Natural gas futures pushed higher for a fourth day on Friday, supported by weaker spot prices and maintenance projects curbing production, reversing its jump to a five-month high in the previous week.
At A Glance:
- Waha cash sinks near year low
- Appalachia output cuts hold
- Mild weather into early next week
The September Nymex contract settled at $2.143/MMBtu, up 1.6 cents on the day.
Physical markets, meanwhile, were higher in most regions, but those gains were dwarfed by sharp declines in West Texas that pulled NGI’s Spot Gas National Avg. down 14.0 cents to $1.415. NGI’s Waha spot price sank to its second-lowest level of the year.
The ongoing rally in futures has been aided by lighter natural gas output this week and another bullish storage print miss on Thursday.
The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 21 Bcf into storage for the week ended Aug. 2. The result lagged the five-year average of 38 Bcf, narrowing the long-running surplus to 424 Bcf, or 15% above the five-year pace. That’s well off the bloated 40% level at the end of winter because the last 20 weekly EIA reports have chopped 250 Bcf from the surplus, according to EIA data.
Notably, a smaller week/week build in the East hinted at possible production cuts beyond what was reflected in pipeline flow-based estimates.
“Smallish EIA natural gas storage builds this summer have been the norm and are exactly what storage needs to chip away at the gigantic surplus,” according to Mizuho Securities USA LLC’s Robert Yawger, director for Energy Futures.
However, he said “the math will likely not be enough to eliminate the surplus” and leave the market at risk of “supersizing storage for another year if there is another warm winter” or if LNG export terminals have unplanned outages.
Supply Cuts
Producers have again begun to reduce activity or hold to plans for curtailments in an effort to balance the market and stabilize prices that have fallen below the $1.500 level in the East.
Wood Mackenzie production estimates that topped 103 Bcf/d as recently as Sunday, or a level not reached since February, have slowed considerably this week. For Friday, the firm pegged output at 100.4 Bcf/d, down from an upwardly revised 101.5 Bcf/d on Thursday. The slowdown cut the recent seven-day average pace by 0.6 Bcf/d to 101.9 Bcf/d week/week.
Over the past few weeks, public companies such as Chesapeake Energy Corp., Comstock Resources Inc. and EQT Corp. said they would stick to planned curtailments or make additional cuts.
More recently, Houston-based independent Coterra Energy Inc. said it cut 0.325 Bcf/d of gas production in the Marcellus Shale for August and September as a result of lower prices.
“Simply put, gas markets are oversupplied,” Coterra CEO Tom Jorden said on an earnings call with analysts. He noted that Lower 48 production rebounded above 102 Bcf/d, after bottoming out near 97 Bcf/d in May. The increase has come primarily in the Marcellus and the Permian Basin, with the Marcellus “contributing the lion's share,” he said.
The company made its curtailments on Aug. 1 after it was unable to obtain “favorable” pricing for the month, Jorden said. “We like to see netbacks north of a dollar,” or the price they receive after gathering and transportation fees, he said. The netbacks are based on Nymex pricing. In the North Marcellus, a Nymex futures price above $3 would give them “a pretty good drilling window” while the Upper Marcellus needs “something in the mid-$3s before it’s really in the game,” he said.
August and September Nymex futures briefly traded above the $3 level in mid-June.
For producers selling directly into eastern cash markets, their prices have fallen by one-third since topping out above $2 in late June, with NGI’s Appalachia Regional Avg. priced at $1.345 on Friday.
That spot price level was “providing an incentive for producers to keep supply offline,” EBW Analytics Group senior analyst Eli Rubin said. Cuts like those made by Coterra have shown up in pipeline flows, with nominations indicating Marcellus output fell 1.5 Bcf/d over the past week, he said. “Low spot prices ratcheting physical supply/demand fundamentals set against a rising Nymex curve is a bullish combination for natural gas futures.”
West Texas Plunge
Physical spot markets moved lower on Friday for Saturday-to-Monday delivery as gains in the eastern half of the country were drowned out by West Texas hubs tumbling further below zero.
Waha slumped $3.195 day/day to average at a negative $4.305. That’s the lowest price since negative $4.595 in early May.
Permian supply, which is partly immune to lower prices because of its associated gas production, is waiting on the 2.5 Bcf/d Matterhorn Express Pipeline to come online this fall to ease pipeline constraints out of the basin.
That weakness did not extend to other areas of Texas. Katy added 7.0 cents to $1.840.
Also trending lower on Friday were hubs in California. SoCal Citygate fell 13.5 cents to $1.935.
Meanwhile, gains dotted the rest of the country. Chicago Citygate gained 8.0 cents to $1.775. Texas Eastern M-2, 30 Receipt in Appalachia rose 8.0 cents to $1.355.
National Weather Service (NWS) data showed mild weather across northern markets extending into early next week. Former Hurricane Debby, meanwhile, was forecast to quicken its pace up the East Coast, with its drenching, cooling rains passing through the Northeast by Sunday.
Northeast pricing mostly moved higher despite the cooler conditions. Algonquin Citygate near Boston rose 5.0 cents to $1.525.
More summer heat is in store after this round of cooler conditions. Rystad Energy analyst Christoph Halser noted that NWS forecasts for the second half of August advertised a return to above average temperatures across the Lower 48. The outlook “paints a bright picture for gas demand,” he said.
Downside demand risks remain from the ongoing hurricane season that runs through the end of November, Halser said. He cited the 85% probability for above-normal hurricane activity this season estimated by the National Oceanic and Atmospheric Administration’s Climate Prediction Center.
