Natural gas futures came under pressure Thursday after a bearish miss from weekly government storage data, but prices found their footing to finish only a few pennies lower thanks to gains late in the session.
The spot market saw small discounts across much of the country, although a pipeline restriction in New Mexico corresponded with bigger moves in the Southwest; the NGI Spot Gas National Avg. slipped 1.5 cents to $2.195/MMBtu.
The June Nymex futures contract settled at $2.589, down 3.1 cents after trading as low as $2.564 and as high as $2.618. July shed 3.4 cents to settle at $2.624, while August settled at $2.643, off 3.3 cents.
The Energy Information Administration (EIA) reported an above-consensus and much larger than average 123 Bcf weekly injection into U.S. natural gas stocks, keeping the pressure on front month futures prices that had already sold off in early trading Thursday.
The 123 Bcf build for the week ended April 26 compares to just a 50 Bcf build recorded in the year-ago period and a five-year average 70 Bcf injection. Major surveys had pointed to a build in the neighborhood of 114-116 Bcf.
The selling early Thursday largely reversed a 4.5-cent rally in Wednesday’s session, which had occurred on a combination of seasonal and technical momentum. Confirmation of the large storage build from EIA seemed to arrest momentum from the day before.
From a technical standpoint, prices saw a “bullish divergence” after bears broke below long-term support last month but failed to follow through to the downside, according to Powerhouse LLC President Elaine Levin. Seasonal trends also favor higher prices this time of year, she said.
“You have this strong seasonal where May into June tends to be a bullish time of year,” Levin told NGI. But a string of larger-than-normal injections from EIA this month could be “the one thing that could derail all of this.”
Total Lower 48 working gas in underground storage stood at 1,462 Bcf as of April 26, 128 Bcf (9.6%) above year-ago stocks but 316 Bcf (minus 17.8%) below the five-year average, according to EIA.
By region, the largest build came in the South Central, where IAF Advisors analyst Kyle Cooper told Enelyst chat participants demand has been “at a minimum.” The region injected 50 Bcf on the week, including 29 Bcf into nonsalt and 20 Bcf into salt stocks.
The East injected 28 Bcf for the week, while the Midwest recorded a 26 Bcf build. In the West, the Pacific and Mountain regions — where stocks sit well below five-year average levels — injected 14 Bcf and 5 Bcf, respectively.
“Weaker year/year demand (largely weather-driven) and rising production have pushed the last five weeks of injections higher than average,” narrowing the deficit to five-year average stocks by almost 200 Bcf in the process, according to analysts with Jefferies LLC.
“Coming into the refill season, near record levels of injections (around 2.6 Tcf) were needed for storage to reach normal levels (around 3.7 Tcf) by the end of summer,” the Jefferies analysts said. “The last five injections have pushed 355 Bcf into storage (versus the five-year average of 110 Bcf), giving storage a head start in the shoulder months before we enter the summer.”
While ample supply is helping to drive above-normal injections, on the demand side liquefied natural gas (LNG) feed gas flows have rebounded to average 5.2 Bcf/d over the last week, according to the Jefferies team. That’s compared to LNG volumes that had dipped to 4.5 Bcf/d in April on maintenance at Cheniere Energy Inc.’s Sabine Pass terminal.
With start-up for Cameron LNG Trains 2 and 3 slipping to 2020 based on the latest projections from contractor McDermott International Inc., that “leaves total expected U.S. LNG export capacity at roughly 6.6 Bcf/d at year-end 2019, though feed gas flows typically run roughly 15% ahead of capacity at full utilization,” the analysts said.
A stormy forecast, but one promising mostly comfortable temperatures, inspired generally moderate spot price moves across the Lower 48 Thursday.
“An active weather pattern is forecast to continue through the end of the week from the Southern Plains to the Midwest and Ohio Valley along a nearly stationary frontal boundary,” the National Weather Service said.
“…Numerous showers and storms are expected to continue regenerating in the vicinity of this front, with the best prospects for heavy rainfall from central Texas to southern Illinois…Ahead of the dominant frontal boundary, expect temperatures to be more reminiscent of June, with afternoon highs on the order of 10-20 degrees above average expected from the Southeast to the Mid-Atlantic for the end of the week.”
The heat to end the week proved insufficient to sustain higher prices in the Southeast Thursday. Transco Zone 5 slid 6.5 cents to $2.540.
Weak Waha pricing continues to have an impact on Permian Basin associated gas production, including curtailments at Apache Corp.’s Alpine High, according to Jefferies analysts.
“Permian production averaged around 8.3 Bcf/d in April, the lowest average level since November 2018, as very weak (and at times negative) pricing is clearly weighing on production,” according to Jefferies.
A major bump in pipeline export capacity to Mexico could be just weeks away.
Sempra Energy’s Mexico subsidiary Infraestructura Energética Nova (IEnova) said Tuesday the 2.6 Bcf/d Sur de Texas-Tuxpan marine pipeline should be online “in a few weeks,” in time for the Mexican summer when natural gas demand traditionally peaks.
“We’re in preconditioning and commissioning,” CEO Tania Ortiz said during a call to discuss quarterly results. “We should be calling for gas in the next couple of weeks to do our testing and line-packing. So, we are in the final few weeks of finishing the project.”
The $2.1 billion underwater pipe, a joint venture with TransCanada Corp., stretches nearly 500 miles through the Gulf of Mexico from the tip of Texas in Brownsville to the Tuxpan port in Veracruz state. It has been delayed for several months by bad weather, with offshore tie-ins still pending, IEnova said.
Meanwhile, a force majeure at a Natural Gas Pipeline Co. of America (NGPL) compressor in southeast New Mexico appeared to contribute to some larger price changes in the Southwest Thursday.
In a notice to shippers, NGPL said it experienced horsepower issues at its Compressor Station (CS) 167 in Lea County, NM, requiring the operator to shut in the compressor for the duration of the force majeure event. NGPL said receipts south of CS 167 and just to the north of the station would be impacted by the restriction.
With the core summer cooling season just around the corner, storage inventories in the Golden State are low by historical comparison after a “notable February and March drawdown,” according to Genscape Inc. analyst Joe Bernardi. This has put upward pressure on forward prices at SoCal Citygate and PG&E Citygate.
From April 25 to May 1, SoCal Citygate June prices jumped 26 cents to reach $3.753, July shot up 49 cents to $6.273 and the balance of summer climbed 34 cents to $5.05, NGI’s Forward Look data show.
Inventory on the Southern California Gas (SoCalGas) system “drew down relatively quickly in February and March due to considerably colder than normal weather and increased demand,” Bernardi said.
Compared to the previous two years — the most comparable historical periods given recent changes at Aliso Canyon — this winter’s inventories were above normal from November through early February, reaching as high as 126% of the recent norm, according to Bernardi.
“Then SoCalGas storage levels dropped to as low as only 79% of the past two-year average by mid-March, setting a new post-Aliso leak record low at just 35 Bcf,” the analyst said. “Since then, with milder-than-normal weather keeping demand at or under normal levels, inventories have been building back up in earnest and are now once again above the two-year average for the end of April.”
Bernardi highlighted an inverse relationship in recent months between SoCalGas storage levels, limited by regulatory restrictions at Aliso, and forward prices at SoCal Citygate for the third quarter, when summer demand peaks in the region.
“Following SoCalGas’ announcement last week that the return of its L235-2 import line would be delayed until at least June (after having previously been expected back in late April), 3Q2019 prices climbed by as much as 64 cents,” Bernardi said. “L235-2 is one of SoCalGas’ critical import lines that has been out of commission since an explosion in October 2017.”
Meanwhile, PG&E (Pacific Gas and Electric) inventories are starting May at 93 Bcf, just 64% of the five-year average, according to Bernardi. Forward prices at PG&E Citygate “have shown the same expected inverse movement compared to storage inventories” since the start of 2019, but have been “notably lower” than SoCal Citygate prices.
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