Natural gas futures powered further ahead on Monday as summer demand held strong and global supply challenges festered. The August Nymex gas futures contract settled at $8.727, up 42.8 cents day/day. September gained 37.6 cents to $8.571.
At A Glance:
- Robust heat forecast into August
- Steady calls for U.S. LNG exports
- Production yet to sustain high levels
The bull run followed a 36.7-cent prompt month advance on Friday.
NGI’s Spot Gas National Avg. climbed 19.5 cents on Monday to $8.580.
Bespoke Weather Services noted some cooler changes in weather forecasts over the weekend for the balance of July, given a break from above-average heat in the northern reaches of the central and eastern areas of the country. But widespread heat persists across most of the rest of the Lower 48, and this month is still on pace to be the fourth-hottest July on record, the firm said.
“Obviously, that is still impressively hot, and the heat is expected to roll on into August, with the current forecast indicating the potential for some record gas-weighted degree days in the first third of the month,” Bespoke said. A “top-five hottest August on record looks very achievable, given La Niña and the look of the projected pattern.”
The August contract expires Wednesday. “As we all know,” Bespoke added, “expirations can bring wild volatility, and a continued move higher would not be a surprise.”
U.S. production, meanwhile, continued to hover around 96 Bcf Monday as it did late last week – about 1 Bcf from summer highs. Many analysts have estimated that, given the intensity of domestic heat and global demand, output needs to be sustained at around 97 Bcf to ensure utilities can meet summer demand and inject enough gas into storage for the coming winter.
The U.S. Energy Information Administration on Thursday posted a 32 Bcf injection of gas into underground storage for the week ended July 15. The build compared bullishly to a five-year average increase of 41 Bcf. The injection raised working gas in storage to 2,401 Bcf, though stocks were 328 Bcf below the five-year average.
Higher Production Potential
As for the production outlook, “intra-month pipeline nomination trends suggest elevated likelihood of gains at the end of July, with the potential for record high production figures within the next week,” said EBW Analytics Group senior analyst Eli Rubin. “Until a more comprehensive natural gas supply increase occurs, however, upward momentum may continue to outweigh downside risks for Nymex gas futures.”
For now, he added, “the market is focusing on reloading, intense heat in the second week of August, which would flirt with triple-digit cooling-degree days (CDD).”
Global demand for American LNG exports also remains elevated. U.S. liquefied natural gas plants have operated near capacity most of July, save for the temporarily shuttered Freeport LNG facility following a June fire. Demand is strong from Europe, which had until this year largely depended on Russia for its gas supplies. But amid Russia’s war in Ukraine and Europe’s opposition to it, the Kremlin has reduced flows to the continent and threatened to further limit supplies via pipeline.
The International Energy Agency’s (IEA) Fatih Birol, executive director, warned in a report Monday that Europe is in the midst of a perilous gas crisis that has been building for many months as Russia has held back supplies.” He added that the Kremlin could halt gas flows “completely at any moment” to retaliate against European sanctions imposed against Russia because of the war.
This has put upward pressure on demand for U.S. LNG. At the same time, as Asian countries such as South Korea and Japan prepare for the winter ahead, they have begun to compete more for American LNG, adding to demand and supporting prices.
Cash Prices Called Up
Spot gas prices probed higher Monday, led by strong gains in the Southeast and the West.
NatGasWeather said the American weather model dropped four CDD in projections over the weekend, showing weather systems over the Midwest, Ohio Valley and New England that would result in “less extreme” national demand over the next week.
Markets across those regions could see highs in the 70s and 80s this week – a reprieve from highs in the 90s last week.
“While the pattern over the next seven days isn’t as hot as last week, nor as hot as the data once advertised, there will still be hot conditions and strong demand across the western U.S., southern U.S. and the Mid-Atlantic Coast, including highs of 90s and 100s across the Pacific Northwest,” the firm added.
In the Southeast, Florida Gas Zone 3 jumped $1.350 on Monday to average $13.695, while Transco Zone 5 soared $2.060 to $13.825.
Out West, SoCal Citygate gained 59.5 cents to $9.240 and PG&E Citygate advanced 45.0 cents to $9.455.
Most of the United States “will be under strong upper high pressure with highs of 90s-100s” through the week, with the most intense heat in the Southwest deserts and Texas.
Prices in those regions jumped too, with KRGT Del Pool near Las Vegas up 51.5 cents to $9.200 and Houston Ship Channel ahead 29.0 cents to $8.200.
Overall, the week ahead looked “slightly to moderately bullish” in the latest model runs entering Monday’s trading, with next week remaining “solidly bullish,” according to NatGasWeather.
For the first week of August, the firm sees strong upper high pressure with widespread highs of 90s to 100s.
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July 26, 2022 at 05:04AM
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Strong Demand, Inconsistent Production Launch Natural Gas Futures Above $8.70 - Natural Gas Intelligence
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