With forecasts finally flashing more impressive heat over southern U.S. markets to strengthen the cooling demand outlook, natural gas forwards rallied during the June 1-7 trading period, NGI’s Forward Look data show.
July fixed prices at benchmark Henry Hub added 6.1 cents during the period to finish at $2.328/MMBtu. Most Lower 48 hubs finished in positive territory week/week.
Western U.S. hubs saw outsized gains during the June 1-7 trading period, with the region pressed to play catch up in refilling storage as summer cooling demand looms.
The Energy Information Administration (EIA) Pacific region exited the week ending June 2 with inventories well below historical norms. According to EIA, the Pacific injected 13 Bcf for the week to end with 164 Bcf, a 32.2% deficit to the 242 Bcf five-year average.
Prices around the perennially constrained Southern California Gas (SoCalGas) system saw some of the largest gains for the period. July fixed prices at SoCal Border Avg. surged 62.8 cents to average $4.189.
SoCalGas was under a high operational flow order as of Thursday, having issued similar orders almost daily since April. The utility had nearly 45 million Dth in storage as of June 1, roughly 25 million Dth below year-earlier levels, data posted to its electronic bulletin board show.
Farther north, July PG&E Citygate prices picked up 46.0 cents for the period to end at $4.622. In the Pacific Northwest, Northwest Sumas gained 34.9 cents to $3.072.
Canadian volumes imported through Kingsgate were impacted Wednesday by an unplanned maintenance event on the Gas Transmission Northwest (GTN) system, according to Wood Mackenzie analyst Quinn Schulz. The event impacted an estimated 52 MMcf of flows, the analyst said.
“While these cuts are not significantly large, they do briefly cap increased flows coming from returning upstream production” on the Nova Gas Transmission Line (NGTL). Volumes there dropped by 2.53 Bcf/d from May 4-7 amid impacts from Canadian wildfires, Schulz said. Flows “steadily recovered to pre-wildfire volumes by May 26.”
Upstream of the West Coast gains, producing area hubs in the Permian Basin also saw some notable uplift during the June 1-7 period. Waha July fixed prices rallied 23.6 cents to average $1.643.
Mid-June Heat
In contrast to the western U.S., the Lower 48 as a whole heads into summer with a significant storage surplus. As of June 2, Lower 48 working gas in underground storage stood at 2,550 Bcf, a 353 Bcf surplus to the five-year average, according to EIA.
Still, after coming under pressure in the week-earlier period, Nymex futures gained ground for June 1-7 as traders got a glimpse of hotter temperatures developing later in the month over key cooling demand markets.
The market shrugged off a triple-digit injection in the latest EIA report, which showed an implied flow of 118 Bcf when accounting for a reclassification, to send July prices 2.3 cents higher Thursday to settle at $2.352. However, the front month tumbled 9.8 cents to settle at $2.254 on Friday as recent model runs backed off on the intensity of upcoming heat.
Weather models as of Thursday continued to advertise strong demand for natural gas nationally starting mid to late in the upcoming work week. That’s when “strong upper high pressure builds across Texas, the South and the Southeast with highs of mid-90s to lower 100s,” NatGasWeather said.
The firm noted that the European model was showing a hotter outlook for the June 17-23 time frame versus its American counterpart.
“The onus is clearly on heat coming through due to the oversupplied environment,” NatGasWeather said. Should the European model go on to shed demand in subsequent runs, “it could lead to disappointment.” On the other hand, if the model maintains a hotter outlook, “it could be the reason if prices continue higher ahead of the weekend break, especially since the natural gas markets appear to be getting more sensitive to weather trends.”
Looking To Power Demand
Analysts at Goldman Sachs Commodities Research said in a recent note that they’re slashing their balance of summer U.S. natural gas price forecast to $2.85 from $3.30. Analysts cited a “softer-than-expected start of summer” coming off weak heating demand in April and supply strength in May.
The $2.85 forecast, however, still represented a premium versus recent forwards at $2.38, Goldman analysts Samantha Dart, Daniel Moreno and Jeffrey Currie noted.
“We maintain our view that the U.S. gas market will be able to prevent a breach of storage capacity without production shut-ins via higher power demand for gas from price-driven coal-to-gas switching and moderate cuts to drilling and completion activity,” the Goldman analysts said. “However, we acknowledge that risks are skewed toward a softer balance this year.”
Looking at recent electric generation dynamics, analysts at Tudor, Pickering, Holt & Co. (TPH) highlighted what they called a “volatile week in the broader power stack.”
The TPH analysts noted a roughly 41% week/week decline in wind generation that was more than made up for by thermal generation, with natural gas up 24% week/week and coal up 31%.
“This week also featured gas’ share of generation hitting a year-to-date high of around 46% while averaging more than 44% on the week,” the TPH analysts said.
In terms of drilling activity, the latest U.S. rig count from Enverus showed a nine-rig decline for the week ended June 8. The firm bases its count on “weekly peaks” to limit noise from potentially “wide variability” in day-to-day tallies.
“The count is down 4%, or 33 rigs, in the last month and down 9% year/year,” Enverus analysts said. “...Rig counts were a mixed bag in major plays. The Permian Basin gained five rigs for a total of 336, and the Gulf Coast had a one-rig bump to 82. On the flip side, the Anadarko Basin fell by five rigs to 54, and the Appalachian Basin shed two for a total of 53.”
