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In a continuation of the extreme price swings seen the past three and a half months, natural gas futures wiped out early gains of more than 35 cents Thursday after the latest government inventory data showed looser balances. July Nymex gas futures ultimately settled 21.1 cents lower on the day at $8.485/MMBtu. August futures tumbled 21.2 cents to $8.474.
Spot gas prices, however, continued to gain ground, with NGI’s Spot Gas National Avg. up 17.5 cents to $8.375.
With production levels still unclear in the early days of June, traders focused on the latest storage figures to gauge whether supplies have started to loosen at all.
The Energy Information Administration (EIA) reported a 90 Bcf injection into natural gas storage for the week ending May 27, a larger build than expected.
On Wednesday, analysts had pegged the injection to be in the mid-80s Bcf range. A Wall Street Journal poll produced estimates from 73 Bcf to 92 Bcf, with an average build of 84 Bcf. A Bloomberg survey had a tighter range of projections and landed at a median injection of 86 Bcf. Reuters polled 14 analysts, whose estimates ranged from injections of 76 Bcf to 93 Bcf, with a median increase of 87 Bcf.
A participant on The Desk’s online energy chat Enelyst chalked up the miss to the market putting too much weight on the 11 gas-weighted degree day gain week/week. “Probably not worth much at all in late May.”
Bespoke Weather Services chief meteorologist Brian Lovern agreed. “I never value heating degree days in May much, and the last two weeks seem to confirm that is wise.”
That said, the EIA’s 90 Bcf net injection “is still an impressive number, balance wise, given the weather. It’s just not as other-worldly as 80-84 Bcf would have been,” Lovern added.
Enelyst managing director Het Shah pointed out that salt facilities in the South Central region reported an earlier-than-normal withdrawal. The EIA said salts pulled 3 Bcf from storage, while nonsalts added 23 Bcf.
Elsewhere, East inventories climbed by 32 Bcf, and Midwest stocks rose 29 Bcf. The Pacific added 5 Bcf, while the Mountain region added 4 Bcf.
The net 90 Bcf injection trailed historical builds, which were 100 Bcf for both last year and the five-year average, according to EIA.
Nymex futures, trading a nickel over $9.000 earlier in Thursday’s session, quickly plunged after the EIA data was released. “It doesn’t take a lot these days to make a 20-cent move,” Shah said.
Notably, futures managed to rally back in the afternoon to sit roughly flat on the day before aggressive selling sent the July contract lower once again.
Total working gas in storage as of May 27 stood at 1,902 Bcf, which is 397 Bcf below year-ago levels and 337 Bcf below the five-year average, EIA said.
Given the latest data and the impacts of the Memorial Day holiday, Enelyst participants said a triple-digit storage injection – recently thought to be out of reach this summer – may materialize in the next EIA report, covering the current week.
“Would be nice to see a triple-digit build, with the jump in supply,” Shah said.
Others noted that wind also was strong during the holiday weekend, lowering gas demand for power generation. However, power burns have steadily increased since the weekend as wind output has fallen.
Production may be tricky to gauge this week as well, with steep declines reported on Wednesday and then a swift rebound on Thursday. Liquefied natural gas (LNG) demand also has largely recovered from an earlier decline, but remains below 13.0 Bcf/d.
Further down the line, LNG demand could surpass 14 Bcf/d later this year given the ongoing pull from European countries aiming to replenish storage inventories ahead of next winter. Asian nations also are calling on U.S. cargoes to meet early-summer heat.
Barclays analysts, led by energy researcher Amarpreet Singh, said LNG exports may be capped at that level because of liquefaction capacity constraints. However, there could be some upside surprises since LNG producers have been successful in debottlenecking facilities to boost effective capacity to well above original name plate design. For example, Cheniere Energy Inc.’s run-rate liquefaction capacity per train is up 12% to a midpoint of 5 Bcf/d.
In addition, pipeline exports to Mexico, which tend to peak seasonally in the summer, have been climbing in recent years, according to Barclays.
On the supply side, EIA expects production to grow 2.6 Bcf/d from 4Q2021 to 4Q2022. However, the Barclays team said this suggests that assuming roughly constant net exports, with a slight increase in LNG exports being offset by higher imports from Canada, net supply in 4Q2022 would remain below the 4Q2019 level.
In addition, Barclays expects takeaway capacity constraints in the Permian Basin could act as a “significant bottleneck” for supply additions beyond next March. Production growth in the largest producing region, Appalachia, also is constrained by limited pipeline capacity out of the Marcellus Shale. Barclays noted that the largest U.S. producer, EQT Corp., has signaled that it plans to focus on maintaining current output – unless additional infrastructure comes online.
Spot gas prices remained on the move Thursday despite relatively soft demand across the Lower 48.
The biggest price increases were seen on the West Coast, where a weak ridge of high pressure was expected to lead to “mostly tranquil and seasonal conditions,” according to the National Weather Service. However, the forecaster warned there would be a weak Pacific storm system impacting the Pacific Northwest, which would likely bring some scattered showers and thunderstorms through Friday.
“The moisture and energy with this system will stretch downstream across areas of the northern Rockies and out into the northern Plains and Upper Midwest going into the early part of the weekend,” NWS forecasters said. “Scattered areas of showers and thunderstorms are also expected farther south across the central and southern Plains as southerly flow returns and moisture begins surging back north.”
Despite the mild conditions, there were a couple of maintenance activities that were restricting gas flows in the region. For example, Colorado Interstate Gas was conducting pigging on Thursday that reduced operational capacity at the Dover to Weld County Lat throughput meter to 270,000 MMBtu/d from 537,000 MMBtu/d.
Meanwhile, Great Lakes Gas Transmission declared a force majeure Wednesday that was scheduled to continue through June 11 because of unexpected equipment failures at the Crystal Falls Compressor Station 8. As a result, the operational capacity at the Iron River Eastbound throughput meter in Bayfield County, WI, has been reduced by 247,485 MMBtu/d, leaving 1,535,100 MMBtu/d of available capacity.
Against that backdrop, CIG spot gas prices jumped 29.0 cents to $8.290, while other Rockies locations rallied by as much as 55.0 cents day/day.
In California, Southern Border, PG&E next-day gas was up 39.5 cents to $8.640.
Elsewhere around the country, Louisiana locations posted stout price increases. Henry Hub climbed 44.0 cents to $8.860.
Prices in the Midwest and Midcontinent were up similarly day/day, while most of Texas saw price gains of less than 20.0 cents. West Texas points, meanwhile, rallied by as much as 60.0 cents.
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Natural gas futures price action quieted down a bit Friday, no doubt with traders’ heads still spinning from the prior day’s wild swings. The July Nymex gas futures contract settled 3.8 cents higher to end the week, at $8.523/MMBtu. August futures picked up 3.6 cents to reach $8.510. At A Glance: Stronger injections needed asap…
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