Natural gas futures failed to sustain momentum Tuesday as fresh signs of benign weather and weak demand overshadowed a drop in production.
At A Glance:
- Prompt month loses 64 cents day/day
- Forecasts point to more mild weather
- Output declines amid maintenance
Following a 67.1-cent gain to start the week, the December Nymex gas futures contract on Tuesday settled at $5.714/MMBtu, down 64.1 cents day/day. January fell 52.7 cents to $6.080.
NGI’s Spot Gas National Avg. dropped 41.5 cents to $3.970 as forecasts pointed to warm weather delaying the heating season.
As trading got underway Tuesday, both the American and European weather models dropped forecast demand over the prior 12-24 hours, according to NatGasWeather.
The outlooks signaled warmer trends next Monday through Nov. 11, with the data “showing cold air over Canada failing to advance as aggressively into the Midwest” as earlier forecasts had hinted, the firm said. “There will be frosty air over Canada Nov. 8-15, but the weather data is struggling to determine just how much of it will arrive into the northern U.S.”
This has contributed to uncertainty in the modeling, NatGasWeather said. “It just happened to be colder trends Sunday into Monday before reversing back strongly warmer over the past 12-24 hours,” the firm added.
Overall, the updated pattern was “solidly bearish” through the first 11 days of the month, before shifting toward “closer to seasonal” conditions Nov. 12-15, according to NatGasWeather. “Very light demand will continue the next 10 days as warmer-than-normal temperatures rule most of the southern and eastern halves of the U.S.,” the firm said. “There will be chilly weather systems over the Northwest and into the Plains, but not enough to counter comfortable conditions elsewhere.”
The latest forecasts outshined a substantial, albeit likely temporary, drop in production.
Wood Mackenzie analyst Laura Munder said estimates showed output down 4.4 Bcf/d at 95.9 Bcf/d. “The declines are largely due to the first of the month scheduling and with significant revisions expected,” she said. “However, there is maintenance…impacting the production estimate.”
Repair work in Texas and the Rocky Mountains could impact flows this week and curb output modestly, Munder said.
That noted, production reached a record level in early October above 101 Bcf/d and has held near that mark since, with the exception of short-term maintenance interruptions. This, in combination with mild autumn weather over the past several weeks, cleared a path for plump storage injections, and analysts anticipate another with this week’s government inventory report.
Storage Expectations
For the final full week of October – which Thursday’s Energy Information Administration (EIA) storage data covers — analysts are looking for an increase around 100 Bcf, according to early polling. That would more than double the five-year average of 45 Bcf and could mark the sixth time in the past seven weeks the EIA recorded a triple-digit increase.
The one exception so far came with last week’s print, when EIA reported a 52 Bcf injection into storage for the week ended Oct. 21. It compared with the five-year average increase of 66 Bcf.
Still, the increase raised inventories to 3,394 Bcf, pushing stocks close to the five-year average of 3,591 Bcf.
Meanwhile, the expected return of Freeport LNG this month, following a prolonged outage dating to a June fire, appeared less certain on Tuesday. The Texas liquefied natural gas export facility has yet to file a required restart plan with federal regulators, the Pipeline and Hazardous Materials Safety Administration said.
Without the formal plan, Freeport LNG’s goal to return to service by mid-November appeared “increasingly unlikely,” according to EBW Analytics Group. A delay would mean gas planned for export this month may remain at home, further bolstering domestic supplies and storage.
That noted, demand for U.S. LNG proved robust throughout 2022 to date and, despite healthy storage levels and mild fall weather in Europe, it is expected to remain elevated into 2023. This provides bulls ammunition heading into winter, particularly as Russia’s war in Ukraine rages and Europe weans itself off Kremlin-backed supplies of gas in response. Countries across the continent are looking to U.S. exporters to help fill the void.
BP plc on Tuesday confirmed the strength of global natural gas demand this year with its third-quarter earnings. The energy major posted its second-highest adjusted quarterly profit on record, nearly $8.2 billion, citing “exceptional” results in its natural gas division. Sales in the company’s gas segment more than doubled the prior quarter.
Spot Prices Sink
Absent near-term weather demand, next-day cash prices crumbled on Tuesday.
For the rest of the week and to start the next, NatGasWeather said, “most of the U.S. will be warmer than normal and comfortable with highs of 60s to 80s.”
The Northwest and Mountain West could prove exceptions, the firm added, with expected highs in the 40s and 50s many days as Pacific weather systems “sweep through with rain and snow.”
“Overall,” the forecaster sees “very light national demand the next seven days.”
Steep price declines across the nation’s midsection led the national average lower.
Chicago Citygate shed 79.0 cents day/day to average $3.350, while Houston Ship Channel dropped $1.060 to $2.660 and Southern Star fell $1.425 to $2.635.
Prices in the West and Rockies proved the exception, with Malin ahead $1.745 to $7.305 and Northwest Sumas up $1.775 to $7.185.
Looking farther out, from Nov. 8-15, NatGasWeather said the northern U.S. will be mild to cool, while the southern half of the Lower 48 is expected to be comfortable with highs of 60s and 70s. Should this forecast prove accurate, it would likely boost heating demand modestly in the north but still leave overall gas consumption seasonally light.
“As a result of a warmer-than-normal U.S. pattern last week, this week and next week, the next three EIA storage reports are expected to print builds that are considerably larger than normal,” the firm said, keeping a dose of pressure on futures and cash markets.
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Natural Gas Futures Pull Back Despite Production Drop; Cash Prices Fall as Demand Fades - Natural Gas Intelligence
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