Weekly natural gas cash prices gained ground on the back of strong gains in West Texas in a week that was marked by stronger LNG feed gas flows and modestly higher weather-driven demand.
NGI’s Weekly Spot Gas National Avg. for the April 22-26 trading period climbed 9.5 cents to $1.230/MMBtu.
Among the top weekly gainers, Permian Basin benchmark Waha rose $1.100 week/week to average a negative 67.0 cents as West Texas prices briefly traded in the positive during the week before falling back below zero. The Rockies’ El Paso San Juan rose 38.0 cents to $1.050.
At the other end of the spectrum, SoCal Citygate in California slid 35.0 cents to $1.595, and NOVA/AECO C in Canada fell C21.5 cents/GJ to C$1.055.
In futures markets, the May Nymex futures contract on its last day as the front month Friday settled at $1.614, down 2.4 cents on the day and down 13.8 cents from the previous week’s close.
Futures got a boost early in the week from the restart of the Freeport terminal’s third train and other terminals returning to normal operations. Liquefied natural gas feed gas deliveries rebounded to around 12.8 Bcf/d Tuesday. However, futures stumbled in the second half of the week, pressured by Freeport’s third train going back offline and a higher-than-expected 92 Bcf injection of natural gas into working storage for the week ended April 19.
Conditions during the past week were marked by cooler temperatures across the Great Lakes and Northeast that provided a boost to heating demand. Meanwhile, warmth in southern areas, particularly the Southwest and Texas, increased cooling demand.
But with weather patterns expected to turn milder into early May, the market faces the prospect of triple-digit inventory builds in the weeks ahead. “Temperatures are so comfortable this weekend and next week, and wind energy generation so strong the next several days, it’s possible the U.S. Energy Information Administration report …will print a build of near or over 100 Bcf,” NatGasWeather said.
Summer Views
With June futures taking over as the front month Monday, traders’ attention was expected to shift to the upcoming summer season when cooling demand typically sends gas usage soaring.
This year was expected to be no exception, but the summer-level heat may not arrive until the second half of May.
The National Weather Service (NWS) this month said that it expects above-average summer heat across most of the country. Specifically, the updated forecast advertises hotter-than-normal conditions were likely from Texas to both the Pacific Northwest and the Northeast and include large swaths of the Midwest and Mountain West in those paths. The only exceptions are portions of the Dakotas.
“This is a little bit of a scary outlook for Texas with the combination of a forecast of above-normal temperatures and below-normal precipitation,” Intercontinental Exchange Connect Weather meteorologist Dave Margolin said during a recent briefing in Calgary, Alberta. Texas was one area that had one of its hottest summers last year, including a six-week stretch of record heat in the middle of summer, Margolin said.
July, especially mid-to-late July, tends to be the warmest month of the year, according to Margolin.
NWS’s latest three-month summer outlook, covering June through August, was produced by its Climate Prediction Center, a division of the National Oceanic and Atmospheric Administration (NOAA).
NOAA forecasters tied their expectations in part to a likely change from the current El Niño climate pattern to a La Niña during the coming summer.
“We're coming out of a period where not only did we have this El Niño near very high levels with very warm oceans, but globally, all the oceans were extremely warm, and that becomes more important even in the summer because those oceans especially influence the coastal areas,” Margolin said, pointing to forecasts for higher humidity and warmer temperatures along the East Coast.
Margolin gave caveats to summer forecasting. Much like all longer-term weather forecasts, the weather models still lack good resolution several months into the future, Margolin said.
He gave the example of NWS’s 2023 summer forecast. The forecast was “kind of a mixed bag” with some areas like Texas and the Northwest called correctly, but for other key areas “not so much,” according to Margolin.
The summer 2023 forecast was less accurate for areas like California, the Interior West, Midwest and the Mid-Atlantic’s PJM Interconnection region. “If you were a PJM trader putting a lot of weight on this in the summertime, it did not work out so well,” Margolin said.
Production Backstop
Until that summer demand arrives, a main support for natural gas prices has been production cuts made by industry since February. The largest U.S. natural gas producer, EQT Corp., signaled Tuesday that those cuts would remain in place until fundamentals improve.
EQT management said the company would keep 1 Bcf/d of production curtailments in place through May and was even open to cutting further if gas prices sank lower.
CFO Jeremy Knop said on the earnings call that the company would consider changing its plans on Bcf/d curtailments at a price level of “call it around $1.50.”
“We do want to recover the sunk cost of drilling the well. So that's why we think about it like that,” Knop said.
Beyond EQT, CEO Toby Rice said “we think you’re going to continue to see cuts and discipline from other operators.” A lot of attention was focused now on how much the summer heat could tighten up the storage overhang.
“We think there's a couple of catalysts here,” Rice said. “But in the meantime, until those hit, I think you could continue to see more patience from operators.”
Spot Market Sinks
Physical cash prices sank Friday for deliveries over the weekend and Monday as milder weather patterns were set to take over and a pipeline incident in West Texas further added to the region’s capacity crunch.
The Permian Basin benchmark Waha sank $1.815 day/day to average negative $2.125.
The Natural Gas Pipeline Company of America LLC (NGPL), which operates a system from West Texas to the Midwest, declared a force majeure on its Lockridge lateral in Ward County, TX, according to a notice published by its parent company Kinder Morgan Inc. The outage, starting Friday and continuing until further notice, was anticipated to interrupt flows to 10 delivery and receipt locations including El Paso Jal Lea, Targo Rojo Toro and Agua Blanca, NGPL said.
Criterion Research’s James Bevan, vice president of Research, said on the online energy platform Enelyst that the outage would affect about 0.5 Bcf/d of production in West Texas, mainly for flows through the Rojo Toro station.
Elsewhere, lighter national demand was the main weight on prices.
Storm systems expected to move across the West over the weekend could have cooler implications for temperatures in the Rockies, according to Maxar’s Weather Desk. Meanwhile, there were warmer risks for eastern areas of the Midwest into the Southeast due to southerly winds, the forecaster said.
Rounding out the top declines were hubs in the East and California.
In Massachusetts, Algonquin Citygate lost 28.5 cents to $1.120. In Appalachia, Texas Eastern M-2, 30 Receipt fell 24.5 cents to 97.5 cents. SoCal Citygate fell 24.0 cents to $1.420.
In the Mid-Atlantic area, maintenance work on the Transcontinental Gas Pipe Line Co. LLC (Transco) could impact supplies of gas next week moving southbound through Station 190 in Maryland, Wood Mackenzie analyst Kevin Ong said. The work, beginning May 1, had the potential to cut flows by up to 466,001 MMBtu/d, Ong said.
In the Southeast, Transco Zone 5 that covers an area from the Carolinas to Virginia added 6.5 cents to $1.565.
In the Midwest, ANR Pipeline Co. on Wednesday (April 24) began maintenance on the Michigan Leg North area near the Bridgman Compressor Station that has reduced northbound capacity toward Chicago.
An initial capacity reduction of 365,000 MMBtu/d would expand to 566,000 MMBtu/d from Sunday (April 28) until next Friday (May 3), Wood Mackenzie analyst Nadeem Ahmed said. The work could leave ample amounts of gas to the south and east of the price hubs Chicago Citygate and Michigan Consolidated, Ahmed said.
Chicago Citygate shed 7.5 cents to $1.175.
