Hints of Autumn Weather, Production Strength Weigh on Natural Gas Weekly Cash, Futures Prices - Natural Gas Intelligence (2022)

Spot natural gas prices softened during the Aug. 31-Sept. 2 trading period, with heavy rains and less intense heat spreading across the Lower 48. The West Coast was the only exception, and the region recorded huge spikes as California baked under triple-digit temperatures. NGI’s Weekly Spot Gas National Avg. fell 11.0 cents to $8.875/MMBtu.

Hints of Autumn Weather, Production Strength Weigh on Natural Gas Weekly Cash, Futures Prices - Natural Gas Intelligence (1)

Futures prices also caved as production held near all-time highs and storage data confirmed looser balances. Whether bears have finally gotten the upper hand in the market remains to be seen, but the October Nymex futures contract settled Friday at $8.786, down 55 cents from Monday’s close.

With the long Labor Day weekend ahead, prices moved decidedly lower as heavy rains were expected to douse some plans for backyard grilling. But hot weather was still very much in the forecast.

AccuWeather said temperatures on the East Coast would soar into the 90s beginning on Saturday, with humidity on the rise as well. As the higher humidity levels settle over the region, there also is expected to be an increase in showers and thunderstorms. By Sunday, a zone of showers and thunderstorms should expand from the Ohio Valley to the central Appalachians and into the western part of New England.

“In this zone, the downpours may be frequent enough to spoil outdoor plans much of the day,” AccuWeather senior meteorologist Alex Sosnowski said. “Even though much of the Northeast is in need of rain in terms of drought, downpours could lead to incidents of urban flooding.”

Even against that backdrop, Transco Zone 6 non-NY cash prices fell 72.5 cents week/week to average $8.150. Tenn Zone 6 200L dropped 70.0 cents to $8.370.

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After several days of rain in the forecast, more was on the way along the Gulf Coast through the Labor Day weekend. As demand was set to fall, cash prices at the Houston Ship Channel slipped 35.5 cents on the week to average $8.470. In West Texas, Waha dropped 14.5 cents to $8.025.

Henry Hub was down 48.5 cents week/week to average $9.060.

With temperatures in Death Valley poised to hit record levels of 125 degrees by Friday, cash prices surged across California and the Desert Southwest throughout most of the week.

Despite a pullback on Friday, KRGT Del Pool prices managed to spike $5.300 on the week to average $14.920. SoCal Citygate jumped $5.240 to average $15.015, while Malin picked up a more moderate 53.0 cents to $9.335.

The sweltering heat, combined with low output from drought-stricken hydro-electric generators, prompted California regulators to implement several measures in an effort to maintain reliability.

Some of these were aimed at getting Californians through the latest heat wave. For example, the California Independent System Operator called on consumers to reduce their electricity usage in the afternoon and evening hours on several days this week.

Other measures were more long term in nature. Late Wednesday, California’s final legislative session ended with a bill sent to Gov. Gavin Newsom that would extend the life of the Diablo Canyon nuclear generating facility through 2030. It had been scheduled to be fully retired by August 2025.

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Have Futures Turned A Corner?

After a long summer of record heat, stagnant production, soaring global gas prices and robust power burns, the gas market appears ready to take gas prices down a few notches.

Though summer is not quite over, October futures fell sharply ahead of the Labor Day weekend. Notably, despite some wild fluctuations at the start of a new month, production appeared to hold near all-time highs on Friday.

This is significant since supply has been seen as key for balancing the market after soaring gas prices did little to stem demand.

East Daley Analytics said dry production for the Aug. 25-31 period averaged 97.5 Bcf/d, with estimates for August production averaging 97.9 Bcf/d.

The Permian Basin is most responsible for the firm’s bullish gas supply outlook for the second half of 2022 and into 2023. Permian gas samples rose nearly 8% (372 MMcf/d) month/month in August, according to the firm.

“Is this growth real or a head-fake?” said East Daley’s Rob Wilson, vice president of analytics. “Daily pipe scrapes have become a less reliable indicator of Permian dry gas production over time, as a higher share of supply growth shows up on new Texas intrastate pipelines. Even so, there is reason to believe the recent uptick in the gas sample is real.”

Meanwhile, recent storage data has shown loosening in supply/demand balances in each of the past two reports.

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On Thursday, the Energy Information Administration (EIA) said inventories for the week ending Aug. 26 rose by 61 Bcf. By comparison, EIA recorded a 21 Bcf injection for the year-earlier period, and the five-year average injection is 46 Bcf.

The 61 Bcf build lifted stocks to 2,640 Bcf, which is 228 Bcf below last year at this time and 338 Bcf below the five-year average.

Broken down by region, the Midwest led with a plump 33 Bcf increase in stocks, according to EIA. The East added 16 Bcf to inventories, while the South Central added 10 Bcf. This included a 9 Bcf increase in nonsalt facilities and a 1 Bcf rise in salts. Mountain inventories were up by 4 Bcf, while Pacific stocks slipped by 2 Bcf.

Despite the larger-than-normal injection – the second in a row – a steep uphill battle remains for the market working to replenish stocks to more comfortable levels ahead of winter. Market observers on online energy chat Enelyst were steadfast in their projections for end-of-season storage stocks of 3.4-3.5 Tcf. October weather would “matter a lot this year,” said one market observer.

Noting the continued strength in futures prices, Enelyst managing director Shah said the EIA’s latest storage data pointed to looser balances, but “simply running the weekly looseness out is misleading.” He sees stocks rising to 3.43 Tcf on Oct. 31 despite production being higher by 4-5 Bcf/d and the Freeport liquefied natural gas terminal being offline.

“Power burns at these levels have been incredible,” he said.

Massive Cash Losses

The typical holiday weekend retreat was seen across all U.S. cash markets on Friday. Trading done on Friday was for gas delivery through Tuesday.

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Widespread losses were seen, with California recording the sharpest decline despite the continuation of hot weather in the state. The California power grid operator urged the public to conserve electricity on Friday afternoon as temperatures soared into the 90s and low 100s. Loads were expected to peak on Monday at more than 48,000 MW, a high for the year.

Despite the ongoing scorching temperatures, SoCal Citygate spot gas prices tumbled $2.260 day/day to average $13.460 for gas delivery through Tuesday. Malin was down 56.0 cents to average $9.100 for the four-day period.

Huge losses extended into the Desert Southwest as well. El Paso S. Mainline/N. Baja plunged $1.810 day/day to average $13.530. Kingsgate was the biggest mover in the Rockies, with cash prices tumbling $1.045 to $1.755 amid additional constraints upstream on Westcoast Transmission.

With Friday’s pullback, a few Northeast locations slid back under $8.000, on par with producing hubs in Appalachia.

With heat continuing throughout the Southeast, prices hovered on either side of $9.000. Henry Hub fell 26.5 cents day/day to average $8.980.

Prices throughout most of Texas came off significantly more as the Labor Day weekend was expected to be more about rain and galoshes than barbecue and swimming pools. Houston Ship Channel spot gas prices tumbled 39.5 cents to $8.355, while Agua Dulce plummeted 47.0 cents to $8.300.

Meanwhile, tropical activity is picking up in the Atlantic, with the National Hurricane Center keeping an eye on a couple of disturbances.

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The first disturbance was located a few hundred miles east of the Leeward Islands and given a 70% of formation through Wednesday. Shower activity associated with another disturbance had close to zero chance of formation during that time, with unfavorable conditions in place along its track.

At this time, neither weather system poses any threat to the United States. Even still, another system, Danielle, on Friday became the first named hurricane of the Atlantic hurricane season. This served as a stark reminder that September is prime timing for storms, with Irma, Maria, Ike and Rita among the most notable in recent history.

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