Natural gas prices were trending lower for October bidweek, dragged down by moderate temperatures, soft LNG demand and a host of other bearish factors as the fall shoulder season gets underway, according to NGI’s Bidweek Alert.
California led the month/month price decreases as prices at the SoCal Citygate plummeted around $2.000 from the September bidweek average. October baseload gas was seen trading from $4.125 to $4.200 on day one of bidweek trading, which runs from Sept. 25-27.
In addition to near-perfect temperatures, the steep price sell-off for October baseload deliveries in California comes on the heels of a vastly improved supply outlook following recent decisions by state regulators aimed at improving reliability. At the end of August, the California Public Utility Commission (CPUC) approved an increase in the working capacity at the Aliso Canyon Natural Gas Storage to the maximum amount allowed following the 2015 leak at the facility. A couple of natural gas plants also had their retirements delayed.
At the same time, storage inventories in the greater Pacific region finally have recovered from the sharp deficits that developed over the last winter. The Energy Information Administration said stocks in the region as of Sept. 15 had risen to 263 Bcf, which is 11% above year-earlier levels and only 0.8% below the five-year average.
Although supplies are far more sufficient heading into the upcoming winter, there are some uncertainties lurking for California and, thus, neighboring supply regions.
State regulators are still considering whether to allow Pacific Gas & Electric Corp.’s Diablo Canyon nuclear plant to continue operating beyond the current retirement dates in 2024 and 2025. Stakeholders last week filed briefs with the CPUC, with no clear position favored, according to ClearView Energy Partners LLC.
That said, ClearView analysts believe opponents offered “vigorous challenges” to the potential extended operations of Diablo Canyon. These included describing safety concerns and the ability of “new” clean resources to backfill the lost capacity.
“Still, our review of the briefs did not change our call that the CPUC is more likely than not to authorize keeping the plant online by as much as five years (i.e., 2029 and 2030),” the ClearView team said. “We also note that PG&E has successfully overcome one legal challenge brought by Diablo Canyon opponents, and the electric utility may win in a second legal challenge, too.”
Senate Bill 846 directed the CPUC to issue a final decision by year-end. A proposed decision could arrive in October, according to ClearView.
Though not nearly as stout, the losses in California extended into neighboring regions as well. Opal prices were seen between $2.530 and $2.670 for October bidweek, down from an average $3.295 last month, Bidweek Alert showed.
Upstream in the Permian Basin, Waha traded between $1.390 and $1.520 for October, down from an average of $1.925 for September bidweek.
Elsewhere across the Lower 48, Chicago Citygate October basis prices were seen between minus 0.430 cents and minus 0.380 cents, off from an average basis price of minus 26.25 for September bidweek, according to Bidweek Alert.
Farther east, Transco Zone 5 October basis traded between 0.190 cents and 0.220 cents, down from an average 33.50 cents last month.
The widespread losses for October baseload gas deliveries are no surprise given that outside of Texas and the West, summer heat never really materialized aside from a few brief bouts here and there. And now, with the worst of it in the rearview mirror, NatGasWeather said the upcoming pattern is not expected to incentivize much of a price rally.
Instead, the forecaster is looking at late October for any significant cold to hit the northern United States to drive the natural gas market’s first burst of heating demand. For now, NatGasWeather said most of the Lower 48 is forecast to see above-normal temperatures, with the northern tier remaining comfortable with highs in the 50s and 70s and overnight lows holding in the 30s and 40s. With the southern states still seeing cooling loads, though, national demand is to remain light overall.
Volatile Futures
The projected weather pattern for October has left much to be desired for bulls hoping for a late-season push higher for prices, and there aren’t a whole lot of other supportive factors to hang their hats on either.
With the onset of cooler weather, the Cove Point liquefied natural gas terminal has begun its annual maintenance, and analysts estimate the facility could remain offline for about a month. Other plants also could operate at reduced levels as they undergo scheduled turnarounds in the coming months, or if the pipelines that feed their facilities do so.
NGI data showed feed gas deliveries to U.S LNG export terminals sitting just above 12 Dth/d on Monday, off from around 13.3 Dth/d one week prior.
Meanwhile, production has remained lofty above 100 Bcf/d. Temporary maintenance events certainly have dragged output lower at times, but a rebound has occurred once the work ends.
Underground storage also remains at a surplus, with cooler weather seen driving larger-than-normal builds in the final weeks of the injection season.
EBW Analytics Group noted that near-term price action for Nymex Henry Hub futures would be dictated by positioning around the October final settlement. Nine of 11 October expirations have resulted in a swing to the red, with an average decline of 15.6 cents/MMBtu.
On Monday, the October Nymex contract settled at $2.639, off only two-tenths of a cent from Friday. The November contract, meanwhile, settled 2.7 cents higher at $2.906.
“While bulls face mounting near-term challenges, we continue to anticipate seasonal upside over the next 30-45 days into the winter heating season,” EBW senior energy analyst Eli Rubin said.
He noted that production may turn lower amid pipeline maintenance and producers choking back supply. LNG also could strengthen into early winter, while weather could flip sharply colder into the end of October.
“Still, production remains near all-time highs and Permian pipeline expansions may add another 1.0 Bcf/d of egress capacity into year-end,” Rubin said. “With the market increasingly recognizing seasonal supply adequacy risks require an extreme bullish scenario, selling pressure for Nymex winter contracts may quickly resume into the end of the year absent severe cold.”
