Natural gas futures fell on Monday for a third session, undermined by tapped down demand forecasts for this week’s cold and production volumes near or at new all-time highs. The December Nymex natural gas futures contract settled at $2.882/MMBtu, down 7.8 cents from Friday’s settlement.
At A Glance:
- Prompt month falls for third session
- Production above 105 Bcf/d
- NGI models 4 Bcf injection
NGI’s Spot Gas National Avg. rose 13.0 cents to $2.800, led higher by a price surge in West Texas where Permian Basin output is pacing near record levels despite maintenance and as a major artery to the West prepares to ramp up an expansion.
Futures’ selling pressure came after the latest weather model runs shed heating degree day (HDD) demand estimates since Friday, NatGasWeather said. The two models, which have swung wildly back and forth on their predictions for late-November temperatures, trended warmer over the weekend. The European model, in particular, was “down a hefty 18 HDD since midday Friday,” the firm said.
With the moderation of this week’s chill, national demand “won’t impress” with temperatures expected to stay near seasonal levels over the next five days, according to NatGasWeather. The forecasts retained a cold shot over this weekend, followed by much chillier air that could send lows well below freezing in the northern half of the country and generate strong demand next week, the firm said.
In addition to the bearish tilt in forecasts, markets Monday also felt the lingering effects of last week’s surprisingly high 60 Bcf injection in the storage report for the week ending Nov. 10, NatGasWeather noted. In addition, the market was bracing for the upcoming storage report to possibly show storage surplus levels surge near 255 Bcf, the analysts said.
The U.S. Energy Information Administration (EIA) is scheduled to release its weekly storage report on Wednesday at noon ET, a day earlier than usual because of the Thanksgiving holiday. For this week, NGI modeled an injection of 4 Bcf into gas in working storage.
Preliminary estimates submitted to Reuters for the week ending Nov. 17 ranged from a withdrawal of 20 Bcf to an injection of 16 Bcf, with an average build of 5 Bcf.
The estimates compare with a 60 Bcf withdrawal a year earlier and the five-year average of a 53 Bcf withdrawal.
Looking ahead to the storage report for the week ending Nov. 24, this week’s cold could still be enough to push this week into withdrawal territory, Criterion Research LLC’s James Bevan, vice president of Research, said on the online platform Enelyst.
“We should see some decent early-week demand before the Thanksgiving holiday” and strong daily demand highs near 25-26 Bcf in the final week of November, he said. One factor complicating the storage trend for Thanksgiving week is the drop-off in demand over the holiday that makes the exact build or draw call “hard to tell,” according to Bevan.
Supply Marches Higher
Against the weather backdrop, Lower 48 gas supply remains flush above 110 Bcf/d with production at or near all-time highs and November imports from Canada running strong.
Total gas production rose to 105.7 Bcf/d on Sunday, and was estimated to hold near that level at 105.5 Bcf/d on Monday, Wood Mackenzie estimated. Meanwhile, Canadian gas imports are running 1 Bcf/d stronger than a year earlier above 5 Bcf/d, according to analysts at the Mobius Risk Group.
“While repeated dry gas production records are beginning to sound like a broken record,” the incremental 3.0 Bcf/d increase in national gas flows over the past six weeks “may be the most consequential non-weather fundamental development this year,” EBW Analytics Group analyst Eli Rubin said.
Daily production records have been printed in the Appalachia and Permian basins, Rockies and now in the Bakken Shale over the past month, he said. He reiterated his caution that the rise could not be durable because the Northeast may soon reverse its gains into mid-winter.
Much of the growth has been driven by gains in the South Central region, which quickened by 0.4 Bcf/d over the weekend to 54.8 Bcf/d, according to Bevan. Usually output slows after the weekend, but with maintenance easing in Texas on Monday, early cycle nominations were pointing to another potential record Monday, he said.
“We could see an even higher push from the Permian Basin Tuesday as Gulf Coast Express (GCX) ends a planned maintenance event,” he said. Work on the GCX pipeline was expected to end Monday.
West Texas Rallies
Next-day cash prices rose on Monday led by a surge in prices in West Texas as well as more modest gains in the Rockies and California. Declines were centered in eastern and South Texas, the Midwest, Northeast and Appalachia.
The West Texas/Southeast New Mexico regional average surged $1.600 day/day to an average $1.915, with all hubs trading positive after three saw negative trades on Friday. Among the top gainers, El Paso Permian rose by $1.735 day/day to an average $1.945.
One factor could be early commissioning of flows along the Permian Highway Pipeline LLC (PHP), a major route for Permian Basin gas to the Southwest and Southern California. The PHP is scheduled to bring a 0.55 Bcf/d expansion online by Dec. 1. With that schedule, PHP flows “will be important to watch through the end of the month,” according to Criterion’s Bevan. Deliveries into the PHP remained in line with the summer range of 0.5-0.6 Bcf/d, he said.
Undercutting demand for gas in Texas, the state’s wind generation was forecast to “have a banner showing” Monday and Tuesday near 20 GW or higher, then crash down near 5 GW mid-week, according to Bevan.
Malin in California led all decliners, down 50.0 cents to $5.350. Not far behind were the Rockies’ Stanfield and Northwest Sumas both down 46.0 cents to $5.330 and $4.805, respectively, and the Northeast’s Algonquin Citygate down 46.5 cents to $3.085.
The SoCal Citygate and SoCal Border Avg. price differential widened for a second day to 96.5 cents Monday, with SoCal Citygate rising 35.0 cents to $5.855 and SoCal Border Avg. gaining slower up 7.0 cents to $4.890. The spread hit a two-month low of 60.0 cents Thursday.
Southern California Gas Co. (SoCalGas) topped up its core storage levels to 77.6 Bcf by Nov. 9, NGI Senior Energy Analyst Josten Mavez said. That’s after eight months of injections — at an average 1.37 Bcf/week — from just under 32.5 Bcf at the end of last winter, its lowest level in three years, according to Mavez.
Over that time, the SoCal Citygate-SoCal Border Avg. price differential averaged $2.137, much higher than the historic average spread of 78.0 cents going back to January 2020 through this past March, Mavez said.
