Natural gas futures prices rebounded Tuesday on increasing heat in the forecast for this week, as well as modest changes to the supply/demand balance. The September Nymex gas futures contract settled at $4.089, up 2.9 cents from Monday’s close. October picked up 2.8 cents to reach $4.103.
At A Glance:
- Latest forecasts quick to cool
- Power burns holding strong
- Widespread heat boosts cash
Spot gas prices also strengthened at most hubs, with the latest forecasts showing widespread highs in the 90s and low 100s across the United States. NGI’s Spot Gas National Avg. climbed 5.5 cents to $4.115.
Though the dog days of summer are winding down, this week’s heat is expected to be a doozy. The hotter outlook drove early gains for futures and cash prices alike. As for the September Nymex contract, it hit an early intraday high of $4.126 but retreated by midday to only marginally higher than Monday’s close.
Unlike most of the season, when the core of strong heat was concentrated in the western United States, this week’s scorching conditions are also set to blanket the East Coast. Temperatures are forecast to hit the 90s through Friday, a stark difference compared with the early hint of fall experienced last week, according to AccuWeather. At the same time, high humidity could make temperatures feel about 10 degrees warmer than they actually are.
“The heat and humidity will extend through the overnight hours across the Northeast, with the worst of the warmth being found along the urbanized stretches of the Interstate-95 corridor this week,” said AccuWeather meteorologist Brandon Buckingham.
Not to be outdone, the West also is in store for more sweltering weather, particularly in the Northwest. AccuWeather said daytime highs could hit 105 degrees in Portland, OR, on Friday. This would surpass the previous record of 101 degrees set in 2002. Seattle could see highs near the century mark.
Throughout the Northwest, temperatures are forecast to reach 15-25 degrees above average, worsening the already intense drought across the region, according to AccuWeather meteorologist Jessica Storm. As of early August, about 63% of the West was in the midst of extreme to exceptional drought.
“Drought conditions, worsened by heat, can allow wildfires to spark easier than if the ground was cool and saturated,” Storm said. As of early Tuesday, nearly 100 large wildfires were burning in the Lower 48 states, with 76 in the Northwest alone, according to the National Interagency Fire Center.
Some relief from the heat across the Northwest could arrive by the start of next week, though. The heat dome is projected to shift out of the area, ushering in more moderate weather, according to forecasters.
Meanwhile, liquefied natural gas (LNG) demand remained well off highs. NGI data showed feed gas deliveries to U.S. terminals sitting slightly below 9.5 Bcf on Tuesday. The decline in volumes appeared to be taking place primarily at the Sabine Pass and Cameron LNG terminals because of maintenance.
Power burns were stable, which Bespoke Weather Services said was surprising given the strong winds. The forecaster noted that winds should die down by the end of the week, though, which could boost power burns further.
Mobius Risk Group pointed out the resilience of power burns. The consultancy said gas being used for electricity production so far in August was down less than 2 Bcf/d versus the same nine-day period last year. “This is significant since this time frame has been neutral in terms of total population weighted cooling degree days, and even more so when noting the cooler year/year temperatures along the Gulf Coast.”
The Energy Information Administration (EIA) also touted the staying power of natural gas in the electric sector despite higher prices. In its Short-Term Energy Outlook released Tuesday, EIA estimated that U.S. natural gas consumption in July increased by 3.9 Bcf/d from June to 75.8 Bcf/d, driven by a rise in electric power sector demand.
Natural gas exports, via pipeline and LNG, also increased, to 18.2 Bcf/d in July from 17.8 Bcf/d in June, according to EIA. At the same time, dry gas production slipped month/month to 92.5 Bcf/d from 92.7 Bcf/d.
From a fundamental perspective, the gas market remains “very quiet,” according to Mobius. Minor and temporary declines in LNG feed gas have most often been offset by dips in Canadian imports. In addition, daily production data remains generally flat over a multi-month time frame. “Thus, the pendulum is swinging almost exclusively on weather forecasts.”
To that end, forecasts are showing much cooler weather across much of the United States beginning this weekend. Tropical activity also is starting to increase.
The National Hurricane Center said a disturbance was expected to pass near or over the U.S. Virgin Islands and Puerto Rico through Tuesday night. It then was forecast to move toward Hispaniola on Wednesday and the southeastern Bahamas and the Turks and Caicos Islands Thursday. However, maximum sustained winds were only at about 35 mph, and a well defined closed circulation was not found by the NHC. Nevertheless, the disturbance had a 90% chance of development in the next two days and could approach Florida in the coming days.
On a macro level, EIA said U.S. economic activity continued to rise after reaching multi-year lows in the second quarter of 2020. U.S. gross domestic product (GDP) declined by 3.5% year/year in 2020, but is expected to grow by 6.6% in 2021 and by 5.0% in 2022. The EIA based its U.S. macroeconomic assumptions on forecasts by IHS Markit.
The agency said the outlook remains subject to heightened levels of uncertainty related to the ongoing recovery from the Covid-19 pandemic. There are mixed signals on how the Delta variant of the Covid-19 virus is impacting the economy. Some companies have opted to require vaccinations for their employees, which should assist in containing the latest variant and keeping businesses open. However, U.S. and global air travel spiraled lower week/week because of the rise in cases.
“Our forecast assumes continuing economic growth and increasing mobility,” EIA said. “Any developments that would cause deviations from these assumptions would likely cause energy consumption and prices to deviate from our forecast.”
Sizzling Cash
With temperatures on the rise, Northeast and California markets once again led another round of gains in the cash market.
Tenn Zone 6 200L next-day gas averaged $4.525, up 44.5 cents on the day. Transco Zone 6 non-NY climbed 12.5 cents to $4.040.
In California, the SoCal Border Avg. was up 21.5 cents to $5.695.
Prices in the Rockies softened a bit day/day, but losses were fairly small at the majority of pricing hubs. Kingsgate, however, tumbled 20.0 cents to $3.610 for Wednesday’s gas day.
On the pipeline front, Kern River Gas Transmission (KRGT) issued a force majeure Sunday at the Veyo Compressor Station in southwestern Utah. The force majeure began restricting flows by up to 143 MMcf/d on Monday. KRGT said an unexpected mechanical failure at the compressor station prompted it to reduce the operational capacity at the Veyo compressor to 2,203 MMcf/d until further notice. Over the past 30 days, flows through Veyo had averaged 2,283 MMcf/d and maxed at 2,346 MMcf/d, according to Wood Mackenzie.
Meanwhile, Nova Gas Transmission Ltd. (NGTL) on Tuesday began maintenance on the Berland River Compressor Station in Alberta. This could potentially impact firm transit receipts and interruptible transit deliveries by an estimated 565 MMcf/d on gas days through Friday.
Elsewhere, Cove Point was flat at $4.165, while Henry Hub slipped 5.0 cents to $4.110 on the lower LNG demand. Most other pricing hubs in Louisiana and the Southeast strengthened day/day.
Consumers Energy was up 2.0 cents to $3.985, and Tres Palacios was up 7.0 cents to $4.055.
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August 11, 2021 at 05:02AM
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Natural Gas Futures Recover, but Cooldown Expected This Weekend Trims Early Gains - Natural Gas Intelligence
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