October Natural Gas Futures Regain Momentum After Bullish Inventory Report

After steep declines in the previous three sessions, natural gas futures rebounded on Thursday as traders digested a bullish inventory report – by historical standards – that served as a reminder of just how weak demand is. was strong for most of the summer.

In short :

  • EIA Releases 54 Billion Cubic Feet Inventory Injection
  • Strong demand at the beginning of September
  • “Fear” persists over threat to exports

October Nymex gas futures climbed 7.3 cents day/day to settle at $7.915/MMBtu. November gained 7.0 cents to $7.971.

Spot Gas National Avg. from NGI, however, fell 11.5 cents to $7,810.

The US Energy Information Administration (EIA) on Thursday announced an injection of 54 billion cubic feet of natural gas into storage for the week ended September 2. annual average construction of 65 Bcf.

Analysts said this reflected intense late summer heat across large swaths of the country – continuing a summer trend of steady strong demand for gas to cool homes and power businesses.

The EIA estimated that US natural gas consumption will average 86.6 billion cubic feet per day in 2022, up 3.6 billion cubic feet per day from last year.

Working gas in storage rose to 2.694 billion cubic feet as of Sept. 2, according to the EIA. However, inventories were 222 billion cubic feet lower than a year earlier and 349 billion cubic feet below the five-year average.

Production increased in late August and early this month, peaking in 2022 this week, but production has yet to fully align with demand. “There is no doubt that production is increasing, but this demand is quite impressive,” said a participant on the online energy platform Enelyst.

The EIA estimated in a separate report this week that gas inventories ended August at 2.7 Tcf, 12% below the five-year average. He forecast that stocks would end the injection season around 3.4 Tcf, 7% below the five-year average.

By region, the Midwest and East led last week with injections of 29 Bcf and 21 Bcf, respectively, according to the EIA. The 6 billion cubic feet increase in the South Central followed and included an injection of 9 billion cubic feet into salt-free facilities. Utilities removed 3 billion cubic feet of salts. Stocks in the mountain regions increased by 2 billion cubic feet, while stocks in the Pacific fell by 3 billion cubic feet.

Early estimates submitted to Reuters for the week ending September 9 showed an expected average increase of 64 billion cubic feet. This would again be below average for this time of year. Actual construction in the comparable week of 2021 was 78 billion cubic feet and the five-year average was 82 billion cubic feet.

So far this month, some of the most intense heat — and greatest demand for gas — has occurred in the West. Triple-digit temperatures scorched swaths of California and the Southwest.

“The heatwave that began in California last week is still ongoing, and several decades-old temperature records have been set across the state” so far in September, said Rystad Energy analyst Ryan Kronk.

California’s Independent System Operator, the state’s grid operator, warned capacity did not meet expected demand on Thursday; it was the same for the previous four days.

“This will lead to higher electricity prices and increased risk of outages,” Kronk said. Electricity prices this week are “by far the highest California has seen this summer in the last decade.”

Production on the rise, LNG in question

Still, natural gas price gains were held at modest levels on Thursday, in part because of an expected mid-month slowdown and rising production.

Production exceeded 100 billion cubic feet per day this week – a high for the year – and government officials expect it to remain at high levels. The EIA estimated that dry natural gas production in the United States would average 99.0 Bcf/d during the fourth quarter and then increase to an average of 100.4 Bcf/d in 2023.

Forecasts from the National Weather Service (NWS), meanwhile, call for temperatures to moderate across the West and much of the Lower 48 starting this weekend and continuing through the coming week. The long-term outlook points to seasonally benign weather conditions next month.

Additionally, a decision by the Environmental Protection Agency this month requiring turbines at Cheniere Energy Inc.’s LNG facilities to comply with more stringent emissions requirements has raised warning signals. alarm in the market. The affected Cheniere operations at Sabine Pass and Corpus Christi currently account for more than half of U.S. liquefied natural gas exports.

Cheniere said he did not expect any major complications in the short term. However, “the fear in the market is that Cheniere will have to reduce its exports until the turbines comply with the new regulations,” analysts at the Schork report said Thursday.

Pulverization of spot gas prices

Physical gas prices on Thursday lost ground for the third time this week.

Data from the NWS showed high temperatures in the West throughout the trading week, as well as highs in the 90s in Texas and the Plains and parts of the Midwest.

However, temperatures are expected to moderate over the weekend in California as the outer bands of Hurricane Kay, near Mexico’s Baja California peninsula on Thursday, spread across the United States, bringing heavy rain and cooler air.

The cooling degree forecast for California says “coming heat will keep projected levels well above normal” through this week, but temperatures “are expected to drop significantly thereafter,” the agency said. Wood Mackenzie analyst Quinn Schulz.

Separate rain showers are expected to ease the intensity of the heat in the central United States early next week.

By mid-month, NWS data showed that much of the western and northern parts of the country could see comfortable highs of 60 to 80. Parts of the South, however, could continue to experience highs in the 90s .

Against this backdrop, SoCal Citygate fell 92.0 cents per day to an average of $12,070, while El Paso S. Mainline/N. Baja in the southwest plunged from $1,380 to $11,890.

Elsewhere, Chicago Citygate fell 10.5 cents to $7,490 and Cove Point fell 36.0 cents to $8,390.

Prices in West Texas, however, bucked the overall trend. El Paso Permian gained 23.5 cents to $6,960, while Transwestern advanced 26.5 cents to $6,910.