Weekly natural gas cash prices limped lower as near-term forecasts pointed to mostly benign weather and production estimates reached the highest on record.
NGI’s Weekly Spot Gas National Avg. for the Oct. 16-20 period declined 12.0 cents to $2.190.
As the trading week closed, cash hubs across much of the country were in the red. Northwest Wyoming Pool fell 35.5 cents to $1.900, while Florida Gas Zone 3 shed 56.0 cents to $2.830, and Henry Hub lost 36.0 cents to $2.850.
Meanwhile, the November Nymex contract struggled throughout the week, held in check by stout levels of natural gas in storage and lofty production volumes. The front month settled at $2.899/MMBtu to close the trading week on Friday, down 5.8 cents on the day and down 10% from the prior week’s finish. The November contract lost ground every day of the trading week.
Production early in the week swelled beyond 103 Bcf/d, reaching all-time highs in Wood Mackenzie’s estimates. This infused “a lot of bearish sentiment into the futures market,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI.
He noted that LNG demand rebounded during the week and consistently topped 14.0 Bcf/d. This developed after maintenance events culminated at several U.S. export facilities and as foreign buyers gobbled up liquefied natural gas ahead of winter.
He also noted that forecasts pointed to at least shots of colder conditions near the end of October. However, record production more than offset bullish catalysts in the minds of futures traders, he said.
“Mother Nature is gearing up, but she’s not doing nearly enough to offset the supplies yet,” Saal said.
For the coming trading week, NatGasWeather looked for a weather system over the Rocky Mountains and Midwest to “tap colder Canadian air and track across the Great Lakes and Northeast by Tuesday, with showers and highs of upper 40s and 50s.” This could bolster solid heating demand in the North, though it could be offset by comfortable conditions elsewhere.
Futures Folly
The latest government inventory data, released Thursday, punctuated the oversupply concerns and sent futures reeling 9.9 cents that day.
The U.S. Energy Information Administration (EIA) said utilities injected 97 Bcf of natural gas into storage for the week ended Oct 13. The increase, driven by a jump in South Central supplies, exceeded market expectations for a build around 80 Bcf.
Mild weather in Texas and neighboring states during the week enabled utilities in the South Central to inject 40 Bcf into underground stocks. The Midwest and East regions followed with injections of 29 Bcf and 22 Bcf, respectively, according to EIA.
The total injection figure for the week far surpassed the 85 Bcf five-year average increase. It lifted 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.
Wood Mackenzie analyst Eric McGuire said that, when compared to degree days and normal seasonality, the latest build was 1.8 Bcf/tight versus the prior five-year average. The previous five weeks, however, averaged 3.2 Bcf/d tight compared with historical norms.
The bearish shift may extend to the next EIA print covering the week ended Oct. 20. Preliminary estimates submitted to Reuters averaged 73 Bcf. That compares with an injection of 61 Bcf a year earlier and a five-year average of 66 Bcf.
In bulls’ favor, though, is steady industrial gas consumption, expected jumps in residential and commercial heating demand as the market approaches winter, and the rebound in LNG volumes, according to analyst Alex Gallegos of Gelber & Associates.
Commenting on the online energy platform Enelyst, Gallegos also said the Israel-Hamas war that erupted earlier this month “added a lot of fear about gas security to Europe despite their storage being 97-98% full.”
Israel idled its Tamar gas field because of safety concerns, and now “there are significant concerns that other sources of natural gas that Europe uses will be closed,” Gallegos said. This could spur even more demand for U.S. shipments of LNG.
“Exporters are even further incentivized to send out their gas,” he said.
Friday Cash Prices
Cash prices cratered across the Lower 48 on Friday as demand dissipated. NGI’s Spot Gas National Avg. dropped 30.0 cents to $1.990 for weekend through Monday delivery.
NatGasWeather said it expects a minor but short-lived increase in demand to begin the next trading week as chilly air “sweeps across” the Great Lakes and Northeast.
“However, warm high pressure is favored to build” over the eastern half of the country later in the week, ushering in above-normal highs of 60s to 80s “for light national demand,” the firm added. Comfortable conditions were in the cards for most other regions.
Against that backdrop, Houston Ship Channel dropped 58.5 cents day/day to average $1.865, while Chicago Citygate lost 38.0 cents to $1.855, and Northwest Sumas fell 27.5 cents to $1.715.
On the pipeline front, meanwhile, traders are likely to sharpen their focus on Kinder Morgan's (KMI) Permian Highway Pipeline (PHP) maintenance project planned for the coming week. It would curtail takeaway capacity from the Permian to 1.73 Bcf/d – from 2.1 Bcf/d – for several days.
“Previous pipeline outages have caused price volatility at the Waha hub given egress constraints in the basin, including negative pricing events this year in May and July,” East Daley Analytics noted. Such work has had the opposite impact on West Coast prices because Southern California needs Permian gas to meet demand. When PHP is limited and western flows are limited, SoCal Citygate tends to spike.
With weather-driven demand absent on Friday, however, SoCal Citygate plunged $3.735 to $7.630. Waha in West Texas dropped 70.0 cents to $1.290.
The good news for utilities and price-sensitive consumers, though, is that the California Public Utilities Commission recently voted to allow Southern California Gas Co. to raise the maximum working capacity of the Aliso Canyon storage field by 27.6 Bcf to 68.6 Bcf, the East Daley analysts noted.
“Heading into winter, the additional storage capacity could help cushion the West Coast from major price swings during bouts of cold weather,” the East Daley team said.
