More operational wobbles at the Freeport LNG terminal and worries of an expected bearish government storage print Thursday triggered another bout of selling in natural gas futures Wednesday.
At A Glance:
- Freeport LNG Train 3 trips
- EQT sees curtailments through May
- Analysts expect above-average build
The May Nymex contract dove around 10.0 cents in the morning as reported slowdown in operations at Freeport raised the prospect of more operational issues at the South Texas facility.
The prompt-month contract swooned further in the afternoon, to settle down 15.9 cents day/day at $1.653/MMBtu, its lowest close since March 26. The June contract, which takes over as the front month after Friday’s close, shed 11.5 cents to settle at $1.979.
Cash prices also fell Wednesday, with declines steepest in South Texas. NGI’s Spot Gas National Avg. fell 7.5 cents to $1.305.
The third train at the Freeport liquefied natural gas export terminal tripped offline Tuesday because of an issue with the main cryogenic heat exchange, which led to flaring. The event lasted about 22 hours until midday Wednesday, according to a Freeport LNG Development LP filing with the Texas Commission on Environmental Quality.
Freeport was estimated to take 433,236 Dth of feed gas deliveries Wednesday, or 17% of its capacity, according to NGI’s North American LNG Export Flow Tracker. Earlier nomination cycles showed only 5% capacity usage.
Total U.S. feed gas usage was estimated at 12.4 million Dth Wednesday.
“The huge storage surplus, and the possibility another Freeport situation will add to that surplus, is fueling the widening of the natural gas contango curve this morning,” Mizuho Securities USA LLC Energy Futures Director Robert Yawger said.
Prior to Wednesday, futures had posted two days of gains that had been powered in part by Freeport’s restart of its third train and overall rebound in U.S. LNG exports back above the 12 million Dth level.
“Any hiccup at Freeport is going to raise suspicions after the facility was shut for a long stretch of time for repairs in late 2023 into 2024,” Yawger said.
Storage Views
The other worry for the market was further swelling of the Lower 48’s surplus of working gas in storage, which stood at 2,333 Bcf, or 622 Bcf above the five-year average, after a 50 Bcf injection of natural gas into storage for the week ended April 12.
For Thursday’s U.S. Energy Information Administration (EIA) report covering the week ended April 19, NGI estimated an 86 Bcf inventory increase. A Reuters poll spanned injection estimates between 60 Bcf and 89 Bcf, with a median build of 83 Bcf. Bloomberg’s survey generated a build range of 70 Bcf to 91 Bcf and a median estimate of 83 Bcf.
Those expected builds would exceed last year’s 77 Bcf injection and a five-year average 59 Bcf build.
Notably, natural gas markets have recently shown signs of risk aversion ahead of the Thursday EIA prints. Prompt-month natural gas futures have declined in five of the last eight Wednesdays.
Adding to bearish outlooks, both major weather forecasts shed five to nine degree days since Tuesday, NatGasWeather said. The models kept in place stronger-than-normal demand over the next three days because of expected colder weather system tracking across the Great Lakes and Northeast, the forecaster said.
But weather forecasts remain “quite bearish” for April 27 to May 8 with most of the country expected to see nice conditions. Then from May 9-17, the weather pattern “favors a light to very light national demand pattern continuing” with a risk of cooling demand increasing above normal if summer conditions arrive early, the forecaster said.
Production Updates
EQT Corp., the largest U.S. natural gas producer, issued updated guidance Tuesday afternoon that it would keep 1 Bcf/d of production curtailments in place through May. It also said guidance “embeds future curtailment optionality dependent on market conditions.”
CEO Toby Rice on the company’s earnings call Wednesday morning said management believes “that you’re going to continue to see cuts and discipline from other operators.”
EQT cut output in late February and had said it would revisit that decision after March, but then kept the cuts in place.
Wood Mackenzie estimated Lower 48 gas production stood at 98.2 Bcf/d Wednesday. Most of Tuesday’s sharp output drop disappeared with revisions adding back 2 Bcf/d to earlier estimates, putting the day at 99.0 Bcf/d, the firm’s data showed.
However, even with the later-cycle revisions higher, the pace of production is running about 2 Bcf/d lower than a year earlier, at an average 99.8 Bcf/d over the past 30 days versus a year-earlier 101.4 Bcf/d similar average.
EBW Analytics Group analyst Eli Rubin said “the magnitude of gas production declines over the past two months – down as much as 7 Bcf/d from mid-February highs – is outpacing industry estimates, suggesting price upside later in the injection season.”
In the immediate term, mild weather is obscuring market impacts from stronger core fundamentals, which “bolster the case for summer optimism,” according to Rubin.
Cash Markets Fall
Spot natural gas prices declined Wednesday for Thursday deliveries, with the steepest declines in South Texas.
The S. TX Regional Avg. fell 20.0 cents day/day to average $1.230. The region serves the Freeport and Corpus Christi LNG terminals, the former of which has drawn significant attention with its restart and subsequent tripping this week.
Declines in Texas were not limited to the southern hubs. In East Texas, Katy was down 27.5 cents to $1.155. In West Texas, prices were mixed as nearly all the hubs managed to stay positive for a second day. El Paso Permian added 5.0 cents to average 4.0 cents.
Maxar’s Weather Desk called for temperatures possibly peaking warmer in Texas on Thursday, but with cloud cover limiting the temperature upside. Meanwhile, colder temperatures were expected around the Great Lakes region, the forecaster said.
National Weather Service (NWS) data shows chilly weather is forecast across the Northeast through the end of the week. Lows could dip below freezing Thursday morning, prompting freeze watches from the Lower Great Lakes to southern areas of New England, NWS said.
In contrast to that expected heating demand, cooling demand could increase across the midsection of the country. Most of the above-normal warmth is forecast throughout the Plains, with highs in the 80s across Southern Tier states until Friday, NWS said.
Rounding out the decliners Wednesday were the Rockies, Midwest, Midcontinent and California.
In the Rockies, KRGT Rec Pool dropped 10.5 cents to $1.255.
Hubs in Appalachia were mixed but down overall. Texas Eastern M-3, Delivery added 3.5 cents to $1.495. Tenn Zone 4 200L fell 10.5 cents to $1.355.
