Natural gas futures fell for a second day on Thursday after a lighter-than-forecast storage build appeared to not be enough to divert storage levels off their lofty trajectory into the fall.
At A Glance:
- EIA reports 18 Bcf storage build
- Production rises to five-month high
- Overall demand strong amid heat
The September Nymex contract fell 6.8 cents day/day to settle at $1.968/MMBtu.
NGI’s Spot Gas National Avg. was flat at $1.805. Prices mostly fell in eastern regions, while western prices were supported by hotter forecasts.
On Thursday, futures briefly spiked before turning lower after the U.S. Energy Information Administration (EIA) reported an injection of 18 Bcf into natural gas storage for the week ended July 26. The result was below expectations and lagged the five-year average build of 33 Bcf.
Prior to the report, the median of Reuters’ poll landed at a 31 Bcf increase from a range of 22 Bcf to 45 Bcf. NGI modeled a 29 Bcf increase.
The increase boosted inventories to 3,249 Bcf, putting them 441 Bcf above the five-year average. That surplus has narrowed by more than 200 Bcf over the past 12 weekly reports.
Driving the lighter-than-forecast build, analysts pointed to weaker wind power generation during the report week, which for gas power burns partly offset lighter demand from mild weather.
Wind power generation during the reporting period fell to its lowest level of the past year, NatGasWeather meteorologist Rhett Milne said. He discussed the wind generation before the EIA report on the online energy platform Enelyst.
The Midwest and East led with injections of 15 Bcf and 14 Bcf, respectively, according to EIA. Pacific inventories fell by 3 Bcf, while Mountain region stocks added 2 Bcf.
In the South Central region, some analysts appeared surprised by the drawdown in gas stocks. Inventory levels fell by 10 Bcf, including draws of 6 Bcf from salts and 3 Bcf from nonsalt facilities.
”Nobody saw a draw in nonsalt,” The Desk's John Sodergreen, editor-in-chief, said.
According to Wood Mackenzie analyst Eric McGuire, estimates were struggling to account for the change in wind generation week to week. This week’s bullish miss and another similar one in mid-July both saw large drops in wind generation. The impacts “weren’t fully captured in gas nominations to either power plants or storage facilities,” he said.
Looking ahead to the EIA inventory report for the week ended Aug. 2, a rebound in wind generation had preliminary estimates pointing to a bigger build in gas inventories. Early estimates submitted to Reuters ranged from injections of 11 Bcf to 39 Bcf, with an average increase of 30 Bcf.
Bearish Supply Trend
The bullish storage miss was not enough to shift the market’s attention away from still stout storage levels.
“Reasons for strong selling since the EIA report are likely due to…surpluses not decreasing at a fast enough pace despite one of the hottest summers on record,” NatGasWeather said. “And it doesn't help that U.S. production remains strong.”
Lower 48 gas inventories were 252 Bcf above the year-earlier level in the latest EIA weekly report. If last year is a guide – when storage levels topped out above 3,800 Bcf at the end of the injection season – the market may need to slow builds further to avoid exceeding 4,000 Tcf, above which injections could max out storage capacities.
“The market will require tiny injections to be able to reduce staggering storage surpluses,” EBW Analytics Group senior analyst Eli Rubin said. The firm anticipated a historically small August storage build. However, Rubin said it was unclear whether that would be enough to reset the path of September futures higher.
In terms of the latest fundamentals, Wood Mackenzie estimated production at 102 Bcf/d on Thursday. The reading for Wednesday was revised higher by 0.9 Bcf/d to 103.2 Bcf/d, its highest level since February.
Meanwhile, LNG feed gas nominations dipped to about 12.3 Bcf/d on Thursday, down nearly 1 Bcf/d from the prior day, according to NGI data.
Most of that decline came from Cheniere Energy Inc.’s Sabine Pass liquefied natural gas terminal in Louisiana, down about 0.7 Bcf/d on lower flows from all four of its feeder pipelines.
More than two weeks since its outage, flows to the Freeport LNG terminal in Texas were steady at around 2.1 Bcf/d.
Cash Prices Seesaw
Next-day spot gas prices were mixed Thursday with declines in the East countered by gains in the West.
The difference in price trends followed the Lower 48 temperature map that indicated the East would escape the worst of the heat on Friday. Vast expanses of the country were expected to see highs in the 90s and 100s for elevated cooling demand, according to National Weather Service data. However, most of the triple-digit heat was reserved for west of the Mississippi River.
In the Northeast, Algonquin Citygate fell 53.5 cents day/day to average $1.760. Texas Eastern M-2, 30 Receipt in Appalachia fell 6.5 cents to $1.460. Transco Zone 5, stretching from Virginia to the Carolinas, added 3.5 cents to $2.215.
In California, SoCal Citygate added 18.5 cents to $2.925. Elsewhere, Cheyenne Hub in the Rockies slipped 0.5 cent to $1.745, and El Paso Permian in West Texas rose 9.0 cents to negative 21.5 cents.
The National Hurricane Center (NHC) shifted the possible path of an Atlantic tropical wave back toward the Gulf Coast. On Wednesday, NHC’s modeled path pointed toward Florida and the eastern seaboard, but on Thursday, NHC leaned it back across Florida and the eastern half of the Gulf.
“A tropical depression is likely to form this weekend or early next week over the eastern Gulf of Mexico near the Florida Peninsula,” NHC said.
Scorching weather forecasts point to elevated cooling demand through mid-August, but one “wildcard for next week is where the tropical system goes,” Milne said. “Tropical cyclones have tended to play out more bearish than bullish in recent years through cooler temperatures and power outages.”
