Natural gas futures mounted momentum Tuesday and posted a second-straight gain, as forecasts pointed to frigid northern weather and production estimates pulled back sharply.
The November Nymex gas futures contract settled at $2.971/MMBtu, up 4.5 cents day/day.
NGI’s Spot Gas National Avg. jumped 17.5 cents to $2.220, boosted by demand in the wintry storm-laden Rocky Mountain region.
National Weather Service (NWS) data showed a chilly rain system – with snow in higher elevations – crossing portions of the Northwest and the Rockies Tuesday, with a second storm poised to follow Wednesday through Saturday. The follow-on system was projected to prove more powerful and widespread, descending from Canada with bitter cold air and heavier snow. It could impact vast swaths of the North, pushing from the Rockies through the Northern Plains and onto the Great Lakes as the week progresses. Colder temperatures could reach the Northeast by early next week.
The stormy conditions also present the potential for production freeze-offs in the Rockies.
Meanwhile, Wood Mackenzie analyst Laura Munder said Tuesday that, after production surged to near record levels on the doorstep of 104 Bcf/d to start the week, the firm revised down its output estimates.
It reported a 3.4 Bcf/d decline day/day, with total output down to around 100.5 Bcf/d. Bloomberg’s estimates showed a similar daily drop.
“The declines are concentrated in Texas and the Northeast where there are maintenance or operational issues underway, but revisions are expected,” Munder said.
Estimated Texas production was down around 1.7 Bcf/d, including a drop of around 1.1 Bcf/d in Permian Basin volumes, according to Munder. Northeast production, meanwhile, was off around 990 MMcf/d, with the greatest declines in Ohio and northeastern Pennsylvania, she said.
What’s more, following maintenance-induced lulls over the summer and early fall that brought LNG feed gas demand down to around 10 Bcf/d at points, the export sector rebounded in October. Following the return to full service of the liquefied natural gas plant at Cove Point in Maryland – after a planned repair and upgrade project – and the culmination of other maintenance events, export demand has held around the 14 Bcf/d level.
Strengthening LNG demand – and the potential for an ongoing war in the Middle East to add to calls for U.S. exports – could sop up excess production “and balance the market this winter,” Steve Blair, veteran gas broker and independent analyst, told NGI.
U.S. ally Israel declared war against Hamas earlier this month after the Islamist militant group attacked Israeli territory. Israel’s government ordered Chevron Corp. to shutter a major gas platform due to safety concerns, and Blair said worry permeates global markets that more closures could follow.
This could motivate European buyers, in particular, to shift more attention to the United States for any extra gas needs this winter. Europe already has made a huge shift since early 2022, when Russia invaded Ukraine. Amid the fallout of that festering war, gas that had been sent to Europe via pipeline has been dramatically curtailed.
Plump Inventories
Offsetting the emergence of stronger demand drivers this week, production through the early fall has consistently topped 100 Bcf/d – and often pushed well above that – and more than offset generally modest shoulder season weather demand.
That had set up utilities to inject more gas into storage, a bearish development for prices and a key reason that futures had, prior to this week, slumped for eight straight sessions.
Analysts are looking for another seasonally strong storage increase with Thursday’s U.S. Energy Information Administration (EIA) print.
Early estimates reported to Reuters spaned injections of 59 Bcf to 86 Bcf, with an average increase of 73 Bcf. NGI modeled a 79 Bcf build. That compares with an injection of 61 Bcf a year earlier and a five-year average of 66 Bcf.
EIA last posted an injection of 97 Bcf into storage for the week ended Oct. 13, notably plumper than the 85 Bcf five-year average increase. Inventories rose to 3,626 Bcf, keeping stocks well above the year-earlier level of 3,326 Bcf and the five-year average of 3,451 Bcf.
For all the fretting about stout supplies, however, some analysts noted that producers remain active ahead of an expected surge in LNG demand. New export facilities and expansions of existing ones are expected to come online starting next year, fueling calls for more of the super-chilled fuel to meet long-term global demand. This, said RBN Energy LLC analyst Sheetal Nasta, may increasingly necessitate strong storage levels.
Extreme weather conditions do as well, Nasta said.
“Underpinning all this is the imperative to safeguard against the negative impacts of severe gas supply disruptions and intermittent demand fluctuations, particularly in markets like California and Texas, where consumers have felt the disastrous effects of temporary gas and power shortages (along with record-high prices) in recent years,” Nasta said in a report.
“Reliability issues have been felt more acutely in the wake of extreme market events,” Nasta added. The “biggest influences” included “the specter of major weather-related market convulsions in the aftermath of Winter Storm Uri, the major ice storm and deep freeze that wreaked havoc on gas and electricity markets across Texas and the Midcontinent in mid-February 2021.”
California, the RBN analyst said, also faced a harsh winter last season and has grappled with lengthy heat waves in recent summers.
Also of major significance was “Russia’s war on Ukraine, which last year sent domestic gas prices soaring to pre-shale levels — the highest in 14 years,” Nasta noted.
Spot Prices Advance
Next-day cash gas prices gained ground against Tuesday, bolstered for a second day by forecasts for freezing northern air and strong prices in the Northwest and Rockies.
Opal spiked 67.0 cents day/day to average $3.185, while elsewhere in the Mountain West, Stanfield surged $2.930 to $5.470.
In the Northwest, Malin mounted a $3.035 rally to $5.590.
NWS data showed that, aside from the weather systems canvassing the North, mostly benign temperatures were expected to hold across much of the country this week, keeping demand light throughout the South and other parts of the Lower 48.
Further out, in the 11- to 15-day period, Maxar’s Weather Desk said Tuesday it made warmer adjustments to its outlook for the western half of the Lower 48, where comfortable conditions could cover most markets.
“Changes are smaller in the eastern half, where below-normal temperatures linger early in the period under high pressure,” the forecaster said, followed by milder conditions later in the outlook.
Meanwhile, looking to the winter ahead, Northeast markets would not see a major supply delivery improvement widely anticipated. In the event of a harsh winter in the region, this could result in higher prices.
Analyst Alex Gafford of East Daley Analytics noted that Equitrans Midstream Corp. last week postponed the expected start-up of the Mountain Valley Pipeline (MVP) from late 2023 to next year, citing labor shortages. The 2 Bcf/d pipeline is now slated to begin service by April 1, Equitrans said in a regulatory filing.
“The new pipeline now won’t be available for most of the coming winter, leaving eastern U.S. markets more vulnerable if the season is severe,” Gafford said.
“The second impact is to potential shippers. EQT Corp., the pipeline’s largest contract holder and only producer, holds 1.29 Bcf/d of capacity on MVP (500 MMcf/d has been leased to a third party for the first six years of the 20-year term). Delays to MVP have prevented EQT from potentially growing production into the new pipeline capacity in the peak demand season,” Gafford added.
In the Northeast Tuesday, Algonquin Citygate shed 33.0 cents to $1.390, while PNGTS gained 9.0 cents to $2.170.
