The changes in supply and demand that brought natural gas futures down a few notches to start the week provided some uplift to the market on Tuesday. A large decline in production, though likely temporary, along with a warmer turn in the latest weather models sent the July Nymex gas futures contract up 6.7 cents to settle at $3.258. August climbed 6.2 cents to $3.277.
At A Glance:
- Production tumbles 2 Bcf day/day
- Weather models warm again
- Gulf Coast cash strong
Spot gas prices also rebounded, but gains were mostly small. NGI’s Spot Gas National Avg. rose 2.0 cents to $3.095.
As for weather, the forecast was only slightly hotter early Tuesday, adding a couple gas-weighted degree days to the 15-day forecast, according to Bespoke Weather Services. However, this kind of small change has been prevalent over the past week and hasn’t changed the overall outlook, with most of the heat still expected in the West.
“We have seen some model runs show potential for more eastern heat in the back of the 11- to 15-day period, but, so far, that part has not progressed forward,” Bespoke said. “We suspect there will be spikes of heat into the East in July, but exact timing is difficult.”
A much more notable change occurred on the supply side and likely had a heavier hand when it came to the price move higher on Tuesday.
Wood Mackenzie said top day estimates showed production down 2 Bcf day/day at 90.9 Bcf/d. However, the declines were concentrated in areas where there were maintenance or operational issues.
For example, in the Haynesville Shale, maintenance is ongoing on Gulf South Pipeline at the Hall Summit Compressor Station. Work began Tuesday and is expected to last through Thursday. Permian Basin production in West Texas and New Mexico is being cut by a force majeure declared on El Paso Natural Gas Pipeline, which had no estimated time of return to service. Production in the Northeast is also showing declines along the Tennessee Gas Pipeline (TGP) near ongoing work in Northeast Pennsylvania.
Maintenance at TGP’s Station 321 has been in effect since June 14, “but planned maintenance at Station 325 began Tuesday, further restricting flows,” Wood Mackenzie analysts Laura Munder and Nicole McMurrer said in a note to clients.
Despite the sharp drop in output, the reduction is likely to be temporary. Production could quickly return to the 92-93 Bcf/d levels seen at the start of the week, with more growth possible in the second half of the year.
Powerhouse Brokerage LLC pointed out that production clocked in at 92.2 Bcf/d in May, up from 87.8 Bcf/d in May 2020. Meanwhile, the Energy Information Administration expects production to average 92.9 Bcf/d in the second half of 2021 and then climb to 93.9 Bcf/d in 2022.
While the majority of public exploration and production companies have reduced their drilling plans in part to support payouts to investors, Powerhouse said demand growth may overcome efforts to reduce output being utilized by these U.S. producers.
“Temperatures ran into three digits in the Southwest recently, another unusual call on inventory,” said Powerhouse Chairman Alan Levine. “Global demand has also supported higher prices. Gains in the industrial sector could support higher prices as well.”
Levin noted that demand growth has “bloomed” before, but production gains typically temper any price increases. “This year, production slowdowns could support growth in prices,” he said.
Strengthening Exports
Meanwhile, demand is expected to gain momentum heading into the core of summer and beyond. In addition to the projected rise in demand because of heat, exports also are expected to strengthen in the months ahead.
Energy Aspects said planned and unplanned maintenance events at the Sabine Pass, Cameron and Freeport liquefied natural gas (LNG) facilities prompted the firm to lower its June feed gas estimates by 0.5 Bcf to 10 Bcf/d.
On Tuesday, NGI data showed feed gas deliveries to U.S. terminals slipping under 10 Bcf at around 9.7 Bcf amid the ongoing maintenance events.
However, Energy Aspects expects lower maintenance in July based on announced schedules, which would support 10.9 Bcf/d of feed gas.
“This month’s spurt of unscheduled work, as well as the potential for storm disruptions as the hurricane season progresses, adds downside risk to this demand estimate,” the firm said.
At the same time, Mexican net trade has shown continued strength as the peak cooling season proceeds, according to Energy Aspects. Heat in Baja California is still supporting high flows through Ogilby, which are trending 0.1 Bcf/d higher month/month as temperatures in Mexicali persist at between 110 and 115 degrees.
“Flows through Presidio are up by nearly the same amount, as is the case further down the pipe on an interconnect feeding TransPecos gas to Ojinaga,” Energy Aspects said. “We expect similar levels near 6.8-7.1 Bcf/d for the remainder of the peak cooling season.”
Gulf Coast Gains
Though cloud cover and the possibility of more rain kept temperatures lower than last week’s levels, spot gas prices across the Gulf Coast rebounded rather sharply on Tuesday.
Katy next-day gas prices jumped 16.0 cents day/day to average $3.205, similar to increases seen across South Texas.
In the western part of Texas, which encompasses the Permian Basin, Waha dropped 9.0 cents to $2.870. The losses were likely tied to lower prices in the downstream California demand center. Although weather is expected to remain hot in California throughout the week, prices there retreated on Tuesday.
SoCal Citygate spot gas slipped 5.0 cents to $5.150.
Rockies prices also softened. Opal dropped 13.5 cents to $3.225.
Elsewhere across the country, Columbia Gulf onshore next-day prices climbed 10.5 cents to $3.190. The double-digit increase likely stemmed from planned maintenance at Columbia Gulf Transmission’s Alexandria Compressor Station on Wednesday. The work could cut up to 117 MMcf/d of southbound flow through Louisiana.
“Flows through AlexSEG will be limited for this one day event down to 1,192 MMcf/d,” according to Wood Mackenzie analyst Anthony Ferrara. “Over the past 30 days, AlexSEG has averaged 1,966 MMcf/d and maxed at 2,029 MMcf/d, translating to cuts of up to 117 MMcf/d at this compressor station.”
In the Midwest, Defiance picked up 8.0 cents to reach $3.015. In the Midcontinent, Ventura was up 5.5 cents to $2.995, and in Appalachia, Tennessee Zone 4 Marcellus increased by 5.5 cents to $2.400.
Meanwhile, an updated schedule of major planned outages on Texas Eastern Transmission (Tetco) showed that southbound constraint estimates should be able to provide an additional 0.3 Bcf/d or so of incremental flows through the Danville Compressor Station.
Tetco has operated at a reduced pressure along the 30-inch diameter line since earlier this month. Wood Mackenzie noted, however, that there have not been any increased flows so far.
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June 23, 2021 at 04:40AM
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Natural Gas Futures Rally as Pipeline Work Reduces Production; Cash Recovers - Natural Gas Intelligence
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