Against a backdrop of ongoing storage adequacy concerns, natural gas forwards advanced during the Aug. 19-25 trading period, according to NGI’s Forward Look. Meanwhile, fireworks in the futures market to close out the work week offered a glimpse of what thin inventory margins could mean for prices heading into winter.
Prompt month fixed price gains of around 5-15 cents were the norm for forwards across the Lower 48 from Aug. 19-25, with most locations mimicking Henry Hub’s 7.1-cent week/week increase. Notable exceptions occurred on both the East and West coasts, however, as basis premiums eroded in Southern California and in the Mid-Atlantic.
In the futures market, after a few days of up-and-down price action, Nymex natural gas broke decisively higher in Thursday’s trading, with bulls seemingly let loose to romp after the latest Energy Information Administration (EIA) storage report landed at a lean 29 Bcf net injection for the week ended Aug. 20.
Prices followed through to the upside and then some in Friday’s session. The October contract ultimately settled at $4.388/MMBtu, up 17.7 cents on the day, adding to a 28.6-cent rally in the previous session.
Front-month expiration and the looming threat of a tropical cyclone targeting Gulf Coast energy interests also seemed to have traders on edge as prices took flight.
(Not So) Calm Before Storm
An Atlantic storm of keen interest to the energy industry was brewing ahead of the weekend. The National Hurricane Center (NHC) on Friday was projecting Ida, already at hurricane status, to make landfall along the northern Gulf Coast Sunday.
“Steady to rapid strengthening is expected when Ida moves over the southeastern and central Gulf of Mexico over the weekend, and Ida is expected to be a major hurricane” before reaching the Gulf Coast, the NHC warned.
Bespoke Weather Services noted that the forecast track Friday had Ida making landfall over central Louisiana, suggesting liquefied natural gas (LNG) export terminals could avoid the worst impacts.
The projected path showed Ida “targeting central Louisiana Sunday night, impacting Gulf production zones, but likely to hit just east of LNG facilities, so little impact is expected there,” Bespoke said. “This likely will not be the last threat to the U.S. this tropical season.”
As for prices, Bespoke had one phrase to describe recent action.
“Up, up and away!” the firm said. “…We had discussed the odds favoring a rally into contract expiration, but the magnitude of this move has been quite stunning.”
Bespoke characterized the move higher as primarily a reaction to Thursday’s storage report. The build left total Lower 48 working gas in storage at 2,851 Bcf as of Aug. 20, 16.5% below year-ago levels and 6.2% below the prior five-year average, according to EIA.
Storage Concerns Persist
Futures were already higher on the day when EIA unveiled a smaller-than-expected 29 Bcf injection into U.S. natural gas stocks, and the news helped shift the rally into a higher gear. Surveys ahead of the report had shown expectations coalescing around a build in the upper 30s to low 40s Bcf.
While things were looking promising from the bulls’ perspective Friday, EBW Analytics Group analysts earlier in the week identified potential downside risks associated with weaker cooling demand and potential demand destruction from tropical weather heading into the shoulder season.
“Weak September cooling demand leads to projections of power sector demand sliding 10.3 Bcf/d into early October, while hurricane threats — or enhanced wind generation — could add on to demand destruction concerns,” the EBW analysts said.
Still, the combination of “a low storage trajectory, tight weather-normalized fundamentals and largely depleted gas-to-coal switching capability suggest an unbalanced risk/reward outlook for natural gas in the leadup to winter,” the analysts added. The current storage trajectory offers “little room for error” should “early winter forecasts trend colder.”
East Coast Cool
With recently toasty temperatures in the Mid-Atlantic expected to soon fade, Transco Zone 5 turned in the largest basis swing for the Aug. 19-25 time frame, with a 44.9-cent front-month premium to Henry Hub largely evaporating to just 7.6 cents.
“National demand will be quite strong through the weekend as hot upper high pressure rules vast stretches of the U.S.,” including high temperatures in the upper 80s and 90s “over the important East Coast,” NatGasWeather said Thursday.
“…However, national demand will drop considerably next week as the hot upper ridge weakens and perfect highs of 70s to 80s set up across the northern half of the U.S.” alongside “much less coverage of highs reaching the 90s and 100s across the southern half of the U.S.”
Meanwhile, on the opposite coast, the SoCal Citygate basis premium for September shrank 28.9 cents week/week, from plus-$3.036 to plus-$2.747. SoCal Border Avg. basis shrank 12.5 cents to plus-$1.020 for September, from plus-$1.145 a week earlier.
Farther north, PG&E Citygate basis added 6.4 cents for the period to climb to plus-$1.376.
The EIA Pacific region storage trajectory could see it set a new five-year minimum for end-October storage in the vicinity of 265 Bcf, according to Energy Aspects. The firm noted a large discrepancy between the region’s year/year deficit when calculated in terms of working gas as opposed to base gas.
This discrepancy derives from the June Pacific Gas & Electric (PG&E) reclassification of around 52 Bcf.
“In effect, no gas was lost, but the move does change the storage calculus,” Energy Aspects said in a recent note to clients. Requirements for how PG&E sources supply on peak demand days outlined in a 2019 rate case could present “risk of a price escalation in the event of extreme weather.”
For the EIA Pacific, 265 Bcf exiting the injection season would provide an adequate storage buffer under a normal winter weather scenario, but such a carryout “would not protect PG&E from price spikes if the coming heating season realizes colder than normal,” the firm added.
Meanwhile, Southern California supply availability has been put at risk by the Aug. 15 El Paso Natural Gas (EPNG) rupture. The incident on EPNG’s Line 2000 took offline an estimated 0.35 Bcf/d of flows from the Permian Basin into the region, according to the Energy Aspects.
EPNG issued an update on the Line 2000 force majeure event Tuesday advising shippers that several locations would see reduced capacity starting with Thursday’s gas day. The pipeline said it would be “reducing the operating pressure on the entire Line 2000 system.”
September prices in the Permian showed little impact week/week. El Paso Permian basis ticked 0.7 cents higher to minus 27.1 cents. El Paso San Juan basis, on the other hand, jumped 12.7 cents for the period to trade 15.2 cents back of Henry Hub.
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August 28, 2021 at 03:45AM
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Surging Futures Foretell More Upside as Natural Gas Forwards Climb - Natural Gas Intelligence
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