running when the market reopens” Tuesday “seems reasonably high,” the EBW team said Friday. This “could bring total LNG feed gas flows to as much as 6-7 Bcf/d, reigniting the natural gas rally.”

EIA said Fridaydaily natural gas deliveries to U.S. facilities dropped about 60% from a high of 9.8 Bcf/d in late March, when the pandemic took hold, to less than 4.0 Bcf/d in mid-June. The volume reductions reflected cargo cancellations for domestic exporters amid decreased industrial and commercial consumption from measures intended to contain virus outbreaks. LNG levels have struggled to climb from the June lows, but analysts are looking for increased demand from Asia and Europe ahead of winter.

Regarding Laura’s aftermath, the Bureau of Safety and Environmental Enforcement (BSEE), citing midday data from offshore operators Friday, said 48 production platforms in the Gulf of Mexico (GOM) remained unmanned, 7.5% of the total, while one of 12 rigs remained unmanned.

BSEE estimated that 12.8% of natural gas production in the GOM was still shut-in on Friday, while 10.5% of oil remained offline in Laura’s wake.

California Cash

Spot gas prices continued to climb Friday, with heat intensifying in the West and state authorities in California cautioning that triple-digit temperatures could cause power outages through the Labor Day weekend.

The National Weather Service had issued extreme heat warnings for most of California, with weekend daily highs expected to eclipse 110 degrees in Sacramento and approach that mark in other major cities including Los Angeles and San Diego.

“Some areas could also see the heat’s impact on cooling demand compounded by wildfire smoke, with the poor air quality forcing people to close windows and spend more time indoors,” Genscape Inc. said, noting that dry conditions are exacerbating the severity of California’s wildfire season.

Southern California Gas Co. demand for the holiday weekend was projected to top 3.0 Bcf/d, Genscape said. That would be “slightly lower than peak demand seen during the heatwave” in Mid-August, “which led to rolling blackouts across California. Both SoCalGas and Kern River have posted notices alerting shippers to the coming weather, which will be 10-20 degrees hotter than normal.”

Temperatures and demand also soared in the Southwest.

SoCal Citygate jumped $3.045 day/day to an average of $ 8.050, while SoCal Border Avg. spiked $ 2.170 to $5.715, and El Paso S. Mainline/N. Baja advanced $ 3.000 to $7.265.

Elsewhere, however, prices tumbled.

Cheyenne Hub gave up 25.0 cents to $1.915, while Algonquin Citygate lost 27.5 cents to $1.340.

Columbia Gas shed 23.5 cents to $1.500, and El Paso Permian lost 34.0 cents to $1.785.