Natural gas futures continued to slide midweek with the threat of another tropical disturbance keeping traders on guard even amid the ongoing heatwave suffocating much of the Lower 48. The September Nymex gas futures contract settled Wednesday at $2.497/MMBtu, off 6.3 cents on the day. October futures were down 6.0 cents to $2.592.
At A Glance:
- Hurricane risk in play
- Weather demand seen sliding
- Western cash falls further
Spot gas prices were mostly lower, with the significant sell-off continuing in the West. NGI’s Spot Gas National Avg. dropped 9.0 cents to $2.265.
Though the Global Forecast System (GFS) model trended a little hotter on Tuesday and additional cooling degree days (CDD) were seen in the overnight run, the risks of tropical storms hitting the Lower 48 are becoming a key focal point for the market.
Tropical Storm Harold gave Texas its first dose of the potential impacts a storm could have on gas demand. The storm was mostly a wind and rain event for the drought-stricken region, but it lowered temperatures and cooling loads, at least for a day. Tropical Storm Franklin, meanwhile, was on track to move across Hispaniola through Thursday. But its forecast track has the system moving eastward through the Atlantic thereafter and away from the Lower 48.
Nevertheless, the peak of the Atlantic hurricane season is underway and the potential for more storms to emerge in the warm waters of the Gulf of Mexico (GOM) are of critical importance to the gas market. In the densely populated South Central region, traders are aware of not only the reduced demand stemming from milder temperatures, but also the possibility of widespread power outages.
Last year’s Hurricane Ian, for example, significantly curbed demand in the Southeast as about one million Florida customers lost power. North and South Carolina, Virginia and Georgia also were impacted. In 2021, Hurricane Ida temporarily shuttered gas supplies from the Gulf of Mexico for weeks, while Hurricane Laura shut down the Cameron LNG facility for more than a month in 2020.
“While the near-term tropical forecast appears relatively benign with the majority of storms spinning out to sea, it only takes one major landfalling hurricane to reset the natural gas market trajectory,” said EBW Analytics Group’s Eli Rubin, senior energy analyst. “Risks will remain elevated over the next 30-45 days before retreating modestly into October.”
For Now, Just Hot
Mother Nature has proven to be a stubborn old bird, unrelenting in the punishing heat she’s brought to Texas with little relief in sight. What’s more, at least some weather data is showing widespread heat may return.
NatGasWeather said the midday GFS model run on Wednesday was a little hotter for late this weekend and next week, adding a modest 3 CDDs. However, it was cooler for the Aug. 30-Sept. 2 period, which notably precedes an expected dip in demand over the Labor Day holiday weekend.
Importantly, the overnight European model was 5 CDDs cooler and now much cooler than the GFS. As such, NatGasWeather expects “the natural gas markets won’t bite on hotter trends in the GFS model” unless the European data were to trend hotter to match it.
“For now, the first week of September is likely to be viewed as hot enough,” the firm said.
With no tropical threats in the near term, the firm said the net result of recent and coming weather patterns is for storage surpluses to five-year average slowly but gradually tightening from 299 Bcf to 225-200 Bcf.
Estimates ahead of the next government inventory report support this theory. After chipping away at the surplus since the start of the injection season, Thursday’s Energy Information Administration’s (EIA) report is likely to reflect another smaller-than-normal injection.
A Wall Street Journal survey produced injection estimates from 29-39 Bcf, with an average build of 33 Bcf. Reuters polled 13 analysts, whose estimates ranged from injections of 27 Bcf to 50 Bcf, with a median increase of 31 Bcf.
NGI modeled a 29 Bcf injection.
For comparison, the EIA recorded an increase in stocks of 54 Bcf in the same week last year. The five-year average increase is 49 Bcf.
California Cash Below $3
Spot gas prices were mixed on Wednesday, but huge losses in the West outshined the modest price increases seen for a handful of locations.
The double-digit price declines sent California prices – at unprecedented levels this past winter – plunging below $3.000 at some locations. The SoCal Border Avg., for example, dropped 30.0 cents on the day to average $2.615 for Thursday’s gas day.
El Paso S. Mainline/N. Baja caught up with the rest of the region, falling by a much steeper 44.5 cents than the prior day and averaging $2.535 for Thursday delivery.
In the Rockies, Questar was the biggest mover as it slid 25.0 cents to $2.200. Several locations in the region fell by the single digits.
Northeast prices were off less than 20.0 cents on the day, with one location approaching sub-$1.00 levels. Niagara dropped 14.0 cents to $1.025. PNGTS averaged $2.215 after sliding 8.5 cents.
Meanwhile, Tennessee Gas (TGP) on Wednesday started anomaly remediations between MLV 244-2 to MLV 245-2, cutting forward haul segment 245 capacity by 233 MMcf/d. Specifically, this maintenance, scheduled through Saturday, would cut eastbound volumes on Leg 500 through segment 245 in Otsego County, NY.
Compared to timely nominations for Wednesday, about 131 MMcf/d are likely to be cut, according to Wood Mackenzie. TGP indicated that secondary in-the-path services may be at risk during the maintenance.
“Over the past 30 days, forward haul flows through segment 245 averaged 827 MMcf/d and maxed out at 959 MMcf on Aug. 1,” Wood Mackenzie analyst Quinn Schulz said.
Upstream in Appalachia, Transco-Leidy Line was down 23.5 cents on the day to average 99.0 cents.
Elsewhere across the country, Henry Hub slipped only 1.5 cents on the day to average $2.590, while Katy lost 6.5 cents to average $2.370. Chicago averaged $2.340 after sliding 8.5 cents day/day.
