Natural gas futures ended the week lower, with traders left uninspired by the arrival of chilly weather in the coming days across the Lower 48. With recent government inventory data pointing to continued looseness in supply/demand balances, the April Nymex gas futures contract settled Friday at $2.430/MMBtu, off 11.3 cents on the day.
At A Glance:
- Coming week to be chilly
- Supply still too robust
- Cash softens ahead of weekend
Spot gas prices also declined, as the typical weekend discount drove hefty losses out West. NGI’s Spot Gas National Avg. dropped 19.0 cents to $2.610.
With weeks to go before the official end to the winter season for the natural gas market, cold weather systems poised to sweep across the country did little to move the price needle on Friday. That’s likely because although the chilly air is expected to plunge farther south, forecasts show a warm break quickly following ahead of the March 18-19 weekend.
There are some additional reinforcing cold shots forecast to follow, but the American and European models are at odds over how intense they may be, according to NatGasWeather. The warmer move in the midday Global Forecast System model suggests the risk is the European data eventually trends warmer, as it did over the March 4-5 weekend.
With the spring maintenance season kicking off soon – and gas prices in the gutter – NatGasWeather said it would be of interest if U.S. production drops under 100 Bcf/d this shoulder season. Since weather has done very little to help improve balances, analysts are looking for a response from the supply side of the equation to bring some equilibrium back into the currently oversupplied market.
Goldman Sachs said even after including an assumption of significant demand support from price-sensitive coal-to-gas substitution, it sees a need for production from gas basins to grow only by 1.2 Bcf/d cumulative in 2023-2024.
The Goldman analyst team, led by Umang Choudhary, acknowledged that it has seen public producers cut activity. The producers on aggregate have stated with fourth quarter 2023 earnings that they plan to grow production by 1% year/year. However, recent data would suggest less meaningful activity reduction from private producers, according to Goldman.
“We believe further activity cuts would be needed, especially Haynesville Shale activity,” Goldman analysts said. This “needs to be reduced to around 50 rigs (versus 67 rigs currently) with associated cuts in completion activity to solve for a flat production profile from the Haynesville.”
Power Burns On The Rise
Another topic du jour in the gas market has been coal-to-gas switching.
Tudor, Pickering, Holt & Co. (TPH) said since entering February, gas’ share of the thermal generation stack has risen to the 72-74% range, and remained there so far in early March. This is up from an average of 67% in 4Q2023.
This increase has meaningfully supported balances, according to TPH analysts. They estimate the share taken of the generation stack has created 2-2.5 Bcf/d of incremental demand in the short term.
“That said, as noted, the market has remained oversupplied on a weather-adjusted basis, which we see continuing to keep a lid on prompt and likely pressuring the 2023 curve,” the TPH team said.
In the interim, coal inventories have been building on the back of weak consumption, according to TPH. The firm’s data shows exports not shifting meaningfully – actually declining slightly year/year in February versus 2022 levels – and resulting in inventories building counterseasonally versus 2020-2022 trends.
“These are inventories that, barring a pickup in exports in the coming months, we see competing for thermal consumption as we trend into the spring and summer months,” the TPH analysts said.
Any competition between coal and gas would undoubtedly impact storage inventories. Stocks currently are unseasonably high after record warmth in January and February. March, so far, isn’t much better, with the surpluses to historical levels expanding in recent weeks.
The Energy Information Administration (EIA) said inventories as of March 3 stood at 2,030 Bcf after falling 84 Bcf through the period. This is 493 Bcf above year-earlier levels and 359 Bcf above the five-year average.
Expectations for the EIA report are for a draw in the 50s Bcf to 60s Bcf, once again lighter than the five-year average of 77 Bcf.
Spot Gas Prices Fall
Spot gas prices were lower pretty much across the board on Friday, with Spring Break kicking off in some parts of the South and driving demand even lower in the coming days.
With early-season heat forecast to make way for more seasonal temperatures in the 70s, spot gas prices at the Houston Ship Channel fell 18.0 cents day/day to average $2.110 for the three-day gas delivery. Prices in the western part of the state slid under $1.500 in most areas.
Cash prices posted similar decreases in the country’s midsection, with prices averaging around the $2.500 mark in the Midwest and lower in the Midcontinent, Louisiana and the Southeast.
More substantial losses continued to be seen on the West Coast. PG&E Citygate cash was down 49.5 cents to $6.380, while SoCal Citygate plunged $1.305 to $6.015.
Several pipeline maintenance events were set to kick off soon.
Transcontinental Gas Pipe Line Co. LLC (Transco) on Monday was scheduled to start work on the mainline near Station 180. The work, set to last through the end of March, requires a section of pipeline to be isolated and removed for service. As a result, transportation could be impacted for some shippers, including primary firm transport services flowing southbound through Station 180 depending on operating conditions.
Northbound flows through the station would not be impacted, according to Transco.
Transco has not posted data for Station 180 recently, but maximum and average scheduled capacities through Station 185 for the last 30 days were 2,295,994 MMBtu/d and 2,027,637 MMBtu/d respectively, according to Wood Mackenzie.
In addition, the Southeast Supply Header (SESH) plans to run pigs southbound on the pipeline starting from Gwinville Compressor Station on several days through March 22. During the pigging, capacity could be cut at Delhi, Gwinville and Lucedale. However, actual cuts may only amount to around 53,000 MMBtu/d, 50,000 MMBtu/d and 78,000 MMBtu/d, respectively, based on the 30-day average, Wood Mackenzie said.
Southern Natural Gas Co. (Sonat) also posted an upcoming capacity reduction on Segment 380 as a result of SESH’s pigging. Sonat said operational capacity at SESH-Sonat would be restricted to 450,000 MMBtu/d on the days that SESH is scheduled to run pigs.
“Based on the 30-day max, the max cut from this could be as much as 54,000 MMBtu/d,” Wood Mackenzie analyst Enrique Nieto-Burrola said. “Although, the max potential cut of 54,000 MMBtu/d would be a minimal impact on the system, it is worth noting that SONAT classified this event as potentially restricting in-path transportation.”
Finally, Columbia Gulf Transmission declared a force majeure after finding anomalies during recent tool runs, requiring an immediate pressure reduction. Accordingly, backhaul operational capacity at Hartsville Compressor Station (HartSEG) in Trousdale, TN, is to be restricted to 2,000,000 MMBtu/d until further notice.
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March 11, 2023 at 05:44AM
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Natural Gas Futures Sink Further as Balances Still Too Loose with Winter Winding Down - Natural Gas Intelligence
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