Natural gas futures flopped to start the first full week of September as production held strong and forecasts pointed to waning cooling demand as the month wears on.
Coming off a cumulative 9% gain over the course of last week, the October Nymex gas futures contract on Tuesday dropped 18.3 cents day/day and settled at $2.582/MMBtu.
NGI’s Spot Gas National Avg., in contrast, inched ahead 2.5 cents to $2.325 amid lingering heat in the South and East. Cash prices lost ground last week.
Production hovered near 102 Bcf/d, according to Bloomberg’s estimate Tuesday. That kept output near records just above that threshold.
At the same time, the weather outlook signaled an easing of late-season heatwaves that dominated August and the beginning of the current month. Triple-digit temperatures throughout the central United States, including as far north as the Dakotas throughout the long Labor Day weekend, began to moderate Tuesday and were projected to fall further later in September.
National Weather Service (NWS) data showed the cooler trend beginning this week in the nation’s midsection and spreading to the East by mid-month. By next week, vast swaths of northern regions could see highs in the 60s and 70s, with stretches of the South experiencing highs in the 80s.
EBW Analytics Group, in fact, sees a “coming collapse in cooling demand” as the Sept. 8-14 and Sept. 15-21 storage periods saw a sizable drop in projected cooling degree days (CDD).
Daily demand was poised to potentially decline by 8 CDD/day, or 7 Bcf/d, over the next 10 days, EBW Analytics Group senior analyst Eli Rubin said Tuesday. “On a weekly basis, cooling demand could halve” by the Sept. 15-21 storage period, “losing 40 CDD and 36 Bcf of weekly power burns to create a headwind” for prices, he said.
The strength in production was supported by higher volumes out of the Permian Basin and Haynesville Shale, according to Rubin.
Looking ahead to the next U.S. Energy Information Administration (EIA) storage report, covering the week ended Sept. 1, NGI modeled a 43 Bcf increase.
Early injection estimates submitted to Reuters spanned 11 Bcf to 63 Bcf, with an average increase of 41 Bcf. That compares with an increase of 55 Bcf a year earlier and a five-year average of 60 Bcf.
EIA printed a 32 Bcf injection into storage for the week ended Aug. 25. The result was notably tighter than the five-year average build of 51 Bcf for that period.
The seasonally anemic injection put total Lower 48 working gas in storage at 3,115 Bcf, 249 Bcf higher than the five-year average, according to EIA. It represented ongoing improvement from a supply/demand balance perspective. Injections have trailed the five-year average rate for the past eight weeks, EIA data show. As a result, the surplus to the five-year average has shrunk from well above 350 Bcf in early July. It dipped under 250 Bcf for the first time in six months.
Hurricanes And Wildcards
Still, the outlook is laced with uncertainty. Production, while robust most of 2023, is widely expected to at least level off over the remainder of the year, given falling gas-directed rig counts throughout the summer months. From a price perspective, that contrasts with relatively stout storage to date and weather demand that is on the cusp of weakening.
Against that backdrop, analysts expect prices to continue to prove volatile through the end of summer and into the coming shoulder season.
A hurricane season that is now entering its height amid government projections for above-average activity adds a wild card. Hurricanes can usher in cool air and knock out power, dampening demand, or they can cause production interruptions that hamper supplies and provide upside to prices.
East Daley Analytics said in a report it still expects storage to exit October at 3,908 Bcf, or about 339 Bcf higher than inventories at the end of last year's injection season.
“With inventories at such a high level, we on balance see downside risk to gas prices if an active hurricane season forces demand offline from power plants and industrials along the Gulf Coast, particularly at LNG export facilities,” East Daley analysts said.
‘A Huge Range’
RBN Energy LLC’s David Braziel, president, noted price extremes over the past two years and cautioned that more big moves – in both directions – may lie ahead. Futures prices topped $9.00 last summer, for example, more than three times higher than the peaks of the current cooling season. Prices in 2022 were bolstered by shocks to global supplies created by Russia’s invasion of Ukraine. Sharp reductions in gas flows from Russia to Europe followed the war’s onset and created outsized demand for U.S. exports to fill the void.
“In the last 12 months, U.S. natural gas prices have touched highs not seen since the start of the ‘Shale Revolution,’ as well as depths previously plumbed only briefly during downturns in 2012, 2016 and 2020,” Braziel said. “As we’ve seen in the past couple of years, there’s just too much going on in global markets to think you can know where gas prices will be 10 years, five years or even one year from now.
“After getting whipsawed over the past two years, natural gas buyers and sellers alike are looking to the future warily. Could prices take off again like a bottle rocket? Could they drop so low that natural gas producers slash rigs and let production wane? The short answer is yes — there are plausible circumstances for either scenario,” Braziel added.
He noted that EIA this summer estimated that Henry Hub prices could in 2024 reach as high as $10.15 or as low as $1.73. The high side is dependent on an expected expansion of U.S. liquefied natural gas export facilities starting next year; the low would emerge if supplies prove overly abundant.
“That’s a huge range of potential outcomes...There are a million assumptions you can make for why prices might range that high — some combination of a persistent, destructive war by Russia, strong international demand, lower-than-expected associated gas production in the U.S. due to disruptions in the crude oil market, or simply an extreme winter, among other reasons,” Braziel said.
“On the low side, under the right circumstances, gas-producing powerhouses like Qatar, Russia or the U.S. could tip the global balance back to oversupply, new LNG export capacity along the U.S. Gulf Coast could be delayed, or maybe this hellish-hot weather we’ve had recently could get balanced out by a long run of balmy, open-window weather,” he added.
Spot Prices Mixed
Next-day cash prices varied by region on Tuesday, with gains in the Northeast offsetting Midwest losses.
Algonquin Citygate near Boston jumped 69.5 cents from Friday to average $2.545 and Transco Zone 6 NY gained 20.0 cents to $2.105.
In the Midwest, however, Lebanon lost 32.0 cents to $1.960 and Michigan Consolidated shed 13.0 cents to $2.235.
AccuWeather meteorologist Renee Duff said the current week would provide a reprieve from intense heat in the nation’s midsection. Still, high temperatures and strong cooling demand could persist through the week in the South and Northeast before hot high pressure begins to ease there as well.
“The Heartland is no stranger to times of intense heat during the summer months, and this year has been no exception,” especially in Texas. “San Antonio and Houston recorded a mere two and three days, respectively, of high temperatures below the triple-digit mark during the month of August,” Duff said.
By midweek, however, cooler air will permeate much of the central United States, with Texas lagging but seeing some relief as soon as the weekend, Duff said. Other parts of the South could also experience milder temperatures, too.
Houston Ship Channel on Tuesday fell 13.5 cents to $2.395.
Even “as the cooldown commences across,” Duff said, “the heat will have eyes for the Northeast, with the potential for some of the hottest weather of the summer and perhaps the first heat wave of the year in some locations” this week, leaving demand strong in that heavily populated region until at least the weekend.
