Natural gas futures reversed early gains in an apparent shrugging off of the impacts of former Hurricane Beryl as the market focused instead on revised weather outlooks that erased cooling degree days (CDD), even as excessive heat is expected to grip large portions of the country.
At A Glance:
- Futures sink on less heat
- Beryl recovery underway
- Production down
August Nymex futures slid 2.2 cents Tuesday to settle at $2.344/MMBtu. The prompt month traded as low as $2.331 and as high as $2.448.
NGI’s Spot Gas National Avg. was up 26.0 cents day/day to $2.070. California led the gains amid excessive heat.
“Perhaps the biggest surprise in the aftermath of the hurricane was the fact that natural gas prices held up well,” Price Futures Group analyst Phil Flynn told NGI early Tuesday.
Flynn called August futures’ gains “amazing,” as LNG exports were delayed, production could have been impacted and massive power outages would decrease demand.
“When the market holds up that well, even in the face of those challenges, it makes you feel like the bottom is in. It’s probably a good time to put on some bullish strategies for natural gas because the market seems to know something,” Flynn said.
According to NatGasWeather, what would have been “a rare two-day winning streak” faded into another day of decline as the American weather model shed 5 CDDs in a midday update.
The National Hurricane Center said heavy rainfall and cooler temperatures are expected from the lower Missouri and mid-Mississippi valleys into the Great Lakes through Tuesday as Beryl, a subtropical depression as of Tuesday afternoon, passes through the regions. The risks of heavy rain and flooding are expected to move into northern New York and northern New England on Wednesday.
As the storm moved out of Texas on Tuesday, CenterPoint Energy Inc. said 1.7 million customers remained without power. That’s about 77% of the total 2.2 million Texas customers waiting for power to be restored in the storm’s wake, according to PowerOutage.us. CenterPoint said it expected to have power restored to 1 million customers by Wednesday.
Meanwhile, while other liquefied natural gas facilities were recovering Tuesday after the storm, production at Freeport LNG Development LP’s liquefaction site remained ramped down. “We proactively ramped down production at our facility on Sunday, July 7, ahead of Hurricane Beryl making landfall,” spokesperson Heather Browne said. “We intend to resume operations when it is safe to do so.”
As a result of the uncertainty around the Freeport LNG terminal’s downtime, what might otherwise be a bullish fundamentals picture is closer to neutral territory, Gelber & Associates analysts said.
The firm referred to a projected 1.6 Bcf/d decline in production on Tuesday. Gelber said maintenance work that began at Mountain Valley Pipeline LLC that is expected to last until July 16 was partially responsible for the drop.
According to the firm, what was unexpected was a rare downward revision of Monday’s numbers after receipts data from later in the day was released. “The net effect left output measured at just 98.3 Bcf/d, pending further revision upon late-cycle data releases,” Gelber said.
Heat Takes Backseat
Additionally, while portions of the country are forecast to see some relief from recent hot weather, about 36 million people, roughly 10% of the country, were under excessive heat warnings Tuesday, the National Weather Service (NWS) said. The extreme heat was caused by a heat dome over California, as hot ocean air was trapped in the atmosphere.
“No let-up is expected due to the string of record high temperatures being set across large portions of the West,” NWS said. “The mid- to upper-level high that has been anchoring the record heat in the West is not expected to change much over the next several days, as it remains locked in place, stretching from Southern California/Desert Southwest, northward through the Great Basin and across the Pacific Northwest and Northern Rockies.”
The forecaster said excessive heat warnings, watches and heat advisories are currently in effect for nearly all of Washington State, Oregon, California, Idaho, Nevada and western Arizona.
Long-range forecasts also point to demand support. “The eight- to 15-day forecast period continues with near to hotter versus normal temperatures ruling most of the U.S. with highs of upper 80s to 100s to keep demand strong,” NatGasWeather said.
Slow Storage Draw
Natural gas inventories are expected to continue to decrease with the hot weather projections. However, they “won’t decrease much” off the U.S. Energy Information Administration (EIA) report for the week ending July 5, NatGasWeather said. The firm said a modest build is expected as CDDs were a little lower week/week and because of lighter demand from the Fourth of July holiday.
NGI modeled a 55 Bcf build for Thursday’s EIA report.
“Longer term, surpluses will continue to decrease in the months ahead towards 300 Bcf, although clearly not fast enough for many major players or prices wouldn’t have sold off so impressively the past three weeks,” until rallying slightly, NatGasWeather said.
Cash Markets Up
Most physical prices were higher on Tuesday as the heat remained a factor for large swaths of the country.
California led gains as the SoCal Border Avg. was up 78.0 cents to $2.610, SoCal Citygate added 77.0 cents to $2.715 and Malin was 55.0 cents higher to $2.100.
In West Texas, despite a cooler weather outlook, Waha averaged $1.010, up 68.0 cents. Gains at hubs across the region drove the W. TX/SE NM Regional Avg. up 74.5 cents to $1.275.
