Natural Gas Futures Blast Higher as LNG Demand Climbs, Cash Prices Surge - Natural Gas Intelligence

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After sinking near the 200-day moving average at the end of last week, natural gas futures bounced back with a vengeance Monday thanks to stronger liquefied natural gas (LNG) feed gas demand and strong cash prices. The November Nymex gas futures contract hit a $2.727/MMBtu intraday high before settling at $2.615, up 17.7 cents from Friday’s close. December jumped 17.0 cents to $3.161.

Spot gas prices recovered from pre-weekend lows with stout gains out across the country. The largest gains were out West, which helped boost NGI’s Spot Gas National Avg. up 49.0 cents to $1.590.

ICAP Technical Analysis’ Brian Larose said he needed the bulls to lift gas above Thursday’s $2.592 high in order to have a case for bottoming action. “Should the bulls get the job done, we will have to quickly reevaluate the upside risk.”

However, any follow-through after Monday’s surge may be difficult to achieve in the near term. The market continues to face a barrage of unsupportive factors.

On the weather front, there were only small forecast changes to the latest long-range models, but they pointed to even lower demand, according to Bespoke Weather Services. The firm continues to project a tame weather pattern for October, which is on pace for one of the lowest-demand Octobers in Bespoke’s historical dataset, based on total gas-weighted degree days.

There are, however, some interesting aspects of the pattern to point out, according to the forecaster.

“Demand in the South Central region actually steps up notably this week with some cooling degree days back in play, which could factor into Henry Hub pricing,” Bespoke said.

Meanwhile, recent runs of the American weather model suggest a possible cooler trough swinging into the central United States around the middle of the month, which would boost demand. Bespoke also is keeping an eye on the tropics, particularly the rapid strengthening of Tropical Storm Delta, which could threaten onshore LNG and offshore production in the Gulf of Mexico (GOM).

In its 2 p.m. update, the National Hurricane Center (NHC) said Delta was forecast to approach the northern Gulf Coast late this week, potentially making landfall in Louisiana as a Category 2 storm. While there is large uncertainty in the track and intensity in forecasts, the NHC said there is an increasing risk of dangerous storm surge, wind and rainfall hazards along the coast, from Louisiana to the western Florida Panhandle.

BP plc told NGI on Monday afternoon that it is “closely monitoring” Delta. With forecasts indicating the storm is to become a hurricane and move across the central and northeastern GOM in the next few days, “we are taking steps to respond.

“BP has begun securing its offshore facilities and evacuating nonessential personnel from our four offshore platforms,” spokesperson Megan Baldino said. “Safety is our top priority, and we will continue to monitor weather conditions closely to determine next steps.”

BP operates the Atlantis, Mad Dog, Na Kika and Thunder Horse platforms in the GOM.

While lower production resulting from the expected storm could boost prices, weaker power burns stand to deliver a blow, according to Bespoke.

Still, gas bulls were undeterred in resuscitating gas prices, salivating on the news that an LNG tanker had arrived at Sempra Energy’s Cameron terminal over the weekend. The Hackberry, LA, facility had been shut down since late August, ahead of Hurricane Laura’s landfall, and had finally resumed operations last week.

“The speed with which Sempra will be able to ramp up production at Cameron remains unclear,” said EBW Analytics Group.

With Freeport operating three trains, though, and Sabine Pass already close to 4 Bcf/d, the return of feed gas at Cameron could “start to tighten up the cash market and reduce fears regarding the continued increase in South Central storage,” the firm said. This should allow the forward curve to recover a “significant share” of its recent losses.

NGI’s U.S. LNG Export Tracker showed feed gas deliveries climbing to around 7.6 Bcf on Monday, up from about 7.5 Bcf on Friday.

Tuesday may bring a temporary blip in feed gas flows. Genscape Inc. said Creole Trail Pipeline (CTPL) had scheduled for Tuesday a single-day, unplanned maintenance event at the Gillis Compressor Station. Once CTPL begins the cooldown process, throughput capacity on the pipeline would be reduced from 1.5 Bcf/d to 0.9 Bcf/d, curtailing 340 MMcf/d based on evening cycle nominations for Monday’s gas day.

Sabine Pass has other options to source its gas, but maintaining current feed gas levels would necessitate increased flows from Natural Gas Pipeline Co. of America, Transcontinental Gas Pipe Line and Kinder Morgan Louisiana Pipeline, Genscape said.

LNG demand aside, Powerhouse analysts said the storage overhang is too steep to brush aside. Chairman Alan Levine pointed out that the average rate of injections into storage is 6% higher than the five-year average so far in the refill season, which runs through Oct. 31. 

If the rate of injections into storage matched the five-year average of 10.3 Bcf/d for the remainder of the refill season, total inventory would be 4,128 Bcf on Oct. 31. This is 405 Bcf higher than the five-year average of 3,723 Bcf for that time of year, which, interestingly, is exactly where the surplus stood as of Sept. 25, according to the Energy Information Administration.

However, EBW analysts said even if milder-than-normal weather continues into early November, space heating demand is still likely to increase significantly. This is because hours of sunlight continue to decline seasonally.

“In the current structurally undersupplied market, storage draws could start in early November and continue to increase later, ending storage concerns and driving up prices,” EBW said.

Morgan Stanley researchers also painted a bullish picture for gas going forward. Record production declines from sharp reductions in exploration and production (E&P) spending combined with rebounding demand, led by recovering LNG exports, is forecast to create the tightest gas market of the past decade.

The Morgan Stanley team, led by equity analyst Devin McDermott, said this winter’s storage withdrawals could potentially eclipse those seen during the Polar Vortex winter of 2013-2014, with a growing shortfall expected through next summer.

“Assuming normal 10-year weather, we expect tight end-March inventories of around 1.2 Tcf, roughly 35% below the five-year normal of around 1.8 Tcf, with a mounting deficit thereafter,” Morgan Stanley analysts said.

A colder-than-normal winter, meanwhile, could lead to the lowest U.S. gas inventory levels on record, according to researchers. This may spark “a material price rally to $5/MMBtu or higher, and average in the mid-$4 range for full year 2021.”

Blast Boosts Cash

Spot gas prices were significantly higher Monday, led by gains of more than $1.00 in the West, where a few more days of intense heat were in store before a much cooler shift in the weather pattern is expected.

SoCal Citygate next-day gas shot up $1.755 to average $4.030, while prices across Northern California and throughout the Pacific Northwest also surged. Northwest Sumas jumped $2.945 to average $4.585 on reduced imports from Gas Transmission Northwest from planned maintenance.

In Texas, Houston Ship Channel spot gas surged 44.0 cents to average $1.820, while larger gains were seen farther south. The Permian Basin’s Waha hub climbed a much smaller 13.5 cents to average 10.5 cents for Tuesday’s gas day.

Henry Hub was up 58.5 cents to $1.920, within a dime or so of most gains in the Southeast.

In Appalachia, Columbia Gas jumped 56.6 cents to $1.370, a move that marked the biggest gain across the region and one that could be tied to planned maintenance.

Beginning Tuesday, Columbia Gas Transmission (TCO) is scheduled to perform planned pigging maintenance on MXP Line 100 in West Virginia through Oct. 13, which could cut up to 536 MMcf/d of southbound flows, according to Genscape Inc. Furthermore, capacity through the Sherwood B MA42 throughput meter is to be reduced to 913 MMcf/d on Oct. 13, translating to potential flow cuts of up to 447 MMcf/d.

“Northern West Virginia and southwestern Pennsylvania are major production zones for TCO,” Genscape analyst Anthony Ferrara said. “Although a large amount of flows out of that area is being restricted through MXPSEG MA42 and Sherwood MA42 on specified days, some reroutes are possible. Gas is still able to flow southbound on the R System (west of MXP) or the T System (east of MXP).”

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