After some back and forth early in Wednesday’s trading session, natural gas futures landed in the green amid continued pressure on gas for power generation. Helped by ongoing supply concerns in Europe that fueled record gas prices on the continent, Nymex September gas futures settled at $9.330/MMBtu, up 13.7 cents from Tuesday’s close. October futures rose 14.5 cents to $9,300.
In short :
Spot gas prices fell in the majority of locations in the United States. Even with the warm weather continuing on the West Coast, Spot Gas National Avg. fell 31.0 cents to $8.935.
Against a backdrop of moderating weather elsewhere in the Lower 48, the upcoming fall shoulder season is unlikely to be the sleepy period the gas market has grown accustomed to over the past few years. Instead, market watchers point to a concerning storage trajectory and sluggish production to potentially keep prices buoyant ahead of winter.
The Energy Information Administration (EIA) is expected to provide its weekly inventory update on Thursday, with the market pricing in an above-average injection that could ease some concerns.
Reuters polled 13 analysts, whose estimates ranged from injections of 17 billion cubic feet to 67 billion cubic feet, with a median forecast of 60 billion cubic feet. A smaller Bloomberg survey had a slightly narrower range of estimates, with a median of 54 billion cubic feet.
The EIA recorded construction of 32 billion cubic feet in the same week last year, while the five-year average injection is 46 billion cubic feet.
Inventories as of August 12 stood at 2.519 billion cubic feet, down 296 billion cubic feet from a year ago and 367 billion cubic feet below the five-year average, according to the EIA.
With Freeport LNG now expected to start initial production in early to mid-November and a higher production level of 2 Bcf/d unlikely before the end of the month, the market seemed to breathe a collective sigh of relief when the export facility announced the news on Tuesday. Futures prices tumbled, with the September contract set a nickel off Monday’s intraday low.
“Interestingly, a two-week delay is all that should have been considered in our view, as previous statements were for a mid-October restart,” Mobius Risk Group said. “That would theoretically add about 40 billion cubic feet to inventory expectations before winter, or a relatively insignificant change.”
It’s possible the market is assuming this could be the first of many delays for the liquefied natural gas export terminal, according to Mobius. Freeport earlier this month reached a consent agreement with federal regulators to keep the facility on track to return to full service by the end of the year. However, with the latest update, the company said full operations likely won’t happen until March.
While seen as at least somewhat beneficial for domestic storage stocks, Freeport’s delayed restart is heightening supply concerns in Europe. Late last week Russia’s Gazprom PJSC said it would shut down the Nord Stream 1 pipeline for three-day maintenance. The announcement sent shockwaves through gas supply chains and sent European gas prices to new highs.
The market is also not showing signs of a new equilibrium, according to Rystad Energy.
“Russia currently sits at the heart of global gas markets – its ability to influence prices and supplies beyond its regional market is becoming clearer and likely to solidify as demand picks up during the winter months,” said Lu Ming Pang, an analyst at Rystad. “The market sentiment is a mix of record price fatigue and quiet acceptance that this new normal is here to stay.”
Meanwhile, US volatility remains elevated amid a mix of domestic and global influences. With the upcoming expiration of the September Nymex contract, the risk of outsized price swings is magnified given the low liquidity in the market.
EBW Analytics Group noted that on the supply side, production could end the month on a good footing. August year-to-date natural gas production looks 1.1-1.4 Bcf/d higher month-to-date than July – and up to 4.0-4.5 Bcf/d higher year-to-date /year even after correcting for losses induced by the August 2021 hurricane.
“Intra-month pipeline naming trends often favor increased supply through the end of the month, with all-time highs possible this weekend and next week,” said EBW principal analyst Eli Rubin.
Temperatures are also expected to slowly warm over the Labor Day weekend, providing another bearish factor for the market to consider. EBW cited forecaster DTN’s long-term outlook for a drop of 12 cooling degree days over the holidays. This could reduce energy consumption by an additional 1.2 Bcf/d. However, “unusually low” wind generation in Texas has helped bolster gas demand from the power sector in the near term.
“While volatility risks remain elevated with inelastic demand and supply curves at short-term prices, the fundamental outlook is much less favorable than when the September contract closed last Thursday at $9.188 – down a dime from Tuesday’s close at $9.193,” Rubin said. .
Spot gas prices fell on Wednesday as the country’s hottest temperatures remained on the western and central plains. NatGasWeather said strong upper high pressure would bring highs to the 90s to 100s, with the strongest heat remaining in California.
Despite the unusually warm weather, cash prices across the state fell. PG&E Citygate fell 69.5 cents to $10,040, while SoCal Border Avg. was down just 6.5 cents at $9,540.
Spot gas prices across the desert southwest and the Rocky Mountains have fallen as much as 68.5 cents per day, matching losses seen further inland in the Midcontinent and Midwest.
A handful of Louisiana locations posted similarly steep price drops amid increased cloud cover along the Gulf Coast. Pine Prairie next day gasoline plunged 60.0 cents to $9.215, and Texas Eastern E. LA fell 66.5 cents to $8.735.
Other points further downstream along the East Texas transmission system saw similarly steep price declines, while Boston’s Algonquin Citygate slid 46.0 cents to $9.155.