Natural gas futures jumped on Tuesday to end a four-day slide as lighter production readings and mild impacts from remnants of former Hurricane Debby provided the catalyst for a relief rally.
At A Glance:
- Maintenance slows output by 2.5 Bcf/d
- Uneven demand amid varied regional forecasts
- Henry Hub cash under $2 for eighth day
The September Nymex contract moved higher by 6.8 cents to settle at $2.010/MMBtu.
NGI’s Spot Gas National Avg. added 1.0 cent to $1.665. Prices pulled back in the West and climbed in Texas and parts of the South, and were mixed from the Rockies to the Northeast.
Lending support to prices, natural gas production dropped about 2.5 Bcf/d day/day to 100.4 Bcf/d on Tuesday, according to Wood Mackenzie estimates. The main reason for the slowdown: maintenance work ramping in the Permian Basin and Northeast.
“Signs of lower natural gas production are a supportive near-term development,” according to EBW Analytics Group senior analyst Eli Rubin.
Market positioning may also have been a factor in the rebound Tuesday. “The move upwards today may be driven largely by participants covering short positions” amid oversold conditions, analysts at Gelber & Associates said.
Weather, for its part, was forecast to continue to provide intense heat across large sections of the West and South, to keep U.S. power burns above average this week, NatGasWeather data show. The exceptions to the heat were the Northern Plains and Great Lakes, where forecasts showed cooler air and highs in the upper 60s to 70s on Wednesday.
Meanwhile, in the Southeast, Debby downgraded to a tropical storm was projected to linger, cooling coastal areas, and then later track up the coast to the Northeast this week, National Weather Service (NWS) data showed.
“The storm is forecast to move northeast and retain most of its strength, potentially affecting much of the East Coast as it moves,” Gelber & Associates analysts said.
Despite Debby’s dampening of cooling demand, spot natural gas prices in the Southeast have moved higher this week as the storm did not affect the entire region. The Southeast Regional Avg. added 6.5 cents to $2.050 on Tuesday, following a 3.0-cent move higher on Monday. Away from the coast, highs in the 90s were forecast across Florida, Georgia and up through inland Virginia, NWS data showed.
Bull Versus Bear
Scorching summer forecasts and a short squeeze helped to spark an early summer rally in natural gas futures, but the move higher ran out of gas in mid-June.
The summer heat failed to live up to lofty expectations, and rising production has added further upward pressure to high inventory levels, StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI.
“Weather hasn't been bullish enough, keeping people scared,” Saal said.
Underground stocks finished the last full week of July at 3,249 Bcf, or 16% above the five-year average, according to the U.S. Energy Information Administration (EIA). There are 14 more weekly government storage reports left for this injection season, including Thursday’s EIA report for which NGI has modeled a 30 Bcf build.
“On the bull side, you can see that injections have been lean,” Saal said. Usually, market jitters appear when inventory scenarios approach the 4,000 Bcf level. “At the rate we're going now, if we put 20 Bcf to 30 Bcf in weekly for the rest of the season, we're not going to have to worry about it.”
The bull case has “probably helped support the winter months” futures prices, he said, noting the December-February strip added to its cushion above the $3 level on Tuesday.
With September as the prompt month, shoulder season dynamics have taken over in setting the tone for futures prices, Saal said. With cash prices staying below $2, market participants can buy that gas and store it to sell it at higher forward delivery month prices, he said.
Maintenance Blitz
One factor behind production gains over the past few weeks has been the absence of significant maintenance work on pipelines. That pause ended Tuesday to throttle back gas flows. The declines were spread across the Permian Basin in Texas, Northeast, and North Louisiana.
In the Texas Permian, where flows were down around 440 MMcf/d, El Paso Natural Gas Co. LLC began a three-day smart tooling Tuesday to Line 1201 from Valve City to Navajo, according to Wood Mackenzie analyst Emma Weng. The work was expected to reduce westbound flows through the North Mainline toward California by around 535 MMcf/d, she said.
In the Northeast, flows slowed by around 1 Bcf/d, with about 475 MMcf/d of that in West Virginia and 365 MMcf/d in northeastern Pennsylvania, Weng said. Driving the declines in West Virginia, Mountain Valley Pipeline LLC (MVP) began pipeline pigging operations Tuesday that were expected to reduce flows across its system until Monday, she said.
Flows in North Louisiana fell around 320 MMcf/d day/day. The declines were concentrated on the Gulf Run natural gas pipeline, which had no scheduled maintenance or posted event, Weng said.
To the south, the Kinder Morgan Louisiana Pipeline was scheduled to perform tool runs near Compressor Station 760 in Acadia Parish on Wednesday and Monday (Aug. 12). Flows could be cut by as much as 682 MMcf/d based on recent maximum flows, Wood Mackenzie analyst Nadeem Ahmed said.
Spot Markets Mixed
Next-day cash price moves varied widely on Tuesday but most hubs held below the $2 level as supply remained abundant down the final stretch of summer.
On Wednesday, dry conditions could allow for hotter highs in the Central and Southern Plains regions, Maxar’s Weather Desk said. Heavy rains could continue to cool coastal areas of the Southeast and Mid-Atlantic regions, it said.
After a rally of about a dollar at some hubs in recent days, prices pulled back in California. SoCal Citygate dropped 31.0 cents day/day to average $2.590.
Prices climbed across southern states from Texas to Florida. Katy added 4.0 cents to $1.785, while Henry Hub gained 2.5 cents to $1.840. Florida Gas Zone 3 rose 16.0 cents to $2.320.
Elsewhere, a mix of small gains and losses dotted the Rockies, Midwest and Northeast.
AccuWeather meteorologists warned that Debby would warrant close monitoring. They said Tuesday that millions of residents were under flood watches and warnings from Florida to Georgia and South Carolina.
AccuWeather Chief Meteorologist Jon Porter said Debby’s impacts could intensify again once it settles along the East Coast.
“We’re just getting started,” Porter said. “We expect that Debby is going to evolve into a major flooding disaster across parts of the Southeast…We’re facing serious rain and storm surge threats in the coming days.”
