Natural gas futures rallied on Tuesday, marking a stark reversal from the start of the week, as both LNG and near-term domestic-weather demand held strong and production ticked lower.
At A Glance:
- Output below 102 Bcf/d
- Weather outlook mixed
- LNG calls holding strong
Coming off a 13.1-loss on Monday – its first day as the front month – the December Nymex gas futures contract settled at $3.575/MMBtu on Tuesday, up 22.3 cents day/day.
NGI’s Spot Gas National Avg. shed 12.5 cents to $3.255, easing back after Monday’s 48.5-cent surge and big gains last week.
Production was just under 102 Bcf/d, according to Wood Mackenzie’s Tuesday estimate. That was more than 1 Bcf/d lower than peak readings last week, due in part to freeze-offs in the Rockies.
On the demand side, futures traders were spooked Monday by shifts in the weather outlook for November that showed mild conditions across vast sections of the country during the first half of the month. That forecast largely held as trading commenced Tuesday. The latest data, though, showed a cold system sweeping through the Midwest and Northeast Nov. 9-11. It could add a heaping dose of strong demand in the two regions that tend to consume lofty levels of gas to power furnaces, NatGasWeather said.
In the meantime, frigid late-autumn conditions and seasonally strong heating demand continued to permeate the northern half of the country, with freezing overnight lows. This spanned from the Mountain West through the Midwest and was pushing into the Northeast. Such conditions bolstered both cash prices and futures last week, and the bull run resumed on the futures front Tuesday. NatGasWeather said the frozen conditions slowed Rockies production early this week and added to price momentum.
“If not for very light demand this weekend into early next week and again Nov 12-15, the pattern would be more intimidating,” the firm said.
Additionally, as EBW Analytics Group highlighted, steady liquefied natural gas demand proved a strength for prices throughout the second half of October. Export volumes rebounded in the span after fall maintenance projects culminated and capacity came back on online.
LNG feed gas demand crossed above 14.0 Bcf/d to start this week “to probe a two-week high,” EBW’s Eli Rubin, senior analyst, said Tuesday.
LNG Momentum
He also noted that the Federal Regulatory Energy Commission granted approval for Freeport LNG to commission most facilities required to restart its second loading dock, which had been forced out of service 16 months after a fire at the Gulf Coast export plant.
“The second loading dock could increase operational flexibility and raise Freeport feed gas consumption 20% or more,” Rubin said.
Global LNG demand could be choppy in the near term, as both Europe and parts of Asia are stocked up on gas for an average winter. Still, should the coming heating season grow harsh or prove lengthy, conditions could change quickly. At the same time, global markets are sensitive to any news about supply disruptions with both the ongoing Russian invasion of Ukraine and the October breakout of war between Israel and Hamas in the Middle East impacting regional supplies of gas.
“No question, there’s a very real potential for major escalation of war in the Middle East, and if that happens, there will be all kinds of energy wildcards that could shake up markets,” head trader Mike Matousek, at U.S. Global Investors, told NGI.
The elevated tensions emerged ahead of an expected jump in demand for U.S. exports in 2024, when new LNG facilities are expected to come online along the Gulf Coast, he added. The increased LNG demand explains why production, while down a bit this week, has held strong and near record levels around 104 Bcf/d through most of this year. “The supply is strong, but it’s going to be needed,” Matousek said.
In the near term, strong production resulted in robust levels of gas in storage. Analysts expect that the next government inventory report, scheduled for release on Thursday, will show that remained the case through October.
Early injection estimates submitted to Reuters for the Energy Information Administration (EIA) storage report covering the week ended Oct. 27 averaged 81 Bcf. NGI modeled a build of 82 Bcf. That compares with a five-year average of 57 Bcf.
EIA’s most recent inventory print, an injection of 74 Bcf for the week ended Oct. 20, boosted gas in storage to 3,700 Bcf, keeping stocks above the five-year average of 3,517 Bcf.
Spot Prices Soften
Next-day cash prices pulled back across the nation’s midsection on Tuesday – after several days of robust, weather-driven gains.
National Weather Service (NWS) data showed chilly rains and snow continued to permeate the northern tier of the Lower 48, bringing sub-freezing low temperatures to the Rockies and the Midwest. Chilly overnight temperatures in the 30s were in the cards for the rest of the trading week in the Northeast as well.
The cold weather also pushed to the South. Nighttime lows in the 30s already reached as far south as Dallas on Tuesday and more of the same was forecast for Wednesday and Thursday.
The conditions had bolstered prices over several sessions, but mostly modest corrections materialized on Tuesday.
Defiance in the Midwest fell 11.5 cents day/day to average $2.950, while Waha in Texas shed 11.0 cents to $2.460.
Prices also dropped in the Rockies and pressured the national average, but they remained elevated overall. Kingsgate fell 31.0 cents to $5.450, and Northwest Sumas lost 86.0 cents to $5.385.
With the cold weather arriving in the Northeast, prices there climbed. Algonquin Citygate jumped $1.005 to $4.060, while Tenn Zone 5 200L rallied 68.5 cents to $3.685.
The early blast of wintry weather, however, is forecast to ease by the weekend, when milder conditions will set up over the Mountain West and the nation’s midsection for likely lighter demand, the NWS data show. Next week, northern markets could see highs in the 50s and 60s and vast expanses of the South could enjoy daytime peak temperatures from the 60s to 80s.
