Natural gas futures on Monday finished in positive territory for the first time in nine sessions, supported by expectations of wintry weather in the North this week and the potential for greater heating demand in the month ahead.
At A Glance:
- Output exceeds 103 Bcf/d
- Northern demand looms
- NGI models 79 Bcf injection
After dropping 17% over the span of its recent malaise, the November Nymex gas futures contract on Monday gained 2.7 cents day/day and settled at $2.926/MMBtu. December rose 1.5 cents to $3.273.
NGI’s Spot Gas National Avg. advanced 5.5 cents to $2.045.
While benign conditions are still expected for much of the Lower 48 this week, forecasts trended colder over the weekend, NatGasWeather said. This was mainly because of a weather system that “will drop out of Canada into the Rockies and Northern Plains late in the week with lows of teens to 30s,” driving swaths of heating demand.
The system should deliver “stronger national demand,” including “the first decent sub-freezing cold shot of the season,” the firm said. However, “the pattern would be more impressive if not for much of the weather data favoring near to warmer-than-normal temperatures returning over most of the U.S. Nov. 3-6” before the possibility of more widespread chills later next month.
Meanwhile, LNG feed gas demand totaled 13.6 Bcf/d for Monday, near recent highs around 14 Bcf/d, Wood Mackenzie data showed. The firm estimated power burns at 31.9 Bcf/d, up slightly from the recent seven-day average of 30.1 Bcf/d.
The demand drivers were enough to pull futures from a steep slump that was driven largely by concerns about robust production and excess supplies.
Domestic production remained lofty on Monday and averaged 103.5 Bcf/d over the weekend, including volumes totaling 103.7 Bcf/d on Sunday and touching all-time highs, according to Wood Mackenzie estimates. The firm estimated output of 103.0 Bcf/d for Monday.
“Production again vied for a record high over the weekend as Marcellus drillers boosted output during briefly cooler temperatures. The production jump is a concerning development for bulls already reliant on cold weather to support gas prices,” EBW Analytics Group’s Eli Rubin, senior analyst, said Monday.
Rubin noted that the latest Baker Hughes Co. natural gas-directed rig count increased by one, “including a surprise three-rig increase in the bellwether Haynesville Shale as plunging upstream momentum from earlier in the injection season began to moderate. While the gas-directed rig count is down by 43 (-27%) since April, declines have flattened out over the past 10 weeks as producers aim to retain capacity heading into the winter and ahead of the anticipated boom” in liquefied natural gas demand “in the back half of next year and beyond.”
New LNG facilities are expected to open along the Gulf Coast in 2024 and in the following years to meet anticipated strong global demand for the next several years.
“In the interim, elevated gas production could further burden an oversupplied market absent a very cold winter — further biasing medium-term pricing risks for Nymex natural gas lower into the end of the calendar year,” Rubin said.
Looking ahead to the next U.S. Energy Information Administration (EIA) storage report, covering the week ended Oct. 20, analysts are looking for a seasonally stout print. Preliminary estimates submitted to Reuters ranged from 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 most recently reported an injection of 97 Bcf into storage for the week ended Oct 13. The increase was driven by a surge in South Central supplies along with steady increases in the Midwest and East.
Prior to the report, analysts’ median estimates coalesced around an increase of about 80 Bcf. The result easily eclipsed recent norms – an 85 Bcf five-year average increase – and further beat down futures late last week.
The latest injection boosted inventories 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.
Cash Prices Climb
Spot gas prices pushed upward on Monday, bolstered by gains in the Rockies and Northwest.
Stanfield surged 71.0 cents from Friday to average $2.540, while elsewhere in the Mountain West, Opal climbed 71.5 cents to $2.515 and KRGT Rec Pool rose 70.5 cents to $2.510.
In the Northwest, Malin gained 64.0 cents to $2.555 and Northwest Sumas jumped 84.5 cents to $2.560.
NatGasWeather said mild conditions would rule much of the Lower 48 this week, though a cool shot across the northern reaches of the country caught traders’ attention.
“Warm high pressure will strengthen over the southern and eastern” portions of the country, with highs of 60s-70s in the Great Lakes and Northeast and highs of 70s-80s over much of the South, the firm said. “The West will be mild as weather systems track through with showers and highs of 50s-70s, including showers in the Southwest into Texas due to remnants from a tropical system.”
All of that noted, the cold conditions expected in the North could prove significant, driving demand and presenting the possibility of production freeze-offs in the Rockies later this week.
“The season’s first widespread snowfall is on tap for portions of the Rockies and northern Plains this week, and it is expected to bring all the trappings of winter from heavy snow to gusty winds to bone-chilling cold,” said Bill Deger, AccuWeather senior meteorologist.
Deger said the storms are “expected to unfold in waves from Monday through Friday and impact more than a half-dozen states” across the Rockies, portions of the Pacific Northwest and the western Dakotas.
“The snow and cold will represent a dramatic change in the weather pattern across the region compared to last week, when dry, near-record warm conditions were the norm,” Deger said.
