Uncertainty over the coronavirus outbreak continued to weigh on the outlook for the nascently global natural gas futures market Tuesday, but prices extended recent gains after last week’s test of a key long-term support level. Following through on the previous session’s rally, the April Nymex contract climbed 4.4 cents to settle at $1.800/MMBtu. May settled at $1.838, up 4.1 cents.
In the spot market, modest gains across much of the eastern two-thirds of the Lower 48 saw NGI’s Spot Gas National Avg. recover 6.0 cents to $1.510.
The spread of the coronavirus, officially named Covid-19, has served as a clear example of how the success of U.S. liquefied natural gas (LNG) exports now exposes the once-isolated North American market to global drivers, Powerhouse President Elaine Levin told NGI.
“We are no longer just a North American industry,” Levin said. “As our reach grows, we now have to care more about what’s happening in China, India and the rest of the world.” Given China’s importance in terms of “advances in world GDP growth, world energy demand growth,” the reduced activity from the coronavirus “will I think be felt for some time in global GDP and also our GDP.”
Consistent with the reaction from the stock market Tuesday, Levin expressed skepticism over the Federal Reserve’s move to cut interest rates.
“This is a problem on the demand side of the equation. I don’t think it’s a liquidity issue. Lower interest rates are not going to make people go to a conference if they think they’re going to get sick or quarantined,” she said.
As for the recent natural gas price action, the gains over the past two sessions have seen prices rebound after testing long-term support around $1.60-1.65 late last week, Levin noted. Natural gas still faces bearish headwinds despite the recent move higher, she said.
“We’re getting out of season, longer days, and it’s been a disappointing winter,” Levin said. “I think with the global economic situation, that makes it tough for any commodity, at least in the short term, to make any big improvement in price until we start to get better news” on the coronavirus.
Tuesday’s gains occurred “despite the fact that we see little overall change” in the latest balance data, according to Bespoke Weather Services.
“The weather pattern is quite tiresome to describe at this point, as it just seemingly never changes much from the very warm background state,” Bespoke said. “Sure, we do see model changes at times, and occasional colder days, but that base state has not budged since around the middle of November.
“…The issue, market-wise, is that we are at the point where weather alone may struggle to drive prices lower, as the market sees the overall tighter balances along with the very low price environment.”
Genscape Inc.’s latest reading of LNG feed gas deliveries showed a sharp drop early Tuesday, falling to 7.19 Bcf/d, the lowest level in the past 18 days and the second lowest level in the past 45 days, according to the firm.
“Deliveries to Sabine Pass for today are down to 2.6 Bcf/d, their lowest levels since mid-January,” Genscape senior natural gas analyst Rick Margolin told clients Tuesday. “…In addition, today’s deliveries to Corpus Christi have fallen by about 0.3 Bcf/d day/day. Deliveries to Cameron have been on the rise, though…Feed gas deliveries to Cameron have been running close to 1.3 Bcf/d the past three days after barely exceeding 1 Bcf/d the prior 10 days.”
Looking at the supply picture, Energy Aspects observed a “small bounce-back in Lower 48 receipts” last week, consistent with the firm’s expectations that the market will see “some rebound in production from transitory disruptions.” The firm estimated volumes of 93.6 Bcf/d last week, up from a low of 92.9 Bcf/d for the week ended Feb. 7.
“We had previously noted that some sequential losses in Appalachia appeared to stem from possible outages or maintenance at processing plants on the Ohio River system,” Energy Aspects said in a recent research note. “Some of these volumes are rebounding and are up by more than 0.5 Bcf/d from the low observed Feb. 15. The rebound in volumes was led by 0.25 Bcf/d of Cadiz lateral volumes, after the apparent completion of a processing plant-related disruption, and 0.1 Bcf/d” on the Columbia Gas Transmission (TCO) system coinciding “with the gradual completion of maintenance.
“We expect another 0.25 Bcf/d of production will rebound after the completion of TCO maintenance by the end of the month.”
The prospect of cooler conditions developing later this week supported stronger day-ahead prices at hubs from the Gulf Coast to the Southeast and from the Midwest into the Northeast. Benchmark Henry Hub added 6.0 cents to average $1.760, closing the gap on futures after recent prompt-month gains.
“A weather system with rain and snow showers will exit the Southwest” Tuesday and then “track across Texas, the South and the Southeast Wednesday through Thursday,” bringing with it “modest cooling” for those regions, according to NatGasWeather. “A stronger cold shot will sweep across the Midwest and Northeast Friday through Saturday,” increasing national demand as lows drop into the teens to 30s.
However, the colder temperatures should prove “short lived,” the forecaster said, with conditions across the country expected to warm by the start of next week.
In the Southeast, Transco Zone 4 climbed 9.5 cents to $1.745, while farther up the Eastern Seaboard, Transco Zone 5 also picked up 9.5 cents, averaging $1.795. Appalachia and Northeast prices strengthened as well, with most hubs gaining around 5-10 cents day/day.
Elsewhere, hubs in constrained West Texas continued to languish in negative territory, even after large day/day gains. Waha averaged minus 13.5 cents, up 53.0 cents on the day.
On the other hand, PG&E Citygate surged 18.0 cents to $2.675.
A planned two-day maintenance event was expected to cut about 550 MMcf/d of imports into the Pacific Gas and Electric (PG&E) system via its Redwood Path starting Wednesday, according to Genscape analyst Joe Bernardi.
“With mild demand expected, storage withdrawals should be more than capable of making up for the lost flows, likely mitigating any large price response,” Bernardi said.
Flows through the Redwood Path were set to be limited to 1,550 MMcf/d for Wednesday and Thursday due to work at the Delevan station, the analyst said, noting that this compares to imports averaging just under 2,100 MMcf/d for the month of February.
“For this upcoming event, PG&E should have ample room to increase net storage withdrawals and make up for this lost Redwood Path gas,” Bernardi said. “The pipe has been injecting heavily into storage over the last 11 days, at an average rate of 675 MMcf/d. In the 11 days before that, average injections were 185 MMcf/d, with some days posting net withdrawals.”
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