Natural gas futures dropped lower Thursday after the latest government report on gas stockpiles showed that storage is filling quickly as cooler fall temperatures sweep over swaths of the Lower 48.

EIA storage sept. 4

The October Nymex contract settled at $2.323/MMBtu, down 8.3 cents day/day. November fell 7.5 cents to $2.798.

NGI’s Spot Gas National Avg. fell 15.5 cents to $1.860.

The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 70 Bcf natural gas storage for the week ending Sept 4. The result was only slightly higher than expectations set by major polls, but it reinforced simmering concerns about fall containment challenges as cooling demand fades along with summer heat.

Before the report, a Bloomberg survey produced a median estimate of 68 Bcf, while a Reuters poll landed at a median of 69 Bcf. NGI estimated an injection of 71 Bcf. The latest result compared with an 80 Bcf build a year earlier and a five-year average of 68 Bcf. EIA reported a 35 Bcf injection into storage for the week ended Aug. 28.

“Obviously, this is a much looser number week over week” and “storage is still filling fast,” Bespoke Weather Services said.

The latest build reflected cooler weather conditions across much of the nation’s midsection and lingering power outages from the destruction of Hurricane Laura in late August.

“Demand was hit hard last week by much cooler weather and continued shutdown of over 6 Bcf/d of LNG liquefaction capacity at Sabine Pass and Cameron” export facilities following Laura, EBW Analytics Group said.

The build for the Sept. 4 week lifted inventories to 3,525 Bcf, above the year-earlier level of 2,997 Bcf and above the five-year average of 3,116 Bcf. 

EIA in a separate report this week said gas stocks at the end of August totaled 3.5 Tcf, 13% more than the five-year average. Inventories are forecast to approach 4.0 Tcf by the end of October, which would be 6% more than the five-year average.

Analysts said fall weather could lead to higher injections in coming weeks. Participants on The Desk’s online energy platform Enelyst forecasted increased storage builds over the next three covered weeks, with some anticipating a triple-digit build in the final full week of September.

Before the fall is over, however, analysts are anticipating liquefied natural gas (LNG) exports will increase significantly as winter temperatures loom and as economies in Asia and Europe recover from recessions imposed by the coronavirus pandemic. As economic activity builds, commercial and industrial demand for gas-powered electricity could mount along with increased heating needs.

Already, there are encouraging signs. LNG feed gas flows approached 7 Bcf Wednesday and Thursday — the highest levels since May — as Cheniere’s Sabine Pass export terminal, which had previously been idled by Laura in late August, resumed operations and export demand increased.

Criterion Energy Research LLC noted a “dramatic run-up” in feed gas deliveries to the Sabine Pass facility this month, climbing from zero on Sept. 2 to around 3 Bcf this week.

“Rather incredible that we are back at 7 Bcf on LNG” overall within a couple weeks of Laura striking Louisiana and Texas, said analyst Mike Zaccardi of The Energy Authority.

An ongoing LNG revival is key, Bespoke said. “Storage remains at record levels in some regions, so the higher LNG volumes will need to sustain themselves to steer us clear of a containment scenario, something that gets even more dicey if weather continues to look tame.”

Looking ahead, predicting the weather’s impact on gas prices could get even more complicated than usual.

The U.S. Climate Prediction Center said Thursday a La Nina weather pattern has formed. La Nina conditions, which develop when the surface of the Pacific Ocean cools, can intensify weather severity, including drought in the West, where wildfires are already raging, and hurricanes in the Atlantic. A La Nina can also increase the odds of colder winter temperatures in northern regions of the United States.

Already there have been 17 named storms in the Atlantic, far above the annual average of 12, and the wildfire season in California is the worst on record, with more than 2.5 million acres burned and neighboring states also impacted.

Cash Lower

Spot gas prices fell Thursday, dragged lower by steep declines in California, where robust cooling demand earlier in the week has tapered off as record heat eases and as the fires wreak havoc, forcing evacuations.

The California fires cover “an area as large as Rhode Island and Delaware combined,” EBW said. “In some parts of California, including the Bay Area, smoke and ash have turned the sky a dark orange and are blocking out the sun.”

SoCal Citygate dropped 87.5 cents day/day to an average of $2.240, and SoCal Border Avg. declined 39.0 cents to $1.850.

In the Rocky Mountains, where a cold snap settled in earlier this week, Kern River fell 20.0 cents to $1.865, while Opal lost 15.5 cents to $1.855.

Elsewhere, PNGTS dropped $2.235 to $2.190, and Algonquin Citygate shed 20.0 cents to $2.255.

Weather conditions are forecasted to shift, however, NatGasWeather said.

“An unseasonably cool weather system will fizzle over the Rockies and Plains the next few days with temperatures of 50s and 60s the next couple days, then warming into the 60s and 70s, the forecaster said. “The East remains warm with highs of 70s to low 90s. The southern United States will be very warm to hot with highs of upper 80s to lower 90s,” with temperatures again into the 100s in parts of the southwest and California.