In a head-scratching trading session, natural gas futures strengthened for a third straight day despite government inventory data that reflected the third largest storage injection in more than 20 years. The Nymex November gas futures contract settled Thursday at $6.972/MMBtu, up 4.2 cents day/day. December futures edged up six-tenths of a cent to $7.242.

At A Glance:

  • Heating demand lingers
  • Production levels hold steady
  • Freeport recovery proves uneven

Spot gas prices also continued to rally, with the stout gains likely driving at least some of the momentum in the futures market. NGI’s Spot Gas National Avg. jumped 18.5 cents to $6.190.

At first glance, futures price action appeared to perplex market observers. The big news Thursday was the latest storage report, but price action was the complete opposite of what was expected based on the data.

The Energy Information Administration (EIA) said natural gas inventories rose by 129 Bcf for the week ending Sept. 30, once again surpassing consensus estimates ahead of the report.

A Bloomberg survey of seven analysts produced a range of injection estimates from 95 Bcf to 129 Bcf, with a median build of 125 Bcf. Reuters polled 15 analysts, whose estimates ranged from injections of 94 Bcf to 131 Bcf, with a median forecast of 111 Bcf.

Nymex futures were trading slightly higher at around $6.970 in the minutes leading up to the EIA report, then slipped modestly as the storage print hit the screen. However, the dip was brief and prices quickly started trending upward again.

Surprised by the rally, one participant on online energy chat Enelyst said, “these numbers are not bullish.”

For comparison, the EIA recorded a build of 114 Bcf during the same week a year ago, while the five-year average stood at 87 Bcf.

The South Central led all other regions with a plump 45 Bcf net injection into storage, which sliced the overall deficit to the five-year average to only 6.6%, according to EIA. Notably, salts remain more than 15% below the five-year average, but they added 21 Bcf to inventories. Nonsalts added 24 Bcf.

The Midwest injected 37 Bcf into storage and trimmed the regional deficit to the five-year average to only 5.6%. The East added 35 Bcf to inventories and cut the deficit to the five-year average to 9.2%. The Mountain and Pacific regions each rose by single digits.

Criterion Research LLC’s James Bevan, director of research, attributed some of the miss to the market underestimating the amount of lost demand stemming from Hurricane Ian, which made landfall near Fort Myers, FL, on Sept. 28.

Speaking on Enelyst, Bevan noted that although Florida utilities restored power to most affected customers within days, temperatures in the wake of the storm cooled significantly.

The low-high temperature range dropping from “75-95 degrees to an expected October range of 65-80 degrees…goes toward explaining the low demand nominations and modeled numbers,” according to Bevan.

“The on-pipe demand has failed to ramp back toward pre-storm levels,” he said. “Visible pipeline flows are flat at 3 Bcf/d, which is down 0.5-1.0 Bcf/d from pre-storm levels due to a mix of demand destruction and cooler weather in the state.”

Total working gas in storage rose to 3,106 Bcf, which is 165 Bcf below year-earlier levels and 264 Bcf below the five-year average, EIA said.

Is The Market Really Loosening?

The EIA’s 129 Bcf injection was one for the record books, coming in as the third largest injection dating back to 1993. It was also the largest ever for the Sept. 30 reference week.

Taken alone, these data points would suggest that prices should retreat from this week’s highs, especially in the face of moderate seasonal weather and near-record production. Another bearish signal – the gas market may be in the midst of at least four consecutive triple-digit builds based on analyst expectations.

“At the same time, you have tighter fundamentals present, including tighter cash prices and improving weather,” said one Enelyst participant. “Nothing strange in my opinion. I don’t think the room is out of sync with the market at all. It’s just the market we’re in at the moment until we see if heating degree days change anything.”

Current forecasts show gas demand ratcheting higher this weekend as an early season cold shot sweeps across the Great Lakes and Northeast. Though the bump in projected demand is expected to be brief, weather models continue to go back and forth on the potential for cold Canadian air to plunge into the Midwest and Northeast beginning around Oct. 14.

EBW Analytics Group said the amplified seasonality of supply and demand the market is currently experiencing may be an enduring market feature in years to come. Structural factors, including the increasing impact of seasonal LNG maintenance scheduled to coincide with pipeline outages; growing wind generation recovering from annual late-summer lows into the fall; and heightened mid-summer/mid-winter demand as working-from-home becomes a semi-permanent workplace setting all could lead to increased seasonality in demand.

On the other hand, coal and nuclear outages – which support autumn power burns – may diminish as capacity retirements continue. Further, hurricane demand risks may be larger because of increased demand infrastructure surrounding the Gulf of Mexico and increasing natural gas demand more broadly.

Hurricane Laura’s toll on the Cameron liquefied natural gas export terminal in 2020 is a prime example of the demand destruction that can be imposed on the gas market. It shuttered Cameron for more than a month.

Soon enough, bearish fall shoulder season could reach a turning point and tighten into the end of the calendar year, according to EBW.

“Returning LNG feed gas demand – both with the conclusion of fall maintenance outages and the impending return of Freeport LNG – could add as much as 3.0-4.0 Bcf/d of LNG feed gas demand by December,” EBW senior analyst Eli Rubin said. “At the same time, power sector demand could pick up seasonally while space heating demand posts significant gains into winter.”

Cash Still Climbing

Although spot gas prices started to buckle on the West Coast amid pleasant temperatures and modest demand, the rest of the Lower 48 continued to reach new heights for the week amid some early-season pockets of cold.

The National Weather Service (NWS) said temperatures had already plunged across the Northern Plains and Upper Midwest as a potent cold front pushed southward, bringing unseasonably frigid air behind it. Highs were expected to top out in the mid-40s to low-50s on Thursday. Even chillier weather was forecast for Friday morning, with freeze warnings in effect for North Dakota and portions of western South Dakota.

The chilly temperatures were forecast to spread farther south and east on Friday as the front progresses, according to NWS. Widespread highs generally in the mid-50s to low 60s are forecast from the Lower Great Lakes into the Midwest, mid-Mississippi Valley and Central Plains.

“Highs will remain even cooler to the north as a strong Canadian high presses southward, with mid- to upper 40s expected for the Upper Midwest and Great Lakes,” NWS forecasters said. “More lows near freezing are possible Saturday morning for the Great Lakes Region and Upper Mississippi Valley.

Based on Thursday’s more modest price increases, it appears that most of the cold already is priced into the market. Consumers Energy climbed 15.5 cents to average $6.295 for Friday’s gas delivery. Ventura tacked on 20.5 cents to $6.325.

Some locations on the East Coast put up larger price increases. Columbia Gas cash was up 38.5 cents on the day to average $6.035, while Algonquin Citygate cash tacked on 23.0 cents to $6.255.Some Gulf Coast points also rallied sharply. Henry Hub spot gas prices shot up 85.0 cents to average $6.905, while Transco Zone 3 was up 42.5 cents to $6.625.