Natural gas futures pushed higher Wednesday as traders positioned for a possible rare midsummer storage draw that would add further evidence of tightening market balances.
At A Glance:
- Storage print could show a draw
- Output holds above 100 Bcf/d
- Ernesto strengthens into hurricane
Coming off a one-day decline, the September Nymex contract gained 7.1 cents to settle at $2.219/MMBtu.
NGI’s Spot Gas National Avg. rose 2.5 cents to $1.695 on the back of mostly single-digit gains across regions.
The move higher in futures on Wednesday was “being helped somewhat by short-term positioning” ahead of the weekly government storage report on Thursday, Gelber & Associates analysts said. They also noted an increase in open interest on Tuesday was “an encouraging sign for the health of this rally.”
Playing a big part in the support for futures has been slower production in August. Lower 48 output has paced above 101 Bcf/d this week, down about 2 Bcf/d from late July highs, according to Wood Mackenzie data. Early nominations pegged Wednesday at 100.6 Bcf/d ahead of likely upward revisions.
Meanwhile, LNG exports ticked slightly higher as maintenance work offset a rebound in flows to the Sabine Pass liquefied natural gas terminal in Louisiana. LNG terminals were scheduled to receive about 12.5 Bcf/d Wednesday, according to NGI’s U.S. LNG Export Flow Tracker.
U.S. LNG exports were likely to escape any impacts from Hurricane Ernesto, which was upgraded from a tropical storm Wednesday. The National Hurricane Center said Ernesto was projected to strengthen further into a major hurricane over the next two days and reach Bermuda by Saturday.
August summer heat is playing out milder than earlier record forecasts that had the month coming in as the eighth hottest on record. Instead, weather models shed cooling degree days (CDD) to temper demand expectations.
“Near-term weather is eroding with the August forecast off 49 CDDs vs. late July, and below five of the past six years,” according to EBW Analytics Group senior analyst Eli Rubin.
Despite the milder weather, power gas burns have held up and pushed higher in August, aided in part by lower prices.
Power generators could draw 48.8 Bcf of natural gas on Wednesday, Wood Mackenzie estimated. “Power burn nominations continue to come in stronger,” analysts at the firm said.
Storage Draw?
Supply/demand balances have tightened since late July, leading to expectations that Thursday’s U.S. Energy Information Administration (EIA) storage report could show a withdrawal – a rare occurrence for midsummer.
For the EIA print covering the week ended Aug. 9, NGI modeled a 1 Bcf build. Estimates submitted to Reuters ranged from a withdrawal of 6 Bcf to an injection of 26 Bcf, with a median increase of 4 Bcf. Bloomberg’s survey received estimates ranging from a 4 Bcf draw to a 12 Bcf build, with a median addition of 1 Bcf.
These estimates were well short of the 43 Bcf five-year average injection.
Thinning out Thursday’s print estimates, hot weather ruled the Southwest and South Central regions during the EIA period to boost cooling demand. Additionally, gas demand likely got a lift from lower wind generation. Meanwhile, demand in the East was affected by the cooling rains and clouds of former Hurricane Debby.
Overall, the Lower 48 hasn’t seen an August storage draw in records dating back to 2010, according to NGI’s Pat Rau, senior vice president of Research & Analysis. The lowest weekly August injection was 11 Bcf in 2016. “So from a historical standpoint, it is significant and is certainly welcomed by the bulls, considering storage is currently 242 Bcf higher than last year and 424 Bcf versus the previous five-year average.”
As of Aug. 2, natural gas inventories totaled 3,270 Bcf, or 15% above the five-year average. That’s down from around 39% at the end of March with the shedding of 250 Bcf/d from the surplus this injection season.
“A withdrawal in August would certainly cut into those deficits somewhat, but it's going to take a lot more than one withdrawal in August to make much of a dent in the total storage picture,” Rau said.
While producers have curtailed output and signaled more cuts could be done to arrest any further price slumps, some of those actions taken – deferred turned in-line (TILs) – amount to a form of storage that when undone would unleash supply, according to Rau.
“Chesapeake Energy Corp. alone is sitting on roughly 1 Bcf/d of deferred production capacity and the six-month pushout of Golden Pass LNG takes away some of the urgency to have more gas in storage headed into this winter,” he said.
ExxonMobil said last week the start-up of the 2.4 Bcf/d Golden Pass project in Texas would be delayed until the second half of 2025.
Cash Steady
Next-day spot natural gas prices ticked higher ahead of hotter conditions in southern states Thursday.
“Ridging could support hotter peaks along the Southern Tier, including in Texas,” Maxar’s Weather Desk said for Thursday. In contrast, rain and storms were expected to cool down the Upper Midwest, it said.
Among the biggest gainers, ANR SE in South Louisiana gained 17.5 cents day/day to average $2.015. The firmer pricing came as planned maintenance by TC Energy Corp.’s ANR Pipeline Co. had less impact on supply than expected on interstate pipelines in ANR’s Southeast area. Instead of a 540 MMcf/d cut to flows, the pipeline only saw around a cumulative drop of 92 MMcf/d day/day, Wood Mackenzie analyst Alex Sealy said.
Rounding out other top gainers, El Paso S. Mainline/N. Baja climbed 14.5 cents to $1.900, and Malin in California added 11.5 cents to $1.580.
In West Texas, a glut of Permian Basin supply kept prices negative. Waha declined 2.0 cents to negative 38.0 cents.
Elsewhere, Westcoast Station 2 in Canada fell C17.0 cents/GJ to C53.0 cents, while the Houston Ship Channel slipped 4.0 cents to $1.815.
