Natural gas futures forged higher on Friday, bolstered by elevated LNG exports and momentum from this week’s cold shot that may have been enough to trigger the season’s first withdrawal. The December Nymex gas futures contract rose 4.3 cents day/day to settle at $3.515/MMBtu. January rose 4.5 cents to $3.795.
At A Glance:
- December contract gains 4.3 cents
- Production exceeds 104 Bcf/d
- LNG exports stay at high level
In contrast, spot gas prices fell for a fourth session as temperatures are expected to swing 25-50 degrees higher into the weekend, cutting short the surge in heating demand for the Lower 48 from its first significant brush with winter cold this week.
NGI’s Spot Gas National Avg. fell 37.0 cents to $2.300.
A high pressure system was forecast to bring warmer-than-normal weather over most of the Lower 48 through Wednesday with highs in the 60s to 80s in central and southern states, and highs in the 40s to 60s in northern areas, NatGasWeather said. Late next week, cold air is expected to return, but it will likely be confined to the Midwest and Northeast as models show the cold front “not advancing as deep into the United States as the data showed Tuesday,” the firm said.
The dominant weather pattern is modeling warmer than normal out to Thanksgiving, a bearish headwind for gas prices. Yet futures have continued to march higher even as models shed demand estimates since Thursday, in contrast to the past 10 days when price moves matched weather trends, NatGasWeather said.
Futures have rallied despite one major model “trending a massive 25-30 heating-degree days warmer the past two days” and with both major models warmer than normal “much of the next 15 days. We must respect that prices are higher for other reasons, and record LNG exports are likely part of it.”
Indeed, liquefied natural gas feed gas volumes rose to a fresh six-month high this week, topping out at 14.7 Dth/d on Wednesday, and then lower around 14.5 Dth/d Thursday and Friday, according to NGI’s LNG Export Tracker.
In addition, hefty production remains an overhang and may have notched a new record above 104 Bcf/d, according to estimates by Wood Mackenzie and Bloomberg.
EBW Analytics Group’s Eli Rubin, senior analyst, echoed NatGasWeather’s bearish outlook.
“A milder weather outlook suggests risks of a meager sub-50 Bcf November withdrawal for only the second time in the past seven years. If storage lingers near 3,800 Bcf into Thanksgiving and production remains strong, it may be difficult to retain elevated Nymex winter contract risk premiums,” Rubin said.
Still, he noted that technicals are supportive for the prompt month as it is holding above its 20-day moving average around $3.482.
Futures have reached that level after grinding higher since Thursday morning when the U.S. Energy Information Administration (EIA) reported an in-line injection of 79 Bcf for the week ended Oct. 27. The injection lifted inventories to 3,779 Bcf, swelling to 205 Bcf, or 5.7%, above the five-year average.
The past week’s cold has raised the possibility that the next storage report could register a withdrawal from underground storage. Early estimates for the week ending Nov. 3 are split between a small draw or build. Early Reuters survey numbers range from a withdrawal of 21 Bcf to an injection of 79 Bcf, with an average injection of 21 Bcf for the week.
Traders have to wait a bit longer for clarity on recent storage activity. The next EIA report is expected to be delayed a week with the agency planning a systems upgrade for Nov. 8-9. As a result, EIA plans to release data on Nov. 16 for the weeks ended Nov. 3 and Nov. 10.
Analysts at The Schork Report relayed the frustration in the market with the delay coming right at a key juncture. “Why the EIA scheduled an update during the seasonal changeover from refills to withdrawals is a great question,” the analysts said. “Whatever the ElA’s logic, the decision not to publish” on Nov. 7 “will deny woebegone gas bulls from seeing this week’s strong gas furnace demand show up.”
By the time EIA publishes the reports, the warm-up in weather and resulting lower demand would likely be reflected in the storage data, the analysts said.
Physical Prices
Cash prices plunged Friday on the return of warmer weather across much of the country. After four straight down sessions, NGI’s Spot Gas National Avg. stood at $2.300, down more than a dollar from Monday’s $3.380.
Declines were steepest in California, where SoCal Citygate fell $1.540 day/day to average $5.990.
West Texas prices also fell fast. El Paso Permian fell $1.230 to 63.0 cents, while Transwestern fell $1.330 to average 50.0 cents.
El Paso Natural Gas declared a force majeure Thursday at the Roswell compressor station that began on Friday and was set to last until further notice, Wood Mackenzie analysts said. The outage was expected to reduce pipeline capacity and slightly loosen Waha volumes.
In the Midwest, Chicago Citygate shed 44.5 cents to $2.090. Southern Star in the Midcontinent fell 45.0 cents to $1.950.
Gains were few and scattered across the Northeast, South Louisiana and Appalachia. Tenn Zone 4 200L gained 8.5 cents to $1.795.
The volatility in California’s markets stems from its constrained pipeline capacity. In addition, an inline inspection of Line 4000 would cut in the Northern Zone capacity in the coming days, Wood Mackenzie said. Capacity for the area already has been limited by separate work on Line 235, expected to end Saturday, the firm said.
RBN Energy LLC analyst Sheetal Nasta said Friday that California’s price volatility would continue as long as pipeline capacity stays tight.
“For years now, transportation constraints for moving gas west of the Rockies and reduced gas storage capacity on the West Coast have been driving a wedge between the U.S.’s Western and Eastern gas markets,” she said. “Natural gas transportation constraints and gas supply shortages in the region, particularly California, have made it the highest-priced gas market in the country.”
Capacity cuts at Southern California Gas Aliso Canyon gas storage facility after a leak in 2015 also have contributed, she said.
Some constraints have eased, Nasta said. Most notably, the return to service of the major artery delivering Permian Basin gas supply to California — the Line 2000 segment of El Paso Natural Gas (EPNG) — returned in February after an 18-month outage. However, the state still remains vulnerable.
“We’re likely to see some price blow-outs this winter, during peak demand days, albeit perhaps not to the extent of last winter,” she said.
