Natural gas futures teetered between gains and losses much of Monday as traders contrasted rising production and mild fall weather forecasts against strong demand for U.S. exports of liquefied natural gas (LNG). The December Nymex contract, however, ultimately settled at $5.427/MMBtu, down 8.9 cents day/day amid domestic demand weakness. January fell 12.1 cents to $5.505.
At A Glance:
- Weather outlooks lack ‘material’ demand gains
- Production estimated near 95 Bcf
- LNG export volumes hold strong
NGI’s Spot Gas National Avg. shed 4.5 cents to $5.070. Comfortable weather permeated most of the Lower 48 to start the week, spurring relatively little heating or cooling demand.
Additionally, forecasts over the weekend were essentially unchanged from last Friday, leaving modest gas-weighted degree day expectations through mid-November. This left the futures market waiting for more impressive cold to develop, Bespoke Weather Services said.
“The modeling still advertises a return to a blocky pattern, one which could deliver some cold as we head into late month, but we have seen this modeled for a while now with no material gains in demand showing up,” Bespoke said. “It is unclear if there is simply a model bias toward showing too much cold potential a couple of weeks out, or if they simply were too quick on the trigger.”
Beyond weather, production estimates on Monday hovered near 95 Bcf and around 2021 highs.
RBN Energy LLC analyst Sheetal Nasta noted that large publicly traded producers are under pressure from investors to hold the line on oil and gas output and invest instead in renewable sources of energy. But private companies are responding to strong demand in 2021 overall – and expectations for more to come this winter.
While sustained production growth remains a wildcard, “U.S. natural gas supply is primed for growth, with the Lower 48 supply/demand balance the most bullish it has been in years,” Nasta said. “On top of that, exports are very strong and poised for growth, with international prices setting records.”
LNG feed gas volumes climbed above 11 Bcf Monday, as export destinations in Asia and Europe continued to call for more U.S. supplies of the super-chilled fuel as winter approaches.
EBW Analytics Group noted that the strong feed gas demand trends indicated Train 6 at the Sabine Pass LNG terminal is starting up. This makes “a fresh all-time LNG record likely when Freeport returns to full strength,” the EBW analysts said.
Goldman Sachs Groups analysts noted that, while overseas prices eased some last week after Russia vowed to ramp up gas deliveries via pipeline to Europe, they expect upward pressure to quickly resume and demand for U.S. LNG to remain elevated.
“While we think Russia will likely increase flows” as soon as this week, “we do not expect an immediate full normalization of flows and, hence, we believe price-induced demand destruction remains necessary to balance storage in the coming months.”
Prices in Europe could soon return to record levels above $30/MMBtu, the Goldman analysts said, “especially given that current northwest Europe weather forecasts point to the third week of November being significantly colder than average.” This would support demand for less expensive imports of U.S. LNG.
With exports strong and winter looming, analysts expect a modest withdrawal from natural gas storage with this week’s government inventory report. The U.S. Energy Information Administration (EIA)’s storage report is slated for release Wednesday, a day earlier than usual due to the Veterans Day holiday on Thursday.
NGI forecasted a build of 15 Bcf. Bespoke’s estimate landed at the same figure. For the similar week last year, EIA reported an injection of 2 Bcf. The five-year average is 25 Bcf.
For the week ended Oct. 29, EIA printed a 63 Bcf injection. Federal inventory reports had proven robust throughout most of the fall.
Last week’s print marked the eighth straight period that EIA’s reported build narrowed the inventory deficit versus the five-year average. Still, at 3,611 Bcf, working gas in storage was 313 Bcf less than in the comparable week last year and 101 Bcf below the five-year average of 3,712 Bcf.
Cash Called Lower
Spot gas prices faltered on Monday as mild weather permeated the Lower 48 and was projected to hold through much of the trading week.
“National demand will ease to very light levels this week as high pressure with comfortable highs of 50s to 80s expands across the eastern two-third of the U.S.,” NatGasWeather said.
Hubs in every region posted declines Monday, with locations in Texas and the East leading the downward slide.
In the Lone Star State, Katy lost 21.0 cents to $4.920, while Atmos Zone 3 dropped 23.0 cents to $4.705 and El Paso Permian shed 16.5 cents to $4.730.
In the East, Tenn Zone 4 200L lost 28.5 cents to $4.660 and Millennium East Pool fell 24.0 cents to $4.450. Algonquin Citygate near Boston declined 29.0 cents to $4.920.
Conditions, however, could shift notably in parts of the country later in the week, NatGasWeather said.
“The West will be cool and unsettled as Pacific weather systems track inland, with valley rain and mountain snow and highs of 40s to 60s” by Thursday. “A chilly weather system will drop out of southwest Canada and across the Midwest” Thursday and Friday, delivering rain and snow, along with lows ranging from the teens to the 30s. This system is expected to track into the East by the weekend “for an increase in national demand.”
Looking to next week, the forecaster expects cool air to cover much of the East, though it anticipates benign conditions over the rest of the United States, with highs of 50s-80s.
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November 09, 2021 at 08:57PM
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Near-Record Production, Persistent Mild Outlook Send Natural Gas Futures Lower - Natural Gas Intelligence
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