After a brief move into positive territory on Friday, the weight of bloated natural gas storage inventories and the seasonal lull in demand ahead of winter proved too much for Nymex futures to overcome. The November contract capped off another volatile week firmly in the red, closing at $2.438, down 8.9 cents. December fell 7.1 cents to $2.991.
Spot gas prices also continued to slide across much of the country, sending NGI’s Spot Gas National Avg. tumbling 21.0 cents to $1.100.
With cool air starting to spread across the country, summer heat has come and gone for most states outside of the West. The lower demand period, coupled with lagging liquefied natural gas (LNG) feed gas deliveries, crippled futures significantly over the past week.
However, some analysts said the correction was overdue, since U.S. storage is sitting at record highs for the time of year and any substantial resumption of demand is several weeks away.
On Thursday, the Energy Information Administration (EIA) reported that inventories for the week ending Sept. 25 grew by 76 Bcf. This lifted total stocks to 3,756 Bcf, 471 Bcf higher than last year and 405 Bcf above the five-year average, according to EIA.
Tudor, Pickering, Holt & Co. analysts noted that although storage levels are at their highest seasonal level in the past 10 years, “things are about to change.” They expect the surplus to the five-year average, which has hovered around 390 Bcf for the past month, to contract to roughly 200 Bcf by the end of the year. The coming week marks the inflection point, analysts said. They are looking for a build of 65 Bcf, versus norms of 90 Bcf.
Warm October
Weather isn’t likely to assist in helping improve balances for a while longer. The latest long-term forecasts showed warmth spreading into the East into the middle third of October. This results in weak demand via reduced heating degree days, but also with the West cooling, there are fewer cooling degree days, according to Bespoke Weather Services.
“We still feel the signals suggest the warmer pattern holding into the back half of the month, and likely into at least the start of November as well,” the forecaster said.
Bespoke also is watching the tropics more closely, as a system in the western Caribbean was attempting to develop. “This likely winds up in the southern Gulf of Mexico, though its ultimate track is unclear. At the least, it could impact LNG shipping lanes.”
In a 2 p.m. CT update on Friday, the National Hurricane Center said Tropical Depression 25 was forecast to become a tropical storm on Saturday, bringing heavy rainfall to portions of the Yucatan Peninsula. On the storm’s track, it would move into the Gulf of Mexico in the next several days.
Unclear LNG Demand
More help in restoring supply/demand balances could come from LNG. Energy Aspects expects the 13.5 million metric tons/year (mmty) Cameron, LA, facility to restore output by mid-October. The firm noted that the barrier for Cameron to resume exports is the ability for laden vessels to exit the Calcasieu Ship Channel.
“We only expect this to be possible after dredging work is completed” by next Thursday (Oct. 8), “with offtakers from the facility expecting the first loading” by Oct. 10, Energy Aspects said. “We expect full output from the plant by end-October,” in line with operator Sempra Energy’s guidance, which would allow maximum U.S. exports of around 6.1 mmt in November, a year/year climb of 2.1 mmt.
However, the rise of U.S. gas export supply this month may put a damper on LNG spot price increases, according to the firm. In addition to the planned early restart of some currently shutdown nuclear generators, Energy Aspects said China’s oil-indexed gas from Central Asia could hit its least expensive point by near the end of the year. That in turn could trigger a rebound in PetroChina’s pipeline import purchases.
“This has caused us to lower our estimate for China’s 4Q2020 LNG take by around 1 mmt, which would bring aggregate Chinese imports over the year to around 67 mmt (91 Bcm), broadly in line with recent estimates given by China’s National Energy Administration,” Energy Aspects said.
TPH analysts also noted increased pipeline flows in Europe, which are set to get less expensive because of the lagged indexation to Brent crude. Italian pipe imports from Libya and Algeria continued to push higher, hitting 2.1 Bcf/d on Thursday, the highest level since February 2019, according to the analyst team.
Furthermore, Russia’s Power of Siberia pipeline, which has been flowing at only around 0.45 Bcf/d since it entered service in December, is scheduled to ramp up to around 1.0 Bcf/d in 2021 and 1.5 Bcf/d in 2022, TPH said. The pipeline has a full design capacity of 3.7 Bcf/d.
Nevertheless, Bespoke said the entire curve getting pummeled “makes little sense given that the fundamental picture looks much different once at the end of injection season.” Still, the firm noted the market has tended to act in “rather illogical ways” over the last several weeks.
“While the weather picture isn’t great for bulls, contracts beyond November are at a growing risk for a snap back higher,” Bespoke said. “It’s just a matter of when the market decides to let the November contract completely disconnect from the rest of the curve, the timing of which is difficult to pinpoint.”
Falling West
Amid the sea of red across Lower 48 spot gas markets, the West stood out with a much more bearable weather outlook starting to emerge for the region.
AccuWeather forecasters said “vital rain and cooler conditions” were in store for the region. In recent weeks, a large northward bulge in the jet stream largely has kept moisture from the Pacific locked out of the region; however, a major shift is expected to occur, according to the forecaster.
“It appears the northward bulge will move toward the Central states and a corresponding southward dip will advance eastward from the central Pacific to along the West Coast of the U.S.,” AccuWeather senior meteorologist Brett Anderson said. This setup may help not only to drive moisture inland from the Pacific but also to lower temperatures to as much as one-third of the nation.
“While it is too early for all the details as to what could unfold, the pattern should at least bring some cloud cover, higher humidity levels and lower temperatures throughout the Pacific Coast states and perhaps to areas east of the Sierra Nevada,” said AccuWeather senior meteorologist Alex Sosnowski. “At this time, the best chance of showers appears to be from Northern California to Washington.”
The timing of the cooler weather couldn’t be better.
Pacific Gas & Electric was set to start maintenance Sunday on Line 400, limiting more than 250,000 Mcf/d of southbound flows. Redwood Path flow capacity would be restricted to 1,683 MMcf/d through Oct. 15, according to Genscape Inc. Capacity would then rise to 1,709 MMcf/d for the final two days of the work.
“For reference, Redwood Path flows averaged 1,951 MMcf/d during September, with a maximum single-day flow of 2,135 MMcf/d,” Genscape analyst Joseph Berndardi said.
The planned pipeline work appeared to factor in PG&E Citygate price behavior, with spot gas slipping only 6.0 cents to $3.575. By comparison, Malin and SoCal Citygate each fell by more than $1 day/day.
Sub-Zero Permian
With little demand in other downstream markets, Permian Basin prices had been teetering on the edge. However, with the cooler turn in western forecasts and subsequent plunging prices throughout the region, the play returned to negative territory.
Waha cash prices averaged minus 3.0 cents after falling 39.0 cents day/day. A couple of other regional hubs managed to remain above zero, but not by much.
Other Texas markets also fell hard in trading for the three-day period through Monday. Katy hub dropped 26.0 cents to $1.375.
In the Midwest, where chilly air was pushing in from Canada, Chicago Citygate spot gas prices dropped 21.5 cents to $1.060. Similar losses were seen in the Midcontinent.The eastern United States bucked the trend, with an early blast of cold boosting prices across Appalachia and the Northeast. Dominion South cash jumped 24.0 cents to average 81.0 cents. Transco Zone 6 NY was up 29.0 cents day/day, but still averaged well below $1.00 at 78.5 cents.
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November Natural Gas Caps Off Another Volatile Week with 9-Cent Price Decline - Natural Gas Intelligence
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