Natural gas futures floundered once again, this time under the heavy weight of a surprisingly bullish government inventory report that indicated supplies remain stout alongside robust production and mild autumn weather.
The November Nymex gas futures contract settled at $2.957/MMBtu, down 9.9 cents day/day. It marked a seventh-straight loss. December dropped 13.7 cents to $3.326.
NGI’s Spot Gas National Avg. slipped 11.5 cents to $2.290.
Production on Thursday held steady with prior sessions this week at 102.5 Bcf/d. That was within striking distance of record levels just above 103 Bcf/d in Bloomberg’s estimates. The elevated supply levels were manifested in the latest Energy Information Administration (EIA) inventory data, and this in turn galvanized bears and led to the continued sell-off in futures, said Steve Blair, a veteran gas broker and independent analyst.
EIA on Thursday said utilities injected 97 Bcf of natural gas 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. NGI modeled a 79 Bcf injection.
The result easily eclipsed recent norms -- an 85 Bcf five-year average increase – and immediately pummeled Nymex natural gas futures. The front month was up slightly ahead of the print, but it dropped more than 7.0 cents immediately after the EIA data crossed the wire.
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.
If anything, Blair told NGI, he was “a bit surprised that futures did not react more than they did,” given the supply/demand imbalance implied by the EIA data.
Gelber & Associates analysts noted LNG exports gained ground during the EIA storage week – following the completion of a maintenance event at the Cove Point liquefied natural gas plant in Maryland – and continued to climb this week. LNG feed gas volumes have recently hovered near 14.5 Bcf/d, up more than 3 Bcf/d from autumn lows.
What’s more, early demand emerged this month to power furnaces in the North, where blasts of chilly weather permeated markets from the Upper Midwest to New England. Industrial demand has also increased in recent weeks, according to Gelber.
Still, relatively mild weather in Texas and neighboring states during the past week paved a new path for a big injection in the South Central. The 40 Bcf build there led all regions.
“It certainly implies more moderate temps in that region and thus lower gas demand,” Blair said.
The Midwest and East regions followed with injections of 29 Bcf and 22 Bcf, respectively, according to EIA. Mountain region stocks rose by 4 Bcf, while Pacific inventories climbed by 2 Bcf.
Export Demand
Blair said futures likely would be under even more pressure if not for the rebound in LNG and long-term expectations for added production levels to feed new and expanded export plants beginning in 2024.
There is “more attention focusing on the LNG sector,” Blair said, particularly after threats of a strike in Australia and war in the Middle East.
Australian LNG workers reached an agreement to prevent a strike this week, but tense negotiations at two key export facilities there raised concern about global supplies and reminded buyers in Europe and Asia of their reliance on finite levels of gas currently available.
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 field due to safety concerns.
Rystad Energy analysts said the ongoing conflict “poses a serious threat to the regional natural gas market and could have knock-on effects on Europe’s LNG supply as winter approaches…The fate of the three largest Israeli gas development projects – Tamar, Leviathan and Karish – will affect the regional market greatly.”
This could, in turn, create added demand for U.S. exports. “There remains a risk of escalation into a broader conflict that could cause a short-term increase in energy prices,” said Rystad Middle East analyst Aditya Saraswat.
All of that noted, in the near term, fall weather in concert with strong output, led by the prolific Permian Basin, could result in another plump storage build, Blair said.
Indeed, looking ahead to the next EIA inventory assessment, covering the week ending Oct. 20, analysts are looking for another seasonally strong print. Preliminary estimates submitted to Reuters ranged from injections of 59 Bcf to 86 Bcf, with an average increase of 73 Bcf. That compares with an injection of 61 Bcf a year earlier and a five-year average of 66 Bcf.
Spot Prices
Next-day cash prices on Thursday declined for the first time this week as near-term demand proved modest.
Price declines were widespread. Chicago Citygate fell 9.0 cents day/day to average $2.235, while OGT in the Midcontinent declined 14.0 cents to $2.050 and Florida Gas Zone 3 shed 12.5 cents to $2.785.
National Weather Service (NWS) data showed benign weather through the end of this trading week. A chilly bout of air canvassing the Great Lakes to the Northeast early next week could fuel strong regional demand, but it is not expected to last long. By the middle of next week, NWS forecasts point to widespread highs from the 60s to the 80s aside from pockets of cold in the Rockies and Pacific Northwest.
Long-range forecasts, however, do show the potential for cold snaps early in November, particularly in northern markets.
On the supply front, Wood Mackenzie analyst Kara Ozgen noted Thursday that Permian Highway Pipeline (PHP) will be performing maintenance on the Big Lake Compressor Station in Texas beginning Sunday and lasting through Oct. 30. During a first phase that is slated to culminate Oct. 26, PHP’s pipeline capacity will be reduced from 2.1 Bcf/d to 1.73 Bcf/d, Ozgen said. From Oct. 27-30, the capacity will increase but will still be restricted to 2.02 Bcf/d.
However, “these restrictions are expected to be mostly unimpactful since there aren’t usually major price movements unless the restriction in capacity is closer to 1 Bcf/d,” Ozgen said.
That noted, during PHP’s recent maintenance on Sept. 26-Oct. 5, there was some downward pressure on cash prices at Waha in West Texas amid a supply glut there because of limited takeaway capacity. At the same time, prices in California climbed because the state is dependent on Permian gas. Any extended cuts in the region could result in shortages at SoCal Citygate and elsewhere.
On Thursday, Waha gained 3.5 cents to $1.990, however, while SoCal Citygate lost 33.0 cents to $11.365.
