Natural gas futures continued their winning ways on Monday, advancing for a third straight day amid supply curtailments, improving LNG levels and forecasts for late-May heat.
At A Glance:
- Production hovers at 97.5 Bcf/d
- Feed gas volumes add strength
- NGI models 77 Bcf storage build
After gaining more than 20 cents over the final two trading sessions of last week, the June Nymex gas futures contract settled at $2.195/MMBtu on Monday, up 5.3 cents day/day.
NGI’s Spot Gas National Avg. shed 4.5 cents to $1.345. Prices were up across most of the country, but hubs in the volatile West Texas region plummeted anew into negative territory on Monday, dragging down the national average.
Production on Monday averaged 97.5 Bcf/d, according to Wood Mackenzie’s latest estimate, down from the 30-day average near 99 Bcf/d and far from the record level around 107 Bcf/d reached early this year. Multiple producers pulled back over the past two months to balance the market following a mostly mild winter that left demand trailing supply.
At the same time, a spate of spring maintenance work that curbed demand from liquefied natural gas facilities along the Gulf Coast showed at least glimmers of light at the end of the tunnel. This included Freeport LNG in Texas, which at points in April had all three of its trains offline for repairs.
“Freeport showed a little further strength in feed gas over the weekend, exceeding 1 Bcf for the first time in months,” NatGasWeather said.
RBN Energy LLC analyst John Abeln said Freeport’s return to full capacity is still in the cards for this month.
“The year so far has been a rocky one for the terminal, which has been operating three, two, one or zero trains depending on the day,” Abeln said. “Flows to the terminal averaged just 0.14 Bcf/d for the week ended April 30,” but inched up in recent days, and maintenance is “due to finish soon.”
Wood Mackenzie pipeline flow data showed deliveries to the Freeport terminal totaled around 1.3 Bcf/d as of Monday. NGI data showed total LNG volumes topped 12 Bcf/d to start the trading week, up from spring lows below 10 Bcf/d.
NatGasWeather said the near-term outlook was mixed as trading commenced Monday, with mild northern conditions but summer-like heat this week in Texas and other southern regions. The firm said demand was expected to ease next week as spring storms usher in cooler air across much of the Lower 48, including Texas, but then more widespread heat could arrive late in the month and become entrenched in June.
Carley Garner, senior broker and analyst at DeCarley Trading, told NGI Monday that funds invested in the natural gas market remained net short late last week and to start this week. As such, short covering accounted for at least some of the bullish sentiment undergirding prices in recent sessions.
“Anyone net short is probably second-guessing themselves,” she said. “I do think that gave us a bit of a boost.”
While some volatility is inevitable, Garner said prices could climb above $2.60 this summer and toward the $3.00 level next winter as the pullback in supply intersects with peak demand seasons.
“But bulls shouldn’t get ahead of themselves,” Garner added. “This is not the bull market of 2021-2022” when futures peaked near the $10.00 level.
Storage Estimates
The market is now set to scrutinize the next U.S. Energy Information Administration (EIA) storage print for further insight into supply/demand balance – or imbalance.
Early estimates submitted to Reuters for the EIA report covering the week ended May 3 spanned a wide range, from injections of 50 Bcf to 100 Bcf. NGI modeled a 77 Bcf build. The estimates compare with a five-year average increase of 81 Bcf.
EIA reported an injection of 59 Bcf for the week ended April 26. It was well below historical results, reflecting the lower production. EIA said the five-year average increase was 72 Bcf.
The latest injection lifted inventories to 2,484 Bcf. That put stocks 35% above the five-year average, but the surplus did shrink by two percentage points from the prior week thanks to the lighter production volumes.
Storage surpluses aside, EBW Analytics Group’s Eli Rubin, senior analyst, said upward price momentum this week “could catalyze a rally that accelerates medium- to long-term upside. Immediate-term fundamentals could receive a boost this week with Texas heat elevating regional power burns…If LNG can edge higher, a boost from laggard Henry Hub physical pricing may reinforce upward momentum for Nymex gas.”
Cash Prices
Spot gas prices advanced nearly everywhere on Monday – except West Texas. Prices in the region spent most of April in negative territory amid robust associated gas production in the Permian Basin – generated alongside oil, for which prices are higher – and limited takeaway capacity that was exacerbated by repair projects.
Some maintenance work drew to a close early this month, and Permian benchmark Waha prices crawled back into positive territory last week. But more projects got underway this week and supply backed up again, forcing suppliers to pay to have gas taken away. Waha prices on Monday plunged $4.865 to average negative $4.595. Prices flipped to negative across West Texas, with El Paso Permian down $4.160 to negative $3.885.
“Associated gas primarily from the Permian has remained plentiful as many operators are able to continually be profitable with their drilling even in the current low-priced environment” for gas, “due to the strength of oil prices,” analysts at Gelber & Associates said. But, they added, producers are taking big hits on associated gas.
Elsewhere on the maintenance front, Wood Mackenzie analyst Kevin Ong said Transcontinental Gas Pipe Line Co. (Transco) on Monday began maintenance on its Compressor Station 60 that was expected to extend throughout the week. It could reduce northbound flows by nearly 600,000 MMBtu/d to 900,000 MMbtu/d. Southbound flows are not impacted.
Ong said the work impacted prices at two Southeast hubs in particular: Transco Zone 4 jumped 77.0 cents to $2.630, and Transco Zone 5 spiked 73.0 cents to $2.680.
Wood Mackenzie also noted a series of Western Canadian repair and upgrade events that affected flows in the region on Monday. The work is ongoing this week. Westcoast Station 2 averaged C$1.405 /GJ on Monday, up C52.0 cents.
NatGasWeather said highs of 60s-80s would rule much of the country this week and next, though local heat in the 90s and low 100s could bake Texas and neighboring states in the South, getting air conditioners cranking in heavily populated markets such as Houston and Phoenix. Cooler air in the 40s and 50s could also permeate the Rockies and Northwest, generating some late season heating demand, the firm said.
While spring storms could dampen demand as they cross the Lower 48 next week, NatGasWeather said much of the West was projected to see “warm to very warm w/highs of 70s-90s as high pressure strengthens.” Those conditions are expected to spread to the central and eastern reaches of the country later in May.
