Natural gas futures erased early gains to finish lower on Tuesday as traders took profits to pause a rally sparked by this month’s dropoff in gas production.
At A Glance:
- Tuesday output at 100.6 Bcf/d
- Feed gas flows 1 Bcf/d off weekend levels
- West Texas cash jumps
The September Nymex contract fell 4.1 cents to settle at $2.148/MMBtu after trading as high as $2.239 in the morning.
NGI’s Spot Gas National Avg. added 1.0 cent to $1.670 as another big jump in West Texas prices offset modest declines in most other regions.
In futures, the market’s focus has shifted to remaining injection season balances with September as the prompt month and summer’s peak likely passed.
“It’s very likely we’re over the hump as far as summer goes,” according to Andy Huenefeld, managing partner at Pinebrook Energy Advisors. “We’re not going to see the same level of heat that would have experienced during that peak window in the last 10 days of July, first 10 days of August.”
Instead, the major levers on market action have increasingly been supply responses to the recent swoon in prices. Prompt month futures trading below $2 last week were off about 40% from June highs above $3.
“We’re starting to see fundamental pressures pushing higher on prices even if you don’t look at the overall picture and think, ‘Things are getting bullish again’ – they’re certainly not,” Huenefeld said. “But sometimes prices just fall too far too fast and get to the point where buying interest outweighs selling interest.”
Lower 48 production has run about 2 Bcf/d lower than late July highs amid shut-ins and pipeline maintenance projects in Appalachia, the Permian Basin and Rockies. Wood Mackenzie estimated natural gas output at 100.6 Bcf/d on Tuesday.
Partly because of the lighter output, there’s a chance that Thursday’s weekly government storage report could show a rare summer withdrawal.
On the demand side, gas power burns have maintained growth into late summer, overcoming second half structural headwinds. Wood Mackenzie estimated power plants’ demand for natural gas at 46.5 Bcf/d on Tuesday, a relatively “strong” level, the firm said.
“The good news is that a meaningful increase in natural gas demand continues to exceed our expectations,” Williams CEO Alan Armstrong said during a second quarter earnings call last week.
Energy Transfer LP Co-CEO Marshall McCrea said during the firm’s earnings call, “We keep hearing about transition…well I guess everybody’s kind of seeing the truth. The transition is, we’re about to transition into untold demand for natural gas.”
Feed Gas Pinch
Elsewhere on demand, maintenance projects have reduced feed gas demand for U.S. LNG exports this week. Liquefied natural gas export terminals were scheduled to receive 12 Bcf/d MMcf/d of feed gas on Tuesday, down by about 1 Bcf/d from weekend levels, according to NGI’s U.S. LNG Export Flow Tracker.
Nominations to Cheniere Energy Inc.’s Sabine Pass LNG terminal in Louisiana at 3.6 Bcf/d were off by 0.35 Bcf/d day/day and about 0.9 Bcf/d since Sunday. Work on the Natural Gas Pipeline Co. of America has reduced flows to Sabine Pass by an estimated 468 MMcf/d through Thursday.
Additionally, planned tool runs on the Kinder Morgan Louisiana Pipeline on Wednesday and Sunday could cut flows by as much as 710 MMcf/d, Wood Mackenzie analyst Nadeem Ahmed said. That follows similar work started last week.
TC Energy Corp.’s ANR Pipeline Co. (ANR) kicked off work Tuesday that could reduce flows by around 540 MMcf/d through Friday, Wood Mackenzie analyst Alex Sealy said. However, its downstream recipient Venture Global LNG Inc.’s Calcasieu Pass terminal should be able to make up the difference with flows from Enbridge Inc.’s Texas Eastern Transmission LP and EnLink Midstream LLC’s intrastate Bridgeline Holdings LP pipelines, Sealy said.
North American LNG exporters have increasingly cast their eye toward Asia for growth, but geopolitical risks are again rearing their head, possibly drawing more European buyers to the Gulf Coast.
Europe’s benchmark natural gas price soared last week as Ukrainian troops pushed into Russia near key gas infrastructure for piped gas imports. The prompt Dutch Title Transfer Facility (TTF) contract settled at $12.96/MMBtu on Friday, its highest level since December. It has since declined as Russian gas is still making its way to Europe via Ukraine.
But with TTF supported by geopolitical risk, there’s “ample opportunity to lock in sizable transatlantic spreads” that “may ensure elevated LNG exports throughout next year,” according to EBW Analytics Group senior analyst Eli Rubin.
Texas Cash Rally
Next-day spot natural gas prices were mixed Tuesday as most regions took back some of the previous day’s gains. Meanwhile, West Texas and much of the East pushed higher.
Waha jumped for a second day, but stayed negative for a 13th day, up 68.5 cents day/day at an average negative 36.0 cents.
In the Northeast, Transco Zone 6 non-NY added 11.5 cents to $1.560. Meanwhile, Texas Eastern M-2, 30 Receipt added 10.0 cents to $1.500 for an area that spans Pennsylvania, West Virginia and Ohio.
At the other end of the spectrum, Malin in California fell 33.0 cents to $1.465. KRGT Rec Pool in the Rockies slipped 11.5 cents to $1.620. ANR SE declined 13.0 cents to $1.840 with work underway on ANR in South Louisiana.
NatGasWeather said national demand would be moderate through Thursday as weather systems tracked across the northern half of the country with highs in the upper 60s to 80s. Hot weather would continue to dominate southern regions with highs in the 90s to 100s, especially in the Southwest and in Texas “but not enough to offset nice temperatures over the northern half of the U.S.”
Hot weather was expected to expand its reach next week in interior states to boost national demand for natural gas, the forecaster said. “However, weather systems will continue to impact the Northwest, Ohio Valley, and Northeast with highs of only upper 60s to lower 80s and why national demand won’t be extreme,” NatGasWeather said.
In the Atlantic Ocean, Tropical Storm Ernesto could strengthen into a hurricane as it approaches Puerto Rico midweek and then move north along a projected path that misses the Lower 48, the National Hurricane Center said.
