Evidence of tightening in the South Central United States sparked a recovery in local May bidweek natural gas prices, while moderating weather extended the sell-off for other areas of the Lower 48. NGI’s May Bidweek National Avg. ultimately fell 16.0 cents from the previous month to $2.020/MMBtu.
The May 2023 bidweek average is a far cry from a year ago, when impressive early-season heat in the South, strong LNG demand in the wake of Russia’s invasion of Ukraine and soft production combined to lift May 2022 bidweek prices close to $7.000. This year, a mild winter has resulted in unusually high storage inventories that have mixed with stubbornly strong production to pressure prices to the downside. The May Nymex futures contract expired at $2.117.
Bearish natural gas market features abound, according to brokerage Powerhouse. The firm’s analysts noted that the spring shoulder season is “a no-man’s land of indecision.” To be sure, Nymex natural gas prices have been largely range bound in the lower $2.00 range for weeks.
Even as the late-season winter storms have pushed back significant cooling demand in the South, there are signs that supply/demand balances are tightening in the region. Home to vast liquefied natural gas exports, the South Central has seen its storage surpluses shrink over each of the past six weeks amid near-record LNG demand along with strong power burns. Low gas prices have resulted in a strong pull on gas for power generation even as weather demand remains lackluster for the time being. Both are seen fueling additional demand going forward, thereby providing support to prices.
The Energy Information Administration (EIA) showed total stocks in the South Central at 971 Bcf as of April 27, which is about 43% above year-earlier levels and about 32% above the five-year average.
Based on current forecasts, there’s about a week to go before temperatures in the region start to rise to levels that could meaningfully and sustainably bolster cooling demand – and further tighten balances. Until then, cooler-than-normal temperatures are forecast to advance into the South and Southeast, capping highs in the 70s to lower 80s. NatGasWeather said beginning May 7, the southern United States should see “warm to very warm” daytime temperatures in the upper 80s to low 90s.
Criterion Research LLC’s James Bevan, director of research, said power guidance in the Electric Reliability Council of Texas (ERCOT) shows regional loads pushing to more than 50 GW in about a week’s time. This is nearly on par with the demand spike observed last May. At the same time, ERCOT’s wind guidance is “relatively weak,” according to Bevan, “which could prompt higher thermal burns during the upcoming demand push.”
There’s also the potential for LNG demand to fluctuate in the coming weeks. Feed gas deliveries to Cameron LNG declined last week as the facility undergoes routine maintenance. Calcasieu Pass volumes also may ebb and flow as commissioning continues there ahead of full operations. Sabine Pass also may see inbound volumes decline based on an outage schedule for the Creole Trail pipeline.
That said, with the expectation for heat to soon begin building in the South, May bidweek prices across Texas rose by the double digits. Houston Ship Channel climbed 18.5 cents to $1.825, while Agua Dulce climbed to $1.845. Waha rose a more substantial $1.015 month/month to average $1.095 as a slew of pipeline maintenance events that took place last month concluded, allowing more gas to flow out of the region.
To the east, locations throughout Louisiana strengthened similarly. Henry Hub tacked on 12.5 cents on the month to average $2.115. In the Southeast, Transco Zone 5 picked up 16.5 cents to reach $2.295.
The price increases across the southern United States were in stark contrast to the rest of the country. With the arrival of warmer weather, prices continued to retreat for May baseload deliveries even as a host of pipeline maintenance events was scheduled to take place.
California prices fell hardest for May bidweek. SoCal Citygate plunged $2.825 month/month to average $5.055. Notably, this is about $2.00 higher than cash prices averaged on Friday.
That’s likely because Southern California Gas Co. (SoCalGas) is planning an inventory shut-in at the Aliso Canyon storage facility that would restrict injections and withdrawals from May 9-26. SoCalGas said injection capacity would be reduced by 545 MMcf/d during that time, while withdrawal capacity would be cut by 1,850 MMcf/d.
Farther north in the state, PG&E Citygate prices were down $1.365 on the month to average $5.315 for May bidweek.
The decline comes as Pacific Gas & Electric Corp. began maintenance Monday on its L401 pipeline, which has restricted 396 MMcf/d of flows through the Redwood Path. The work is scheduled through May 24.
Wood Mackenzie noted that Baja Path flows have recovered about 141 MMcf of these cuts day/day, led almost entirely by a sharp increase of 135 MMcf in receipts from El Paso Natural Gas.
“Redwood Path flows have averaged 2.14 Bcf/d in the past 30 days and maxed out at 2.32 Bcf on April 21,” Wood Mackenzie analyst Quinn Schulz said.
Prices declined throughout the Rockies and Desert Southwest as well, despite some production remaining offline after the most recent winter storms. Bloomberg data showed Rockies dry gas output at around 7 Bcf/d, off 1.7% from the weekend.
Northeast markets also softened month/month, with sub-$2.00 pricing seen throughout much of New England to New York.
Tudor, Pickering, Holt & Co. (TPH) said with modest weather demand and rising storage surpluses expected to materialize this spring over most of the Lower 48, it continues to see a loose setup for the North American natural gas market. However, with the 2023 curve having trended meaningfully lower this year, the firm’s analysts see less downside to the nearer term and – to a greater degree – modest downside to 2024 given the comparative resilience of the curve.
“We continue to see a ceiling of $2.75/MMBtu in 2023, with potential risks to a weaker setup should South Central remain loose given inventories year to date,” the TPH team said. “Alternatively, there is potential modest upside should weather prove supportive either this summer or upcoming winter.”
