Natural gas futures pushed ahead on Monday amid expectations for a seasonally modest storage injection and lower production that offset mild spring weather.
At A Glance:
- Production holds below 100 Bcf/d
- Forecasts call for benign weather
- NGI models 14 Bcf storage increase
Coming off a modest 1.1-cent gain on Friday, the May Nymex gas futures contract gained another 5.9 cents and settled at $1.844/MMBtu.
NGI’s Spot Gas National Avg. ticked up 2.5 cents to $1.275.
Production hovered close to 99 Bcf/d on Monday, down 1 Bcf/d from the start of the month, according to Wood Mackenzie’s estimate.
Output was off about 8 Bcf/d from the record levels reached earlier this year. That followed public announcements by prominent exploration and production companies (E&P) in February and last month that they were easing activity on the heels of a placid winter that left the market imbalanced.
“E&P operators are clearly carrying out plans stated in earlier guidance of conservative strategies for 2024 when it comes to output,” analysts at Gelber & Associates said.
A chilly round of spring storms that doused wide swaths of the central and eastern United States early this month provided some additional bullish sentiment and lifted prompt month futures to three gains last week.
However, bulls are hardly in firm control. Wood Mackenzie estimated liquefied natural gas demand at 12.3 Bcf/d for Monday, in line with the recent seven-day average and down more than 1 Bcf/d from recent highs amid maintenance events along the Gulf Coast.
On top of the dampened demand from export facilities, weather forecasts heading into trading Monday called for benign conditions over much of the Lower 48 for the week ahead and beyond. This would mark a return to the weak weather-driven demand picture that defined much of the first quarter of 2024.
National demand for this week and next is forecast to prove “light to very light,” NatGasWeather said.
That noted, supply reductions along with the recent spate of cold could reduce the surplus of natural gas in storage for a second consecutive week – and potentially a third week – helping to dull the impact of the expected bearish headwinds as April wears on, the firm added.
Storage Scenario
The U.S. Energy Information Administration (EIA) printed a storage withdrawal of 37 Bcf for the week ended March 29. It lowered inventories to 2,259 Bcf and narrowed the overall surplus to the five-year average to 633 Bcf from a recent high of 678 Bcf. Still, stocks were 39% above the five-year average.
“The next two EIA builds will print smaller than normal due to chilly weather systems impacting the U.S. last week and this past weekend and where surpluses of 633 Bcf will drop to near or slightly under 600 Bcf,” NatGasWeather said.
Looking to Thursday’s EIA report, covering the first week of April, NGI modeled a build of 14 Bcf. The estimate compares with a five-year average increase of 24 Bcf.
“However,” NatGasWeather added, “a very comfortable U.S. pattern April 8-25 will lead to lighter-than-normal demand, thereby providing opportunity for surpluses to increase back towards 630-640 Bcf. This also means supplies exited the withdrawal season in solid shape.
“The expectation is bullish weather patterns will eventually work in concert with tighter U.S. production to materially reduce surpluses. The primary question is when, and where the latest weather data says to not expect cold or hot enough weather patterns for at least another two to three weeks.”
Further out, the firm does expect a hot summer ahead over much of the country. What’s more, forecasters at both AccuWeather and Colorado State University have called for a highly active hurricane season beginning in June – between 20 to 25 named storms over the course of the season. While these storms could cause power outages and temporarily curtail demand, they also could interrupt production and further impact supplies just as the cooling season ramps up.
“So we have something that could further change the bearish outlook, although that is much further down the road,” Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI.
Cash Prices
Spot gas prices varied by region on Monday, with cooler air lingering from the weekend in some areas and mild conditions settling in elsewhere.
Chicago Citygate on Monday rose 2.0 cents from Friday to average $1.490, while Northwest Sumas shed 4.5 cents to $1.215.
In the South, Henry Hub gained 14.5 cents to $1.720, but Columbia Gas in the East fell 4.0 cents to $1.360.
A notably bearish downshift in demand looms on top of enduring weakness in West Texas.
NatGasWeather said Monday’s solar eclipse briefly interrupted renewable energy production in parts of the county, but it ultimately had only “minor” impacts, leaving the natural gas market to focus on the coming weather pattern.
The forecaster said, while warming, its outlook includes “a messy weather pattern this week as numerous systems track across the U.S. with heavy showers and thunderstorms.” Overall, however, “temperatures will be mild to nice over the northern U.S. with highs of upper 40s-60s, while nice to warm” in the South, “with highs of 60s-80s.”
The firm expects similar conditions next week and into late April.
Prices in West Texas, meanwhile, remained under immense pressure. The regional benchmark Waha hub on Monday dropped 81.5 cents to negative $1.820. Prices there have been mired near or in negative territory for a month because of stubbornly strong levels of associated gas production in the Permian Basin, soft demand and limited takeaway capacity. This stranded excess supply and forced producers to pay pipeline operators to take away gas.
More challenges loom. Beginning Tuesday and continuing until May 2, Gulf Coast Express (GCX) is set to begin overhauls at the Devils River, Rankin and Big Wells compressor stations in the region.
“As a result of this maintenance, GCX will reduce pipeline flow capacity by 0.37 Bcf/d to 1.63 Bcf/d,” Wood Mackenzie analysts said. “GCX’s capacity cut will likely add downward pressure on an already subdued cash Waha.”
