Natural gas futures traded in a tight range of gains and losses to kick off the trading week, and the front month ultimately trended up slightly despite falling temperatures and waning weather-driven demand.
At A Glance:
- Prompt month posts tiny gain
- Production above 100 Bcf/d
- NGI models 52 Bcf injection
Coming off back-to-back modest gains to close out last week, the October Nymex gas futures contract on Monday settled at $2.608/MMBtu, up three-tenths of a cent day/day. November slipped 2.9 cents to $2.937.
NGI’s Spot Gas National Avg. rose 8.5 cents to $2.415. The average was bolstered by outsized gains in the Southwest, which saw highs in the 100s Monday and proved an exception to a broader weather tilt to the cooler conditions.
National Weather Service forecasts called for a widespread cooldown across the northern United States this week, with highs in the 70s and lows in the 50s becoming commonplace as autumn nears. While still warm in the South, the scorching triple-digit highs that baked Texas and neighboring states had eased by Monday and highs in the upper 80s and 90s were more likely in the days ahead.
Despite maintenance events that trimmed volumes by about 1 Bcf/d from last week’s average, meanwhile, production on Monday held above 100 Bcf/d and within roughly 2 Bcf/d of 2023 highs.
The intersection of dissipating weather demand and elevated output renewed the market’s focus on supply/demand imbalance and kept prices in check. Strong production, in part a function of expectations for robust LNG demand when new U.S. export facilities open next year, has been a feather in bears’ cap all of 2023.
“No question, the supply is strong,” said Mike Matousek, head trader at U.S. Global Investors Inc. He also noted that associated gas output in the Permian Basin – produced alongside oil – has proven stout and is expected to continue to be steady as U.S. crude producers remain active to offset OPEC cuts and meet global demand. “I think most people see the Permian as a hotbed throughout the year.”
Globally this week, European natural gas prices on Monday extended a rally that began last week as strikes continued at LNG export facilities in Australia and extended maintenance work in Norway impacted natural gas flows from that key producing country.
While European gas in storage is stout as summer nears an end, extended interruptions on these fronts could create supply risks ahead of the coming winter and, by extension, ramp up demand for U.S. exports.
U.S. Storage Snapshot
NatGasWeather noted futures got a bump late last week after the latest government inventory report showed a relatively weak storage increase following late summer heatwaves.
The U.S. Energy Information Administration (EIA) on Thursday posted a 33 Bcf increase in natural gas storage for the week ended Sept. 1. It raised inventories to 3,148 Bcf and kept stocks above the year-earlier level of 2,686 Bcf and the five-year average of 2,926 Bcf.
But the injection also was modest when compared to both market expectations and recent history. Prior to the report, injection estimates were in the low 40s Bcf. EIA reported an increase of 55 Bcf for the year earlier period, while the five-year average build was 60 Bcf.
Additionally, the surplus to the five-year average has dwindled. Stockpiles now stand at 222 Bcf above the five-year average. That is down from 350 Bcf earlier in the summer.
However, NatGasWeather said fading demand could lead to more robust injections in coming weeks, sending the surplus trend back in bears’ favor.
The developing weather pattern “means much lighter national demand and larger weekly injections into supplies held for Sept. 13-30, several of which could be as large as 90-100-plus Bcf,” the firm said.
Specifically, NatGasWeather expects highs in the 90s to permeate parts of the South this week, but “the rest of the U.S. will be exceptionally comfortable as weak weather systems track through with showers and highs of upper 60s to 80s for light demand.”
The firm sees more of the same for next week, with fall weather likely to become the dominant theme by later this month.
Looking ahead to Thursday’s EIA storage print, covering the week ended Sept. 8, NGI modeled a 52 Bcf increase. Early estimates submitted to Reuters ranged from injections of 33 Bcf to 72 Bcf. The polling generated an average injection estimate of 52 Bcf. That compares with an increase of 74 Bcf a year earlier and a five-year average of 76 Bcf.
Cash Prices Climb
Against the backdrop of cooler weather, spot gas prices were flattish or in modest decline across several regions on Monday, including Texas and the Midcontinent.
But lingering heat in the West generated enough late-summer demand to prop up the national average.
In the Southwest, El Paso S. Mainline/N. Baja jumped 51.0 cents from Friday to average $3.610, and KRGT Del Pool advanced 43.5 cents to $3.515.
Southern Border, PG&E gained 46.0 cents to $3.565, while elsewhere in California, SoCal Border Avg. rose 48.5 cents to $3.575.
NatGasWeather noted that Hurricane Lee, which formed last week in the Atlantic, was tracking westward through the Caribbean Sea on Monday. “While still expected to make a sharp northerly turn in the coming days, recent hurricane models maintain Lee remaining several hundred miles off the U.S. East Coast with only minimal impacts from rain squalls and heavy surf,” the firm said.
This means little risk to U.S. production but the potential for cooling winds and rains later this week along the heavily populated East Coast. “Of course, this needs close monitoring in case the track of Lee were to shift westward to bring greater impacts,” the firm added.
AccuWeather meteorologist Alex Sosnowski noted that Lee has proven volatile in recent days. It “grew rapidly into a monster Category 5 hurricane churning over the Atlantic last Friday morning. It will remain a powerful and dangerous hurricane as it spins well north of the Leeward Islands…prior to taking a northward turn along the East Coast of the United States by the middle of this week.”
On the supply front, Wood Mackenzie analyst Kevin Ong said gas volumes in Upstate New York were expected to be impacted this week because of an outage near Buffalo that would impact deliveries. Tennessee Gas Pipeline Company declared a force majeure that began Monday and was expected to last through Thursday.
Niagara in Upstate New York on Monday gained 40.0 cents to $1.905.
In Texas, feed gas flows to Freeport LNG fell over the weekend, according to Wood Mackenzie data. Volumes of feed gas on the Gulf South Pipeline system, the key route for Freeport, dropped 76% between Saturday and Monday. Gulf South Pipeline LP, a unit of Boardwalk Pipeline Partners LP, posted operational alerts over the weekend notifying customers of a “failure to take confirmed quantities” to Freeport and a reduction in nominations.
