Higher production and lower demand outlooks supported more losses for August Nymex natural gas futures as weather forecasts softened heat for later in July amid storm fears stoked by the formation of the earliest Category 5 hurricane on record.
At A Glance:
- Futures end down 4.3 cents
- Production hits three-month high
- Weather, LNG worries pressure
The prompt month contract settled Tuesday at $2.435/MMBtu, off 4.3 cents. August futures moved between $2.415 and $2.484, in thin volume trade ahead of the Fourth of July.
NGI’s Spot Gas National Avg. was at $1.505, sinking 15.0 cents day/day.
Tudor, Pickering, Holt & Co. (TPH) analyst Matt Portillo said the firm was not surprised by natural gas price volatility through June. TPH expected that “supply would be ramping through the month as curtailments eased into stronger prices and shoulder demand was put into the rearview.”
The supply side appeared to drive the market’s more recent downward trajectory. Wood Mackenzie estimated production Tuesday at 100.7 Bcf/d, while the firm revised Monday’s estimate to a three-month high of 102.1 Bcf/d.
“The majority of shut-in volumes are back on stream,” Portillo said.
The added supply was in time to meet demand expected to rise as Venture Global LNG Inc.’s Plaquemines export terminal “appeared to be setting up for a July start,” he noted. TPH also had “industry conversations” that suggested Matterhorn Express Pipeline may be looking at a startup late in the third quarter, Portillo said.
The ruling by the U.S. District Court for the Western District of Louisiana, which ordered the Biden administration to end its “pause” on new permits for liquefied natural gas export facilities, also added a bullish flush.
Analysts with Gelber & Associates noted that while the court’s new order prevents officials from halting the approval process, it doesn’t mandate immediate permit approvals or set deadlines. Further, the U.S. Department of Energy (DOE), disagreeing with the ruling, “is reviewing the court’s order, in which the judge argued that the suspension lacked detailed justification and was a significant policy reversal,” the firm said.
EBW Analytics Group analyst Eli Rubin said although only new, unapproved LNG terminals were affected by the DOE pause, the court decision would “further increase confidence in the coming wave of LNG feed gas demand and bullish upside for Nymex gas futures into the end of the decade.”
Perhaps boosted by the favorable court ruling, contracts traded modestly higher further out on the Nymex forward curve starting in March 2025 and as far out as September 2026.
Weather Adds Uncertainty
Meanwhile, weather forecasts offered mixed signals for the market as it searched for footing.
ICE Connect Weather meteorologist Dave Margolin said on the online energy platform Enelyst that forecasts are generally above normal for the next two weeks.
The American and European weather models showed “lots of heat along the coasts, particularly the west coast,” Margolin said. Cool anomalies are seen in the Plains, and “even making it down into Texas” in the six- to 10-day period, he said.
A midday update from NatGasWeather showed both models trended six to seven cooling degree days cooler over the past two days while “still forecasting one of the hottest first half of July patterns of the past 50 years.”
Rubin noted, “Even if forecasts for a scorching summer do eventually come to fruition, hurricane season risks suggest power burn gains may be punctuated by tropical storm natural gas demand destruction and detract from overall weather bullishness.”
The National Hurricane Center (NHC) issued a hurricane warning for Jamaica on Tuesday as the country braced for impact from Category 5 Hurricane Beryl.
AccuWeather forecast that Beryl would weaken to a Category 3 hurricane when it passed near or made landfall in Jamaica on Wednesday.
NHC said the storm was expected to remain a “powerful hurricane” and interests in Belize, the Yucatan Peninsula, Cuba, and the southwestern Gulf of Mexico should monitor the storm’s progress.
Rubin said the storm’s projected trajectory posed “little threat to the U.S.” until a weakened storm reaches the southern tip of Texas after the July Fourth holiday weekend. He noted that “the rapid intensification of the storm is a clear warning for future tropical risks.”
Amid the near-term weather-driven demand uncertainty, the market focus was shifting to the longer-term natural gas oversupply risks, Rubin said.
Storage Eroding Slowly
The U.S. Energy Information Administration (EIA) gas storage report, set for release on Wednesday because of the July Fourth holiday, is expected to show a lighter-than-usual injection for the week ended June 28.
NGI modeled a 29 Bcf build. Early estimates to Reuters ranged from builds of 13 Bcf to 76 Bcf, with an average increase of 41 Bcf. The five-year average build is 69 Bcf for the week, while a year ago it was 76 Bcf.
“Market estimates across the board indicate that the injection will mark two months of consecutive drops in the current surplus to the 5-year average,” Gelber analysts said.
After the EIA reported a 52 Bcf injection for the prior week, total working gas supply stood at 3,097 Bcf, 314 Bcf more than the previous year period and 528 Bcf above the five-year average.
Spot Gas Sinks
Cash prices for gas delivered Wednesday were pressured by the low demand expected because of the July Fourth holiday.
Top losses were in California, where the SoCal Border Avg. at $1.870, was down 36.5 cents, and PG&E Citygate was off 62.0 cents to $2.835.
The retreat defied National Weather Service (NWS) forecasts calling for large swaths of California and the Southwest to see triple-digit temperatures Wednesday into the weekend, with some areas rising into the 110s and 120s,
NWS data showed that portions of Texas and Oklahoma were expected to see highs above 100, while highs in the Southeast could reach the 90s over the long holiday weekend.
The Southeast Regional Avg. slipped 18.5 cents to $2.130. A 25.0-cent loss at Tenn Zone 1 100L to an average of $1.730 and a 19.0-cent loss at Transco Zone 4 to $2.415 contributed to the regional retreat.
