Natural gas futures fell sharply Tuesday in a third volatile session as the supply picture improved from a quicker fix of a Louisiana pipeline outage and upward revisions to Lower 48 gas production.
At A Glance:
- July futures fall 17.0 cents
- LNG feed gas demand at 13.1 Bcf/d
- Western markets lead cash gains
Coming off a 16.9-cent gain Monday, the July Nymex contract on Tuesday fell 17.0 cents day/day to settle at $2.586/MMBtu.
Meanwhile, NGI’s Spot Gas National Avg. rose 8.0 cents to $1.775, supported by a heat wave spiking cooling demand in western states.
“You got a bit of a mixed bag in terms of bearish and bullish factors, ” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI. “The market is kind of meandering here and is waiting for more solid weather summer-wise.”
While there is severe heat in the West and Gulf Coast, and the Southeast is warm, it is still early in the summer for strong air conditioning demand, Saal said. In addition, the market is still shaking off the excess gas supply from the mild winter. Many producers reduced output to create some scarcity amid the oversupply, but some may be coming back as prices recover, he said.
Lower 48 natural gas in working storage levels stood at 2,795 Bcf in the week ended May 31, well above the five-year average of 2,209.
Underscoring the threat of returning supply, Wood Mackenzie’s Lower 48 production estimates for Monday were revised 705 MMcf/d higher. Off that level, Tuesday’s output was estimated to be down by 2.4 Bcf/d to 97.0 Bcf/d. “Day/day declines are concentrated in Texas, the Northeast and Rockies, but revisions are expected in later cycles,” firm analyst Laura Munder said.
U.S. liquefied natural gas feed gas volumes ticked higher to about 13.1 Bcf/d Tuesday, according to NGI’s North American LNG Export Flow Tracker.
Weather models added some demand since Monday with both hotter and cooler trends, NatGasWeather said.
“But most important, the timing of swings in national demand remains on track and with decently strong demand the next three days as temperatures remain near to warmer than normal over most of the U.S.,” the forecaster said. “This includes impressive heat continuing to impact Texas with highs of 90s and 100s.”
The hot weather aside, selling pressure on futures Tuesday was “aided by pipeline issues being resolved,” NatGasWeather said.
TC Energy Corp.’s ANR Pipeline Co. said it would cut short work to restore southbound capacity through its Eunice compressor station (CS) in Acadia Parish, LA. The work was originally set to go through June 11 after an equipment failure cut available capacity to 350 MMcf/d. ANR said the constraint would end Tuesday, however, additional work on the Grand Chenier CS would run until Thursday, but with a much smaller capacity cut of 228 MMcf/d.
‘Burst of Supply’
EQT Corp., the largest U.S. natural gas producer, appears to be adding back some of the 1.0 Bcf/d it curtailed since February, based on pipeline samples for gathering and processing systems that serve EQT, East Daley Analytics’ Alex Gafford said.
Flows on the systems rose by about 700 MMcf/d in late May, in line with expectations for EQT to relax its cuts ahead of the expected start-up of the Mountain Valley Pipeline (MVP), Gafford said. The firm estimated that the bulk of the cuts occurred on Equitrans Midstream Corp.’s Pennsylvania gathering system in the Marcellus Shale.
“The increased supply will likely put some pressure on natural gas prices,” Gafford said. The move makes sense for EQT because the producer has the biggest share of MVP capacity and would realize a price premium in Transco Zone 5 when the pipeline comes online, he said.
Final MVP commissioning activities were expected to wrap up last week.
The gusher of returning natural gas gave bears ammunition late last week to send prices lower, but a stepback in those production rates over the weekend reduced perceptions about oversupply.
“In the Marcellus, it is possible that well pressures building in EQT's curtailed production from February-May led to a burst of supply when returned over the past 10 days — only to slowly normalize lower,” EBW Analytics Group analyst Eli Rubin said.
Eastern regional gas production averaged 34.4 Bcf/d over the seven days, down from 34.7 Bcf/d in the previous seven days, but up 1.2 Bcf/d from a 33.2 Bcf/d seven-day average a month ago, according to Wood Mackenzie data.
Canada Weakness
The broad rally in natural gas prices over the past month has not included Canadian prices, which have been held back by record production topping up supply levels. The biggest laggard has been prices in Western Canada, among the weakest in North America since the spring.
Westcoast Station 2 in Western Canada traded as low as negative 10.0 cents on Monday. On Tuesday, the hub traded as low as zero. The hub had traded below zero one other time this year when it changed hands as low as negative 25.0 cents on April 19.
The start of gas flows to the Shell plc-led LNG Canada project in British Columbia for testing and commissioning in the coming months could lend modest support to Western Canadian gas prices. In December, Shell said it would take a year to start up the liquefied natural gas terminal.
However, ahead of full operations, TC Energy Corp. management said in May that the Coastal GasLink (CGL) pipeline was nearing commercial operations to supply LNG Canada.
Toward that progress, TC Energy’s Nova Gas Transmission Ltd. (NGTL) in late April added the Willow Valley interconnect in British Columbia to its daily gas summary report. NGTL said the addition did not signal that flows and nominations were imminent but would remain at zero in the report until physical flows or nominations take place.
RBN Energy LLC analyst Martin King said the notification was an important step to starting test flows of gas into the terminal’s liquefaction plant. “This latest development is consistent with RBN’s long-held view that initial gas flow to LNG Canada would begin by mid-2024,” he said.
Spot Prices Gain
Physical cash prices rose for Wednesday delivery, led by gains in Texas and western regions expected to see record heat for the flow date.
In California, Malin climbed 45.5 cents day/day to average $1.525. SoCal Border Avg. rose 34.0 cents to $1.570.
In the Rockies, Stanfield rose 40.0 cents to $1.500.
The National Weather Service (NWS) said a deepening upper ridge in the West would support a heat wave across much of the western half of the country over the next several days.
“Areas of particular concern include the low elevation regions of California's central valley and the Desert Southwest where high temperatures will easily climb over 100 degrees beginning today,” the forecaster said. “High temperature anomalies of 20-30 degrees above average are likely” and widespread temperature records are expected to be tied or broken.
Excessive heat warnings and watches stretch from California’s central valley through its southern deserts, southern Nevada and southern/western Arizona, NWS said.
Elsewhere, ANR’s restoration of pipeline capacity in South Louisiana could pressure natural gas prices. The region on Tuesday gave back a little of its strong gains Monday. Henry Hub fell 6.5 cents to $2.570.
Rover Pipeline LLC was scheduled to halt gas deliveries to the Vector Pipeline in Livingston, MI, on June 11 as a result of pigging operations on Vector. Rover has been delivering more than 700,000 MMBtu/d over the past month to Vector, Wood Mackenzie’s Nadeem Ahmed said.
A possible reroute of flow from Rover to the Panhandle Eastern Pipe Line Co. could be limited by the interconnect hitting maximum operational capacity recently, Ahmed added. “There might be potential impact on Michigan Consolidated prices as supply will be tightened in the region due to potential loss of around 728,000 MMBtu from Rover,” he said.
For Wednesday flows, Michigan Consolidated rose 8.0 cents to $1.620.
