August natural gas futures lost momentum on Monday, as storm activity in the Gulf of Mexico (GOM) ushered in milder temperatures through parts of the central United States and national forecasts shifted cooler. The August Nymex contract fell 7.4 cents day/day and settled at $1.734/MMBtu. September declined 8.1 cents to $1.786.
NGI’s Spot Gas National Avg. climbed 6.0 cents to $1.715.
Bespoke Weather Services sees less intense heat and moderating cooling demand in coming days.
“The bulk of the cooler changes come in the central U.S., running from the Plains over into the Midwest,” the forecaster said. “This is the region where models have had the largest hot bias over the last several weeks. Total demand remains forecast to be above normal for the 15-day period as a whole, but not by much, as the intensity of the pattern has fallen well off levels seen for most of this month to date.”
Bespoke said August temperatures are expected to climb above normal for the month overall, but projections through the first third of the month do not show any “risks for strong heat” and gas-weighted degree day levels “begin to decline after the first few days of August, so it is likely that we have seen peak heat on the national level, in absolute terms.”
Additionally, over the weekend, Hurricane Hanna in the GOM brought milder temperatures to Texas and swaths of the central United States, creating “downward pressure on the August contract,” EBW Analytics Group said Monday.
Hanna came ashore on Saturday afternoon, wreaking havoc on South Texas, bringing wind gusts of up to 90 mph, heavy rains and damaging flooding, according to the National Hurricane Center (NHC). The Category 1 storm — the first hurricane of this year’s Atlantic season — was downgraded to a tropical depression after it made landfall.
Texas Gov. Gregg Abbott issued a disaster declaration for 32 counties.
Analysts at Genscape Inc., however, did not see impacts to GOM natural gas production from the storm. “Production has stayed consistent around 88 Bcf/d since last Thursday,” the firm said.
The NHC, meanwhile, said another potential tropical system trailed Hanna in the Atlantic Ocean.
“Shower activity associated with a broad area of low pressure located a little more than 1,000 miles east of the Windward Islands has become a little less organized since last night,” the center said Monday. “However, environmental conditions are still expected to become more favorable for development in a day or two and a tropical depression or tropical storm will likely form within the next couple of days. The system is forecast to move westward to west-northwestward at 15 to 20 mph and could begin to affect portions of the Lesser Antilles on Wednesday or Wednesday night.”
Above-average summer heat has played a key role in driving gas demand in July, curtailing the risk for storage containment this fall and supporting gas prices. This has largely offset concerns about continued spread of the coronavirus, an uncertain economic outlook and worries about liquefied natural gas (LNG) feed demand that, while recently steady, remains well below pre-pandemic levels. LNG feed gas demand hovered near 3.0 Bcf/d on Monday, according to Genscape.
Increased spread of the virus in July has raised new concerns about a second economic downturn in the Lower 48 and abroad – after signs of recovery in May and into June. Officials across several U.S. states and cities have begun to reassess business reopening plans, with some ordering new restrictions as daily case counts have set records multiple times this month, driven by outbreaks in heavily populated states such as California, Texas and Florida. Restrictions imposed to slow spread of the virus could dampen commercial and industrial energy demand again.
“If the surge in certain states cannot be contained, statewide lockdowns may become a reality and the speed and magnitude at which the economy will recover will be impacted,” said Raymond James & Associates Inc.’s Larry Adam, chief investment officer.
Adam said markets are looking for Congress, as soon as this week, to vote on a new relief package that is likely to cost above $1 trillion and extend special unemployment benefits, perhaps at lower levels, that expire at the end of July. Absent such a package, the pandemic’s ongoing impact on the domestic economy could prove more severe, he said.
The European Union last week reached a deal on an $859 billion economic recovery package.
Against that backdrop, natural gas markets have looked for robust cooling demand to offset economic sluggishness and affiliated LNG weakness, explaining why the milder weather outlook weighed on futures Monday.
Spot prices moved higher on Monday, led by spikes in California.
SoCalGas is restricting withdrawals from the Honor Rancho storage field by 45 MMcf/d starting Tuesday and lasting through Sept. 19, according to Genscape. While a modest level of gas on its own, this is developing while the Aliso Canyon storage field is already restricted and while cooling demand is elevated in California.
RBN Energy LLC analyst Sheetal Nasta said the Northeast is currently an import region to track, given that natural gas production there “has surged nearly 1.5 Bcf/d in the past four weeks as wells that were shut-in this spring came back to life.”
Strong intraregional demand amid the lofty July temperatures, she said, has matched the supply increases so far.
“But the returning supply volumes raise the question: what happens when summer cooling demand begins to fade? Storage will only be able to absorb so much, as regional storage inventories are already well above year-ago levels and the historical average for this time of year,” Nasta said.
“That leaves flows out of the region as the only other outlet for excess supply, and those may be limited as well, as pipeline issues and drastically reduced downstream demand from LNG exports have stymied outflows,” the analyst added.
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