Natural gas futures fell for a third day on Friday, weighed down by upward revisions to production data and weather models trimming a little from June’s record heat outlook.
At A Glance:
- Thursday output highest since March 20
- Heat ramps up over weekend
- National Avg. back below $2
The July Nymex contract fell 7.8 cents day/day to settle at $2.881/MMBtu.
NGI’s Spot Gas National Avg. fell 9.5 cents to $1.985. Prices in the Southeast were among the fastest decliners. The region gained a new link to Appalachian Basin gas Friday after Equitrans Midstream Corp. announced it had started service for the 2 Bcf/d Mountain Valley Pipeline LLC (MVP).
For futures, a slight slowdown in production had been a recent tailwind, but that started to fade this week.
Producers’ reversal of gas output curtailments gave an initial burst of flows in May. That wave of supply eased in early June, creating “a moderately bullish surprise for the market,” EBW Analytics Group analyst Eli Rubin said. The dip in output alongside forecasts for record heat helped send the July contract above $3.000 this week.
However, Wood Mackenzie revised the daily production nominations for Thursday’s output up to 101.3 Bcf/d. “This is the first time we have breached 101 Bcf/d in several months,” the firm said. The firm pegged Friday output at 100.4 Bcf/d.
Some of the drivers for the softer output levels in early June were a bigger-than-expected 0.5 Bcf/d decline in the Haynesville Shale and regional price softness contributing to ebbing production in the Northeast, Rubin said. The ramp up of summer gas power burns could lift gas prices in the Marcellus Shale and spur production gains, he said. The end of pipeline maintenance elsewhere could also boost output, he added.
The uptick in supply comes as MVP was expected to begin moving natural gas from Appalachia to the Southeast. “MVP is now available for interruptible or short-term firm transportation service until long-term firm capacity obligations commence on July 1,” Equitrans said.
Gas output levels, while they have trended higher, remain below the year-ago pace of 102 Bcf/d and far below the record 107 Bcf/d in early 2024.
On the demand side, LNG feed gas flows started the final day of the week around 12.5 Bcf/d, down about 0.5 Bcf/d day/day. Much of the drop was at Cheniere Energy Inc.’s Sabine Pass liquefied natural gas terminal in Louisiana that was conducting maintenance on one train. Feed gas nominations to the facility fell by about 0.3 Bcf/d day/day to near 3.7 Bcf/d.
“Cheniere had stated in a prior earnings call that it is optimistic that summer outages will be less impactful than last year. That remains to be seen,” Gelber & Associates analysts said.
The European weather model since Thursday trimmed a little of its projected record demand for late June, and the American model similarly shaved a couple cooling degree days midday Friday, NatGasWeather said.
However, the eight- to 15-day outlook continues to register a hotter-than-normal pattern across the Lower 48 with highs in the mid-80s to lower 90s across northern states and 90s and 100s over the southern half, according to NatGasWeather. The only exception would be the Northwest with highs in the 70s and 80s, the firm said.
In the more immediate term, a hot ridge was expected to dominate the southern and eastern portions of the country in the next seven days, NatGasWeather said. High temperatures were forecast in the 90s to 100s. Meanwhile, northern areas were expected to be in the comfortable 70s to lower 80s range.
Storage Revisions
The Lower 48’s surplus of natural gas in working storage continued to trend lower in the latest government report.
The U.S. Energy Information Administration (EIA) printed an injection of 74 Bcf natural gas into storage for the week ended June 7. The result was in line with expectations, but bears pounced on confusion over data revisions for five weeks in May. EIA added a net 7 Bcf of gas to storage, including the subtraction of 2 Bcf from the final week, based on data resubmissions.
Mobius Risk Group analysts said bullish drivers of “strong year/year LNG feed gas demand, benign production levels, and record setting heat proved no match for the confusion of an EIA revision to historical inventory levels.”
The latest injection increased inventories to 2,974 Bcf, putting stocks at 24% above the five-year average. That’s down from a surplus of 35% in early May. The past month’s trend of lagging historical build levels was expected to continue in the next EIA report for the week ended June 14. Early injection estimates submitted to Reuters averaged 69 Bcf. This compares bullishly with a five-year average increase of 83 Bcf.
On the demand side, Thursday gas power burns were estimated at 40.7 Bcf/d, Wood Mackenzie said. Meanwhile, NGI data estimated U.S. LNG feed gas flows at slightly under 13 Bcf/d Thursday, lower day/day.
Physical Trade
Cash prices for natural gas fell for a second day as output increased ahead of stronger cooling demand this weekend.
Southeast prices fell as the region gained a new link to Appalachian Basin gas with the startup of MVP. The 303-mile, 42-inch pipeline would supply gas from the Marcellus and Utica shale formations to the Mid-Atlantic and Southeast regions via an interconnect with the Transcontinental Gas Pipe Line Co. (Transco) system.
Transco Zone 5 slid 18.5 cents day/day to average $3.455. In contrast, upstream in Appalachia, Texas Eastern M-2, 30 Receipt added 3.5 cents to $1.630. That put the spread between the two regions at $1.825, down from $2.035 a week earlier.
One possible pull for MVP gas flows south along Transco: Transco Zone 5 North, at $2.995, widened its discount Friday to about 50 cents relative to Transco Zone 5 South at $3.465.
In South Louisiana, Henry Hub fell 5.5 cents to $2.735. TC Energy Corp.’s ANR Pipeline Co. on Thursday lifted a force majeure at its Evangeline southbound location in Louisiana that had cut capacity to below 1 Bcf/d since June 4. Southbound nominations rose to around 1.1 Bcf/d for Friday, nearing the operational capacity of about 1.3 Bcf/d, Wood Mackenzie analyst Alex Sealy said.
Prices in East and South Texas were also among the top decliners. Katy fell 27.0 cents to $2.280.
Regional gains were seen in the Northeast and Canada. Algonquin Citygate near Boston rose 8.5 cents to $1.895.
