Bulls Parade Beyond $9 As Production Dips Again; Detect gas surges on persistent heat

After a solid rally throughout Monday’s session, natural gas futures extended their streak on Tuesday as maintenance activity further weighed on production. The September Nymex gas futures contract climbed 60.1 cents day/day to settle at $9.329/MMBtu. October futures rose 59.9 cents to $9.311.

In short :

  • Northeast leads production declines
  • Storage data indicates a weak build
  • Cash rallies on US western heat

Spot gas prices also jumped as electricity consumptions remain high despite the cooler weather. NGI’s Spot Gas National Avg. jumped 58.5 cents to $8.935.

With moderate weather conditions due to record heat seen across much of the country in June and July, the bulls wasted no time in rushing on the latest production data which showed a drop of around 1, 8 billion cubic feet per day. Some technical momentum took the September Nymex contract over 50 cents as Tuesday’s session began, with the bulls remaining in control throughout the day.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

Wood Mackenzie said production declines were concentrated in areas where maintenance or operational issues are ongoing, although revisions are expected in Wednesday’s sample data.

Overall production in the Northeast has fallen by around 840 MMcf/d, according to the consultancy. About 310 MMcf/d of lost production was seen in southwestern Pennsylvania (SWPA), while about 165 MMcf/d was in northeastern Pennsylvania (NEPA). West Virginia recorded a drop of around 175 MMcf/d, and Ohio recorded a drop of around 190 MMcf/d.

In SEPA, production fell along most lines in the region, but the biggest declines were along Columbia Gas Transmission (TCO) and Texas Eastern Transmission, according to Wood Mackenzie. However, no maintenance events have been reported along these systems, the company said.

NEPA production was down along the Tennessee Gas Pipeline, where force majeure along the 300 line remains in place, limiting operational capacity, according to Wood Mackenzie. Flows were lower on several pipelines in Ohio.

Production also fell by about 285 MMcf/d in the Rockies, while Texas production fell by about 235 MMcf/d with two maintenance events on Natural Gas Pipeline Co. of America. Both are expected to wrap up next week.

Simmering storage issues

Mobius Risk Group said bulls also benefited from stock data that continues to point to soft injections in the near term.

Transcontinental Gas Pipe Line Co.’s (Transco) storage system rose a modest 0.32 Bcf based on Monday’s data. This is 0.5 Bcf less than the previous week, according to Mobius. Southern Star did not report, but generally follows a week-to-week path similar to that of Transco, Mobius said. The Eastern Gas system recorded an inventory gain of 4 billion cubic feet, half of the construction reported the previous week. TCO storage, also in the Northeast, did not report last week’s inventory change, but Monday’s report of 156 billion cubic feet in underground storage implies construction of 5 billion cubic feet or less.

“These data points, and a supposed shift for Southern Star, collectively imply a week-over-week build of well under 10 Bcf,” said Mobius analyst Zane Curry.

The lowest total build for those four facilities so far this summer is 10.21 billion cubic feet, recorded for the week ending July 21. That week, the total inventory change as reported by the Energy Information Administration (EIA) was 15 billion cubic feet.

“Considering that a sample of daily installs reported slightly higher construction than the week of July 21, it stands to reason that the market will expect Thursday’s inventory report from the EIA to be equal to or less than 20 billion cubic feet,” Curry said. “That would compare to the same week last year at 38 Bcf, and the change in weather from year to year was a modest 6 degree days. It is the tailwind for the market which thwarts the current week where temperatures are significantly cooler than the previous week and the same week last year.

That said, near-term prices may be challenged to hold up, according to Mobius. The southeastern United States is expected to become increasingly mild as the rest of the month progresses. And while there are major discrepancies in weather patterns, there is a growing consensus that temperature moderation is expected to spread across much of the country in the coming weeks.

Already, temperatures have become much more comfortable in the Midwest, the Mississippi Valley and the Northeast, according to NatGasWeather. The forecaster said a series of weather systems are expected to sweep through these regions, capping temperatures in the 70s and 80s, locally 60s. Additional weather systems are expected to follow this weekend and again next week, but this time- ci advancing deeper into Texas and the South.

“While the West will remain incredibly warm in the future, extreme and widespread heat will likely not be present in the eastern half of the United States until early September as weather systems continue to spread. It also means time is running out on widespread extreme heat in addition to the West,” NatGasWeather said.

With gasoline prices soaring in the face of cooler weather, recent trading could be due to seasonal buying by big players pricing in the risks of a colder-than-normal winter, the company said. A starting point of 3.4 Tcf in storage is “a bit precarious” in this scenario, assuming that the Freeport liquefied natural gas terminal comes back online and draws 2 Bcf/d again from October, a he declared.

“We also think there will be a lot of stops triggered if this market makes new highs and hits $10.00, which would only drive prices even higher,” NatGasWeather added. “The market will remain volatile, with the risk of sudden pullbacks even in what appears to be an overall bullish backdrop.”

Spot Price Gathering

Despite forecasts showing a return to seasonal temperatures in some areas, the strong heat is expected to continue in the western half of the country and lead to huge price gains on Tuesday.

The National Weather Service (NWS) said the upper level ridge over the southern plains in the central Gulf Coast would help raise temperatures in the mid-to-high 90s to nearly 100 degrees in some parts of the southern plains and lower Mississippi Valley. The heat was also expected to settle in California and the northwest, allowing temperatures to climb into the well into the 100s until at least midweek, NWS forecasters said.

Electricity demand across California has been robust this summer due to periods of extreme heat combined with continued drought.

Wood Mackenzie said an increase in demand of nearly 0.8 billion cubic feet per day across California on Tuesday disproportionately tightened Northern California storage inventories, diverting nearly 0.65 billion cubic feet of injections to Pacific Gas & Electric Co. (PG&E) storage. While the surge in demand on PG&E (approximately 399MMcf) was nearly equal to the increase in demand on the Southern California Gas (SoCalGas) system (approximately 398MMcf), net withdrawals on SoCalGas were only 103MMcf.

“On both lines, these increases in demand were primarily due to an increase in electricity demand,” Wood Mackenzie analyst Quinn Schulz said. “This will likely continue in the near term,” as cooling degree days (CDD) are expected to peak Tuesday in California and could be up to 4.2 CDD above normal.

As of Aug. 14, PG&E’s total inventory was about 36.6 billion cubic feet lower than the past five-year average, according to Schulz. That ties 2021 for the lowest total inventory since 2017.

Schulz said the recent upkeep of the Redwood Path is to blame for the added pressure on total inventory. Since August 6, capacity through the Redwood Path has been limited to 1.7 Bcf/d, reducing throughputs by 322 Mcf/d.

“Conversely, PG&E has withdrawn about 1.22 Bcf/d on average since then and withdrew just over 1.46 Bcf on Monday,” she said.

Price-wise, PG&E Citygate overnight gas climbed 47.0 cents day/day to average $10,315, while SoCal Citygate fell 31.5 cents to $12,140.

Prices were equally high throughout the Rockies. Cheyenne Hub cash jumped 66.0 cents to $8.645 for Wednesday’s gas day, and El Paso San Juan climbed 86.0 cents to $8.875.

Strong price increases were also seen in several other parts of the country. In the Southeast, Transco Zone 5 spot gas rose 93.0 cents on the day to average $9.965, while benchmark Henry Hub rose 69.5 cents to $9.245. Eastern Gas South rose 76.5 cents to $8.175 and Algonquin Citygate rose 85.0 cents to $8.410.

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