• U.S. piped exports to Mexico hit the highest level ever reached in cross-border flows in a single gas day
  • While cooler from earlier forecasts, the outlook for heat remains strong across most of the Lower 48
  • The continued spread of the coronavirus and its adverse impact on economic activity and industrial energy demand remains a key headwind

Though forecasts eased some early Friday, expectations for continued extreme summer heat and robust cooling demand outshined a weak outlook for liquefied natural gas (LNG) and storage concerns, helping natural gas futures rebound from losses a day earlier.

The August Nymex contract gained 2.6 cents day/day and settled at $1.805/MMBtu. September rose 2.6 cents to $1.847.

NGI’s Spot Gas National Avg. fell 7.0 cents to $1.710.

Following gains earlier in the week, the August Nymex contract lost 4.5 cents on Thursday after  the U.S. Energy Information Administration (EIA) reported an injection of 56 Bcf natural gas storage for the week ending July 3. The build was moderately below expectations and below the five-year average. But stockpiles overall remain elevated, and markets mulled the gradual pace of supply/demand imbalance improvement as mid-summer approaches and the specter of a storage crunch still lurks as a potential threat in the fall.

At issue: LNG worries fed by continued spread of the coronavirus and its adverse impact on economic activity and industrial energy demand. The pandemic depleted European and Asian demand for U.S. LNG exports in the spring months as the virus first gripped the globe. A new surge in cases in late June and this month infused a second dose of uncertainty and clouded the outlook for an LNG recovery.

With energy needs light relative to pre-pandemic levels, storage levels abroad remain elevated, too, preventing need for U.S. supplies and creating concern that, should the recent heat waves subside, domestic stockpiling could pick up, economists at The Brattle Group said in an assessment Friday.

However, there is one bright spot on the natural gas export front. Genscape Inc. said that, on Wednesday, U.S. piped exports to Mexico hit the 6.2 Bcf/d mark. “This is the highest level ever reached in cross-border flows in a single gas day,” the firm said in a report Friday. 

In summer-to-date terms, U.S.-to-Mexico exports are averaging 5.1 Bcf/d. “This value is almost 200 MMcf/d below both the figure from last year’s hot season and our summer forecast for 2020,” Genscape said, blaming a pandemic that also has inflicted Mexico. But “upward revisions to our border flow projections are likely in so far as Mexican gas demand continues to recover, following the government’s easing of lockdown measures on industrial and business activities as of early June,” the firm said.

Power burns in Mexico are nearing an average of 3.7 Bcf/d so far this summer. That is below last summer’s record of 4.2 Bcf/d, Genscape said, but stronger than expected in late March, when the Covid-19 outbreak forced Mexico’s government to order a lockdown. And activity has since resumed. Mexican gas utilization for power generation jumped by over 320 MMcf/d in May and then by more than 420 MMcf/d in June, Genscape said. “In fact, last month reached an average of 4 Bcf/d, the highest so far in 2020.”

Additionally, expectations remain high for scorching summer temperatures across the Lower 48 over the next few weeks, EBW Analytics noted Friday.

Bears, EBW said, appear to be discounting the impact that “extreme hot weather is likely to have on power sector consumption of gas this summer, which could significantly diminish the current inventory surplus, reducing the risk of a storage availability squeeze this fall.”

The firm added that, over the coming two to three weeks, “when almost all generating capacity will be required to meet load” if forecasts prove accurate, “suggests that natural gas power sector burn is likely to reach new highs” and could prove a catalyst for gas futures.

Tudor, Pickering, Holt & Co. (TPH) analysts said that, on Thursday, it appeared that gas was “caught in a broad market sell-off, driven by escalating fears of a second wave of Covid-19,” as much as other factors.

In fact, new virus cases in the United States climbed by more than 63,000 Thursday, a single-day record, and the total number of infections identified since the onset of the pandemic topped 3.1 million, according to Johns Hopkins University data. On the same day, the U.S. Labor Department said more than 1.3 million Americans filed for unemployment benefits last week. That was down from prior weeks, but another 1 million first-time claims were also made under the Pandemic Unemployment Assistance Program, and taken together, the 2.3 million claims marked an increase from earlier in June.

All of that noted, the TPH analysts are concerned about imbalance risk if heat fades. But for now, lofty temperatures continue to permeate much of the country, driving energy demand.

“Given the heat,” the TPH analysts said, “we’re expecting storage reports for the next few weeks to show in line, to slightly below-normal, builds.”

Bespoke Weather Services said Friday that near-term forecasts pulled back slightly from record-heat expectations earlier in the week. “Offsetting that,” however, “is the fact that above-normal days continue rolling into the back of the forecast, which we think continues into late month and into August. At the end of the day, this keeps us on pace to edge out July 2011 for the hottest month on record.”

Spot Prices Sputter

Cash prices posted losses throughout the Lower 48, after the modest cooling shift in forecasts and several days of gains earlier in the week.

Though not as hot as forecasts earlier in the week, NatGasWeather said, “upper high pressure will rule” much of the country over the next several days.

“Cooler exceptions are expected from a weak tropical system bringing squalls to the Mid-Atlantic Coast” on Friday, the firm added. But cooling demand is expected to surge for the next week “across the southern United States as highs reach the 100s from California to Texas, with mid-90s across the South and Southeast.”

Notable decliners on Friday included SoCal Citygate, which lost 13.5 cents to $2.110, and Algonquin Citygate, which shed 14.0 cents to $1.525.

Elsewhere, Defiance gave up 10.0 cents to $1.655, while Chicago Citygate fell 8.5 cents to $1.705, and El Paso Permian declined 8.5 cents to $1.590.

On the pipeline front, Vector Pipeline said it would begin early this week scheduled maintenance at the interstate interconnect with Alliance Pipeline in Will County, IL, that would restrict up to 225 MMcf/d of receipts onto Vector from Alliance. The restriction is expected to apply from Sunday through July 19, and all receipts from Alliance are not to be accepted for the duration of the maintenance event, according to Genscape. Over the past 30 days, the firm said, receipts from Alliance onto Vector have averaged 134 MMcf/d and maxed at 225 MMcf/d.

“However, two other interstate interconnects with Northern Border and Guardian, also located in Will County, will be fully available and operational,” Genscape added. “These interconnects typically have over 1 Bcf/d of available capacity combined, leaving ample capacity to compensate for the lack of receipts from Alliance.”