Natural gas futures rose for a third day on Thursday after a relatively lean government storage build signaled production levels might be running lower than expected.
At A Glance:
- EIA reports 21 Bcf storage build
- Production around 100.6 Bcf
- Weather trending cooler
The September Nymex contract moved higher by 1.5 cents to settle at $2.127/MMBtu.
NGI’s Spot Gas National Avg., meanwhile, fell 9.0 cents to $1.555.
On Thursday, the U.S. Energy Information Administration (EIA) reported an injection of 21 Bcf into natural gas storage for the week ended Aug. 2. The result was slightly below expectations and lagged the five-year average build of 38 Bcf.
Prior to the report, estimates submitted to Reuters ranged from an injection of 16 Bcf to 35 Bcf, with a median of 26 Bcf. NGI modeled a 30 Bcf increase.
While weather-driven cooling demand was stronger in the week, renewable generation surged as well to dull the resulting increase in gas-fired power generation. Wind generation jumped 300% week/week, a possible recipe for a bearish miss, NatGasWeather meteorologist Rhett Milne said on the online energy platform Enelyst ahead of the print.
“The surprise to me is this is to the tight side again despite the large swing in renewables,” Wood Mackenzie analyst Eric McGuire said on Enelyst after the print.
The latest increase lifted inventories to 3,270 Bcf, putting stocks 248 Bcf above the year-earlier level and 424 Bcf over the five-year average. The EIA report compared with an injection of 25 Bcf a year earlier.
The Midwest and East led with injections of 12 Bcf and 8 Bcf, respectively, according to EIA. Pacific inventories rose by 3 Bcf, while Mountain region stocks added 4 Bcf.
In the South Central region, inventory levels fell by 5 Bcf, including a 7 Bcf draw from salts and a rounded change of 0 Bcf from nonsalt facilities.
Market participants said another factor for the bullish miss was likely the slimmer build in the East, down from a 14 Bcf increase in the previous week. That could indicate production has pulled back more than pipeline flow-based estimates.
“The past three of four EIA reports have missed decently bullish to suggest the supply/demand balance just might be tighter than the natural gas markets were willing to believe,” NatGasWeather said in its midday update.
Looking ahead to the next EIA print for the week ended Aug. 9, preliminary estimates submitted to Reuters ranged from injections of 8 Bcf to 30 Bcf, with an average increase of 19 Bcf.
Bullish Supply Trend
The positive reaction by futures to the lighter-than-average build underscored how supply is a primary focus of the market. Weather forecasts trended milder over the past day, but this did not dissuade bulls.
Weaker production readings this week have reversed the narrative of the previous week that saw the pace climb to a five-month high.
Wood Mackenzie estimated production at 100.6 Bcf/d on Thursday, down from an upwardly revised 101.3 Bcf/d on Wednesday. These levels are below the recent 30-day average of 102.2 Bcf/d, pushed lower by ramped-up pipeline maintenance.
In addition, Transcontinental Gas Pipe Line Co. LLC (Transco) was scheduled to begin maintenance Friday that would cut southbound flows on its mainline through compressor station 190 in Maryland. The work was scheduled for five non-consecutive days: Aug. 9, 13, 15, 20 and 24.
Capacity would be limited to around 1.75 Bcf/d, or a cut of around 0.7 Bcf/d from Wednesday’s nominations of around 2.4 Bcf/d. That’s a bigger drop than the impact of work along the line in June.
“This cut represents a large cut to the gas flow into the Carolinas and adds pressure to the southern end of Transco to keep a high utilization rate over this period to minimize the impacts,” Wood Mackenzie analyst Magnus Gilje said.
Transco’s maintenance comes just as pigging operations ease on the Mountain Valley Pipeline LLC (MVP), which sends it flows onto Transco via an interconnect in Virginia.
On the demand side, Cheniere Energy Inc. management said Thursday that their Corpus Christi LNG (CCL) expansion project was on track to producing its first liquefied natural gas by the end of the year.
The company was planning to introduce natural gas to the first train in two months. The South Texas facility will have seven trains. A regulatory filing by Cheniere last week hinted at the nearing liquefaction commissioning.
U.S. LNG export terminals were scheduled to receive about 12.8 Bcf of feed gas Thursday, marginally flat day/day, according to NGI’s U.S. LNG Export Flow Tracker.
Cash Weaker
Natural gas spot markets traded lower in trading Thursday for next-day delivery, undercut by the cooling influence of former Hurricane Debby in the Southeast and another weather system curbing demand in northern markets.
Ahead of Transco supply cuts but under the sway of Debby’s remnants, Transco Zone 5 in the Southeast slipped 7.5 cents day/day to average $2.175. Prices in Appalachia continued to show weakness as Texas Eastern M-2, 30 Receipt was down 5.0 cents to $1.275. The lower prices have raised the prospect of shut-ins.
Elsewhere, SoCal Citygate in California dropped 22.0 cents to $2.070, while Kingsgate in the Rockies fell 22.5 cents to 70.0 cents.
In South Louisiana, Henry Hub halted its brief run higher toward $2, falling back 11.5 cents to $1.870.
Maxar’s Weather Desk’s forecast for Friday indicated cooler risks for portions of the Central and Southern Plains along the leading edge of a cooler air mass. The East was also at risk to cooler-than-forecast temperatures from clouds and rain.
The forecaster’s six- to 14-day forecast trended slightly cooler for the eastern half of the country. A high pressure system from Canada expected to drop temperatures below normal from the Midwest to East within five days would linger into the next forecast period, Maxar said. Hotter-than-normal conditions were forecast for the West.
