Despite the absence of new near-term catalysts, natural gas futures bounced back on Tuesday as traders sharpened their focus on the looming summer cooling season and ongoing expectations for U.S. export demand to prove strong through 2021.
· Forecasts pointed to steady summer heat next month
· Demand for U.S. LNG exports holds steady
· As economy improves, so could commercial energy demand
The June Nymex contract, which rolls off the boards at the close Wednesday, gained 2.7 cents day/day and settled at $2.913/MMBtu. The prompt month had shed 2.0 cents a day earlier. July picked up 1.4 cents to $2.974 on Tuesday.
NGI’s Spot Gas National Avg. was down a half-cent to $2.695 on Tuesday, following the 5.5-cent gain posted a day earlier.
Still, NatGasWeather said Tuesday overnight data pointed to a bearish pattern for this weekend through June 5, when “very warm” temperatures over parts of the South and West would be “more than offset” by comfortable temperatures across the northern half of the country.
Forecasts “teased hotter conditions spreading northward out of the southern U.S. June 6-10 and where we view the data as finally close to hot enough to satisfy” and drive uninterrupted cooling demand at a national level, NatGasWeather said.
Demand for U.S. exports of liquefied natural gas (LNG) also is expected to hold strong through the cooling season. Natural gas supplies were depleted in Europe and parts of Asia over a long, cold winter, driving up domestic prices on both continents and fueling the need for U.S. gas imports.
LNG feed gas flows hovered near 10.6 Bcf on Tuesday, according to NGI data. That was down from recent highs above 11 Bcf, likely because of ongoing maintenance work at export facilities.
A recovery from the global pandemic is also expected to bump up commercial and industrial activity in coming months, resulting in increased energy use in those sectors and further supporting natural gas demand, analysts said.
As economic activity rebounds, demand for fuels derived from oil also is expected to rise. As that develops, production would likely climb and output of associated gas could increase as well, offsetting some of the anticipated demand gains.
“The summer seasonal demand trends will be amplified as economies reopen and demand for refined products, particularly gasoline, improves,” Rystad Energy analyst Louise Dickson said. “If demand evolves as the market expects and more oil is consumed during the summer season, prices can grow and remain high, offering producers a healthy environment to consider boosting their production.”
In the immediate term, the next driver of natural gas futures could be Thursday’s U.S. Energy Information Administration (EIA) inventory data. Early forecasts point to a triple-digit injection for the week ended May 21.
Energy Aspects issued a preliminary estimate for a 103 Bcf increase. The firm said this was “on track to be the lone triple-digit injection in our near-term balances, although even the peak spring injection will lag last year’s 105 Bcf build in the same week.”
Energy Aspects pointed to waning demand amid spring weather as the driver of the higher predicted injection for the period, modeling a 4.3 Bcf/d week/week decline in heating demand and only a 0.9 Bcf/d week/week increase in power burns.
NGI’s model forecasts a 107 Bcf injection. That would top the five-year average increase of 91 Bcf.
Spot Prices Mixed
Next-day cash prices gained ground in the East as temperatures continued to cook.
While a choppy pattern with rains, winds and wide-ranging highs of 50s to 70s stretched across the Mountain West and much of the central United States on Tuesday, cooling demand accelerated in the Southeast, where several markets experienced highs in the 90s along with humid conditions.
Florida Gas Zone 3 picked up 9.0 cents day/day to average $2.995 and Transco Zone 4 tacked on 4.5 cents to $2.890.
Prices also climbed in the Northeast ahead of Wednesday, which is expected to be the hottest day of the week in that region. National Weather Service forecasters called for a high of 90 in Boston.
Algonquin Citygate jumped 18.5 cents to $2.525, while PNGTS gained 10.5 cents to $3.040.
While conditions are expected to cool further in northern regions starting Thursday, a warm ridge spanning from the Southeast through Texas and onto the Southwest is forecast to intensify later this week, with highs of 80s into the high 90s, NatGasWeather said.
Ahead of that, however, prices declined throughout Texas and the Southwest Tuesday. Transwestern dropped 13.0 cents to 2.470 and El Paso S. Mainline/N. Baja fell 19.0 cents to $2.710.
On the maintenance front, meanwhile, Sempra Energy’s Southern California Gas Co. (SoCalGas) Southern Zone could scale back imports by as much as 300 MMcf/d, to 450 MMcf/d, during a planned event slated to begin Wednesday and culminate Saturday.
Wood Mackenzie analyst Joseph Bernardi said the interruptions could put further upward pressure on prices at SoCal Citygate. However, he added, heat will likely remain the bigger catalysts.
SoCalGas “will also have the option to rely on some storage withdrawals,” Bernardi said, “with system-wide inventories at their highest point for this time of year.”
SoCal Citygate climbed 7.0 on Tuesday to average $3.980. A day earlier, prices at the hub shot up nearly 90 cents.
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May 26, 2021 at 10:53PM
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Natural Gas Futures Regain Momentum as Strong Cooling Demand Nears - Natural Gas Intelligence
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