Natural gas futures bounced off seasonal lows on Tuesday, advancing for only the third time this month amid lighter production readings, bullish storage expectations and signs of new activity at a key export facility following damage caused by former Hurricane Beryl.
At A Glance:
- Production at 100 Bcf/d
- Small injection expected
- Heat coverage to vary
After a 17.1-cent drop the prior day, the August Nymex gas futures contract on Tuesday gained 3.0 cents day/day and settled at $2.188/MMBtu.
NGI’s Spot Gas National Avg., however, slipped 8.5 cents to $1.975 ahead of an anticipated reprieve from oppressive heat.
Production clocked in at 100 Bcf/d on Tuesday, according to Wood Mackenzie. That was down from an upwardly revised 102 Bcf/d on Monday.
While output remained strong over the past seven days at 101.5 Bcf/d, it leveled off at around or just above the century mark this month with strong cooling demand expected in the weeks ahead. It also had been choppy through the spring and summer amid maintenance-induced pipeline interruptions in the Permian Basin and elsewhere.
LNG demand, meanwhile, was down to 10.5 Bcf/d from July highs above 11 Bcf/d, Wood Mackenzie’s estimates showed. Liquefied natural gas volumes were curbed by Beryl, causing the slump. This notably included a prolonged outage at Freeport LNG in Texas, near where the storm made landfall last week. It caused widespread power outages that, for more than 100,000 properties, extended into Tuesday.
However, Freeport LNG Development LP on Monday confirmed it planned to slowly restart this week. The terminal was scheduled to receive about 370 MMcf/d of feed gas Tuesday, Wood Mackenzie data showed. Freeport planned to restart one of three trains this week and then follow with the other two shortly thereafter.
The terminal’s feed gas volumes were “a positive sign of the first train preparing for start-up,” Tudor, Pickering, Holt & Co. analyst Zack Van Everen said. Each of the three trains have about 0.66 Bcf/d of capacity, he said.
He and other analysts said Monday’s sell-off was overdone and buyers were bound to step up once bullish developments emerged. NGI’s Patrick Rau, senior vice president of Research & Analysis, said the August contract had been in “extreme oversold territory pretty much for all of July.”
Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, agreed.
“Some profit taking is probably part of this price strength today,” Blair told NGI on Tuesday. “At least with Freeport beginning to come back, it will take some of the price pressure off the market, particularly if daily production levels continue at current levels.”
Storage Outlook
Rau said that, on Wednesday, traders would turn next to the U.S. Energy Information Administration’s (EIA) storage print.
“The issue, though, is that there is likely to be more conjecture about that number than normal,” Rau said. “The impacts of Beryl and a longer than typical July Fourth weekend, during which time demand tends to fall, will likely produce a wider than normal range of estimates.”
NGI is estimating the storage report covering the week ended July 12 will show an injection of just 12 Bcf. That compares with a five-year average increase of 49 Bcf. Preliminary injection estimates submitted to Reuters ranged from 18 Bcf to 55 Bcf, with an average increase of 38 Bcf. The print will be released Thursday.
EIA posted a build of 65 Bcf for the week ended July 5. It was well above the five-year average build of 57 Bcf. The increase boosted inventories to 3,199 Bcf, putting stocks 19% above the average of the prior five years.
On the domestic demand front, National Weather Service (NWS) data showed continued widespread scorching heat on Tuesday. This was expected to continue across much of the country this week and through early August, though large pockets of the Midwest were forecast to see milder temperatures from midweek through the weekend. The Northeast also was expected to see relief from heat waves later this week.
However, far-reaching heat domes were to cover much of the country again by next week, potentially driving above-average cooling demand, NWS forecasts showed
Spot Prices Slip
After rallying last week and again Monday alongside the sizzling heat, next-day cash prices pulled back Tuesday.
NWS data showed milder conditions that already had reached parts of the Midwest pushing to the East.
Chicago Citygate fell 11.0 cents day/day to average $1.770, while Columbia Gas in Appalachia lost 6.0 cents to $1.645, and PNGTS in New England dropped $1.930 to $5.570.
Still, near-record temperatures were expected to endure in large sections of the West. More widespread heat was expected again in late July and into next month.
“The heat wave that has been sizzling the West during the first part of July…will also continue to bake much of the region,” AccuWeather meteorologist Bill Deger said. “Temperatures will remain above the historical average into the second half of July, raising the risk for fires and expanding drought conditions.”
This could reignite upward pressure on cash prices.
What’s more, repairs and upgrades in the Permian continued into the summer and raised concerns about gas flows sent to the West. Work on Permian Highway Pipeline and El Paso Natural Gas Co. LLC has, on multiple occasions in the spring and this summer, created gluts of local supplies, hurting West Texas prices but, at times, bolstering prices in the Southwest and California.
West Texas benchmark Waha, which had traded in negative territory as recently as last week, rose Monday and then fell 11.5 cents on Tuesday to 32.0 cents. It remained one of the weakest price points in the Lower 48.
In the Southwest, El Paso S. Mainline/N. Baja fell 39.0 cents on Tuesday to average $2.360. But it had spiked 80.5 cents on Monday.
