Natural gas futures gave up early gains on Tuesday, trading down more than 13 cents from the day’s high as doubts about Freeport LNG’s recovery lingered and markets braced for bearish monetary policy news Wednesday.
At A Glance:
- Freeport ramps to 38% capacity
- Production falls to 96.9 Bcf/d
- Northeast leads cash gains
The June Nymex contract settled down 3.9 cents day/day at $1.991/MMBtu. The contract traded as high as $2.092.
Meanwhile, cash prices powered higher for a second day. NGI’s Spot Gas National Avg. gained 7.5 cents to $1.395.
Natural gas futures trading began on an optimistic note Tuesday with the Freeport liquefied natural gas terminal nominating enough feed gas to start a second train, but futures began to slide as a sense of skepticism crept into the market, according to Mizuho Securities USA LLC’s Robert Yawger, energy futures director.
At around 11:30 a.m. ET, Gulf South Pipeline Company LLC notified shippers of a customer’s “failure to take confirmed quantities” at its Stratton Ridge (To Freeport LNG) delivery location. Similar pipeline notices have correlated with drops in flows to Freeport in recent weeks as the terminal has dealt with operational issues.
However, traders were debating whether Freeport faced operational issues Tuesday. “It doesn’t appear as though any of the trains tripped,” a market participant said on online energy platform Enelyst, noting the facility’s power draws when the notice came out compared with prior train trips.
Yawger also noted that multiple asset classes traded risk off ahead of Federal Reserve (Fed) policymakers “seemingly on the cusp of a hawkish pivot” at their meeting Wednesday.
The Fed left its benchmark interest rate unchanged at its March meeting. However, a tick higher in March government inflation data pushed back expectations for how soon policymakers could begin to cut interest rates.
“Reasons for selling are difficult to pinpoint, but it's worth noting nearly the entire commodity complex is lower today,” NatGasWeather said.
Fundamentals Baton
Natural gas prices have been especially sensitive to fluctuations in LNG demand during the shoulder season as weather-driven demand takes a backseat until the summer months. West Texas prices have been negative for much of the past two months with the region awash in supply as a result of outbound bottlenecks on pipelines and outages at LNG terminals.
Permian benchmark Waha cash prices bottomed out at negative $3.040 in mid-April after Freeport LNG’s third train tripped offline. The outage contributed to feed gas volumes falling below 10 Bcf/d for the first time since the January freeze.
A week later, Freeport’s restart flipped West Texas prices positive. But a shutdown days later and another restart this weekend kept the region’s gas prices on a wild ride. Prices have risen back toward positive levels as Freeport appeared to ramp beyond a single train pace.
“After a false start last week, an uptick in Freeport feed gas is raising gas prices, and early cycle pipeline nominations suggest a second train may soon come online,” EBW Analytics Group analyst Eli Rubin said.
However, declines at other terminals offset Freeport’s gains Tuesday. U.S. LNG feed gas volumes ticked slightly lower to about 12.8 Bcf/d from an upwardly revised total of more than 13 Bcf/d on Monday, according to NGI’s North American LNG Export Flow Tracker.
Supply cuts since February continue to act as support for natural gas prices. Lower 48 gas production was estimated at 96.9 Bcf/d Tuesday, according to Wood Mackenzie. That’s off from Monday’s upwardly revised estimate of 99.0 Bcf/d.
The slower pace could be a bullish factor if it leads to a lower government storage injection print next week. “If production is truly down to 97 Bcf/day, that could prove to be an important factor if 100 Bcf builds fail to print,” NatGasWeather said.
Light demand and higher wind generation have created the potential for triple digit builds beginning with the U.S. Energy Information Administration (EIA) storage print for the week ended May 3.
Ahead of that print, a lower-than-average build is expected for EIA’s storage report on Thursday for the week ended April 26. NGI modeled a build of 56 Bcf. Early estimates submitted to Reuters ranged from injections of 42 Bcf to 85 Bcf, with an average increase of 47 Bcf. These estimates compare with a five-year average injection of 72 Bcf and year-ago increase of 62 Bcf.
Last week, EIA reported a bigger-than-expected 92 Bcf injection for the week ended April 19.
Spot Market Gains
Physical cash prices rose for a second day Tuesday as all but two regions moved higher in North America.
Leading the upward moves, the Northeast Regional Avg. rose 18.0 cents to $1.725. Maxar’s Weather Desk pointed to cooler risks along the Northeast coast from onshore winds Wednesday.
NatGasWeather said overall national demand was forecast to be light this week with most of the country expected to see comfortable highs in the 60s to 80s. Pockets of demand remain confined to the northern and southern areas of the country. Besides the cooler weather in the Northeast, the North Rockies and Northwest were forecast to see cooler temperatures this week, the forecaster said. Meanwhile, some southern regions could see highs in the 90s, it said.
In the Rockies, Northwest Wyoming Pool rose 15.0 cents to $1.350. The Midcontinent’s Panhandle Eastern added 15.0 cents to $1.400.
Weather models since Monday added a couple degree days of demand for the next two weeks, NatGasWeather noted. Cooling demand was expected to be a little above normal as a result of very warm conditions in the southern areas, while heating demand was expected to be much lighter than normal because of pleasant conditions in northern areas, the forecaster said.
West Texas prices were mixed but overall down modestly amid a slight slowdown in LNG feed gas nominations Tuesday. The W. TX/SE NM Regional Avg. slipped 10.0 cents to negative 13.0 cents. The Natural Gas Pipeline Company of America LLC (NGPL) had not yet lifted a force majeure affecting four locations with an estimated impact of 140,000 MMBtu/d.
East Texas was also sprinkled with declines, including Katy down 8.5 cents to $1.365.
