Natural gas futures faltered a second day after a major producer expressed concern about elevated supplies, adding to market worries about hefty storage levels and overshadowing forecasts for strong cooling demand in the weeks ahead.
At A Glance:
- EQT cautious on gas output
- Cooling demand to mount
- Small storage print estimated
The August Nymex gas futures contract on Wednesday lost 7.0 cents day/day and settled at $2.117/MMBtu. It fell after EQT Corp., the Lower 48’s leading natural gas producer, affirmed it plans output curtailments in the second half of this year because of high storage levels and soft prices.
NGI’s Spot Gas National Avg. slid 4.5 cents to $1.840.
“There are still major concerns regarding the storage overhang, even if it is slowly dissipating, which may keep a moderation on price rallies” through the summer, Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI.
The front month futures contract is riding a roller coaster.
It had rallied more than 20 cents over a three-day span that culminated on Monday. National Weather Service forecasts called for robust heat across much of the country for the first half of August. Export demand showed fresh signs of momentum after Freeport LNG volumes indicated the terminal had restarted the second of three trains following repairs necessitated by Hurricane Beryl. The former storm imposed damage earlier this month. Liquefied natural gas demand topped 12 Bcf/d on both Tuesday and Wednesday, up from lows close to 10 Bcf/d earlier this month, according to Wood Mackenzie.
However, the August contract then shed 6.4 cents on Tuesday amid profit-taking. It accelerated the downward trend the next day.
Snapper Creek Energy analyst Kyle Cooper told NGI that Tuesday’s drop – which developed before EQT reported earnings – was “a bit perplexing. Weather still looks supportive” and Freeport’s rebound appeared “solid.” There simply were “more sellers than buyers.”
The EQT outlook galvanized further selling on Wednesday. The company, a dominant force in Appalachia, said in its second quarter earnings materials that, while it brought back online this summer much of the roughly 1 Bcf/d of production it curtailed last spring, it has put selective reductions in place in recent weeks and expects to continue this practice in the fall.
“While the pace of eastern storage builds has moderated, absolute storage levels remain high on the back of warm winter weather last year, thus pressuring Appalachia pricing this year,” CFO Jeremy Knop said Wednesday during the quarterly conference call. “In response to market fundamentals, we continue to tactically curtail production, including over the past weeks, and expect to continue this tactical curtailment program during the upcoming fall shoulder season.”
As of mid-July, Eastern storage was 16% above the five-year average, while national inventories were 17% ahead of historical norms. Both surpluses have been halved since March, but remain exceptionally high, as Blair noted. NGI’s Appalachia Regional Avg. has hovered around the $1.33-1.55 levels this week, down from prices above the $2.00 mark to start the year.
EQT’s outlook for stout storage to persist beyond the summer injection season reinforced simmering storage worries that have permeated the market throughout 2024.
Then, after trading commenced Wednesday, news broke that feed gas nominations to the Freeport facility were revised down and Gulf South Pipeline Co. LLC issued a failure to take notice. This indicated the LNG terminal may have experienced another operational issue, according to Wood Mackenzie pipeline data.
Flows to the Freeport facility had previously topped 50% of pipeline capacity, near the highest level since Beryl. The third vessel in less than a week was loading at one of Freeport’s berths Wednesday, according to Kpler data.
“The market is in more of a reactive mode,” responding to EQT and to “talk of power issues at Freeport,” Blair said.
In Bulls’ Favor
On a brighter note, analysts did point out Wednesday that production was lower and demand was poised to rise.
Wood Mackenzie estimated production on Wednesday at 101.5 Bcf/d. That was down slightly from both the seven-day and 30-day averages.
EBW Analytics Group’s Eli Rubin noted the LNG volume recovery and August weather forecasts. “While natural gas remains oversupplied on a longer-term basis and susceptible to lower prices, modest upside is possible into early next month,” he said.
“Blistering August heat may reset power burns,” and “tiny storage builds in early August could ignite a sizable speculator short-covering event. While bearish risks abound, including swelling supply and renewed tropical threats, if storage containment concerns can be abated, Nymex gas futures appear to have moderate room to the upside.”
At a minimum, NatGasWeather said, storage surpluses are narrowing.
“There have been bullish trends in the supply/demand balance this past week, highlighted by Freeport LNG returning to service,” NatGasWeather said. “In addition, production is down nearly 1 Bcf/d week over week” and “the seven- to 15-day forecast period remains hot over most of the U.S.”
The firm added that “a hot first half of August pattern will decrease storage surpluses towards 400 Bcf, assuming heat doesn’t back off.”
Looking to Thursday’s U.S. Energy Information Administration (EIA) inventory report, NGI modeled a seasonally light 11 Bcf increase for the week ended July 19. That compared with an increase of 23 Bcf a year earlier and a five-year average build of 31 Bcf.
Injection estimates submitted to Reuters ranged from 8 Bcf to 24 Bcf, with a median of 15 Bcf. A Bloomberg poll spanned 2 Bcf to 18 Bcf and landed at a median of 11 Bcf.
EIA reported an injection of 10 Bcf for the week ended July 12. The print was bullish relative to the five-year average increase of 49 Bcf. Near-record temperatures cooked much of the Lower 48 during that EIA period. Such conditions extended into the July 19 week.
Still, the latest print boosted inventories to 3,209 Bcf, keeping stocks well above the five-year average of 2,744 Bcf.
Spot Prices Slide
Cash prices ticked down across most of the Lower 48 on Wednesday amid regional reprieves from summer heat.
Leading decliners included Carthage in Texas, down 10.0 cents day/day to an average of $1.750, and Houston Ship Channel, off 9.0 cents to $1.625. Iroquois Zone 2 in the Northeast fell 11.0 cents to $1.805.
NatGasWeather said, after seasonally average weather across swaths of the central and eastern United States this week, intense heat that persisted in the West would once again spread nationally. The firm expects conditions to prove “very warm to hot for most of the U.S. overall, with highs of upper-80s to 100s” in early August. “This includes highs of mid-90s and 100s returning to Texas” after a break from extreme heat this week.
The state’s largest market, Houston, could be on the cusp of a sizzling August, said Space City Weather forecaster Eric Berger. “Starting Monday, I expect we’ll reach at least the low 90s, and by midweek, I expect Houston to be solidly in the mid-90s with lots of sunshine,” he said.
Wood Mackenzie noted various unplanned production interruptions because of mechanical and other temporary problems on pipelines and at compressor stations in the Permian Basin of West Texas and New Mexico this week. However, major impacts on flows were avoided. Sharp price reactions in the Southwest and Southern California – regions dependent on Permian gas – were also eluded.
KRGT Del Pool near Las Vegas ticked up 3.5 cents to $2.740, while SoCal Citygate shed 5.5 cents to $2.805.
