Like the proverbial egg on the sidewalk, smothering summer temperatures had natural gas markets cooking during the trading week ended July 22. From coast to coast, most natural gas spot price hubs added more than a dollar in value, with the NGI’s Weekly Spot Gas National Average ascending $1.520 week/week to $8.250/MMBtu.
Henry Hub rallied $1.010 to close out the July 18-22 trading period (July 19-25 delivery) at $7.735. Most regional hubs saw weekly gains more or less in line with the national benchmark.
A notable exception was in the historically constrained New England market, where demand hubs like Algonquin Citygates, up $6.210 week/week to $12.440, surged to exorbitant premiums. Farther upstream in Appalachia, Texas Eastern M-3, Delivery jumped $2.000 to $8.060.
The sweltering conditions also kept a bid under Southeast spot prices during the week, with hefty markups continuing in the region. Transco Zone 4 picked up $1.255 to finish at $11.855.
Storage Fears Spurred by Heat
Nymex futures, meanwhile, closed out the week on a bullish note, rallying 36.7 cents Friday to settle at $8.299, up $1.283 from the week-earlier settle of $7.016.
A leaner-than-expected government inventory report amplified storage adequacy concerns, offering up evidence that cooling demand is depleting a significant chunk of the balance cushion created by the extended outage at the Freeport LNG terminal.
The Energy Information Administration (EIA) on Thursday reported a 32 Bcf injection into U.S. natural gas storage during the week ended July 15, a print that came in well to the bullish side of surveys suggesting an injection in the mid- to high-40s Bcf.
EBW Analytics Group senior analyst Eli Rubin said the result “implies building fundamental pressure” on futures. It “stunned the gas market with a low-side surprise nearly 2.0 Bcf/d tighter than expectations.”
The injection raised working gas in storage to 2,401 Bcf, though stocks were 328 Bcf below the five-year average.
“Carrying forward even a portion of tighter supply/demand balances implied” by Thursday’s report “dropped our end-of-season storage target by 40 Bcf to well under 3.4 Tcf,” Rubin said.
The next two EIA prints “should be even tighter,” given robust demand, Rubin added. “If the scorching weather outlook verifies and the storage deficit versus the five-year average rises to 375 Bcf in early August as projected, another leg higher for natural gas is possible.”
“On a weather-adjusted basis, we estimate the market was about 3 Bcf/d undersupplied for the week versus 1 Bcf/d oversupplied the week prior,” Tudor, Pickering, Holt & Co. (TPH) analysts said of the latest EIA report.
Summer heat remains a “primary driver of price action” for the natural gas market, having pushed power generation demand to an all-time high at 47.5 Bcf/d this week, roughly 6 Bcf/d above seasonal norms, according to TPH estimates.
Looking at the supply picture, the firm’s estimates show Haynesville Shale output approaching the 14 Bcf/d mark in recent days. Permian Basin output has averaged around 14 Bcf/d month-to-date but “has lagged our modeled output of around 14.5 Bcf/d for the month,” the TPH analysts said.
The market had anticipated that the Freeport outage – caused by a June fire – would ease supply worries even in the face of prolonged heat. The outage cut export capacity by 2.0 Bcf/d for the summer – and likely longer – and that gas is now available for domestic use. But utilities are eating through the added supply and still struggling to narrow the storage deficit to the five-year average.
Forecasters as of Friday offered up little indication that upward pressure from cooling demand will subside in the weeks ahead.
Bespoke Weather Services said widespread high temperatures in the 90s and 100s put this month on track to be one of the three hottest Julys on record. Now, the latest outlooks shifted hotter and put next month on a path to become one of the five hottest Augusts in the firm’s data set.
“If this heat does indeed continue throughout August, it is likely that prices still move higher from here, and end-of-season storage projection could fall as low as 3.25 Tcf, with hot weather having eaten away most of what Freeport gave the market,” Bespoke said. “Such a scenario would mean prices could still manage to touch $10.00 yet.”
NatGasWeather painted a similar picture. “The longer a hotter-than-normal U.S. pattern lasts, the less damage the Freeport outage will ultimately inflict,” the firm said. “So far it hasn’t been much, with deficits not improving since it went offline, and even potentially increasing the next few weeks on recent and coming heat.”
Daily Cash Prices Advance
Natural gas cash prices cruised ahead Friday for weekend through Monday delivery as they have for much of July, led higher by hubs in the Midwest and South.
NatGasWeather said Friday the American and European forecast models continued to show “a hot and bullish pattern most of the next 15 days.”
The firm sees exceptionally robust cooling needs early in the week ahead as highs of 90s and 100s “rule” most of the country.
Temperatures will be hottest from California to the Great Plains with highs of upper 90s to 110, while also blazing with highs of 90s over major East Coast cities, NatGasWeather added.
Looking into August, hot high pressure would likely span the southern two-thirds of the Lower 48, delivering more highs in the 90s and above, with the most extreme heat in the Southwest and Texas. “Overall,” the forecaster predicted “strong national demand” heading into next month.
Over the weekend, forecasters saw little in the way of potential hurricane activity in the Atlantic. However, AccuWeather meteorologists were anticipating severe weather events in the Midwest.
Storms were forecast to develop by Saturday afternoon from central Minnesota to northern Wisconsin. They were expected to strengthen over the weekend, with Minneapolis first in line for harsh weather.
“As the storms progress to the south and east,” AccuWeather said Friday, “they will intensify further, and all hazards will be possible,” including tornadoes.
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