Expiring April Natural Gas Futures Fall Below $2 as Downward Price Pressure Endures - Natural Gas Intelligence

Expiring April Natural Gas Futures Fall Below $2 as Downward Price Pressure Endures - Natural Gas Intelligence

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Expiring April Natural Gas Futures Fall Below $2 as Downward Price Pressure Endures

The April Nymex natural gas futures contract floundered on its final day as the front month – a third consecutive loss – as the intersection of robust production and waning demand again captured traders’ attention.

At A Glance:

- Production offsets LNG demand
- Analysts see 50s Bcf withdrawal
- May takes over as prompt month

April futures on Wednesday fell 3.9 cents day/day to close at a monthly low of $1.991/MMBtu. It then rolled off the books. The May contract, which takes over at the front of the futures curve on Thursday, eked out a 3.7-cent gain and settled at $2.184.

NGI’s Spot Gas National Avg. was flat at $2.470.

Chilly conditions lingered in far northern markets Wednesday and were expected to persist into Thursday, proving doses of near-term heating demand, NatGasWeather said. However, a “mix of cool shots and warmer breaks will propagate across the U.S. March 31-April 11 for swings between light and moderate national demand.” Overall, “highs will generally be in the mid-30s to 60s across the northern U.S.,” while the South “will be nice with highs of 60s to 80s besides locally hotter 90s for very light demand.”

At the same time, production has held around 100 Bcf/d this week and much of the year to date – near record levels – raising concerns that supplies could far surpass demand as spring weather arrives.

The latest gas futures slump – prices have been under pressure since early 2023 – was “triggered by an extension of the recent winter season’s trend of steady gas production alongside persistent mild weather driving sustained declines in demand for heating,” said Rystad Energy’s Emily McClain, vice president of gas markets research.

“Mild weather has helped to support low storage pulls throughout the withdrawal season, pushing gas inventories more than 20% above the five-year average,” McClain added.

The U.S. Energy Information Administration (EIA) is slated to post its latest inventory assessment, covering the week ended March 24, on Thursday. The market anticipates a rare bullish result.

Withdrawal estimates submitted to Reuters as of Wednesday ranged from 48 Bcf to 61 Bcf, with a median draw of 54 Bcf. Bloomberg’s poll showed a similar range and landed at a median pull of 55 Bcf. The Wall Street Journal found an average expected decline of 56 Bcf and a range of 52 Bcf to 63 Bcf.

NGI modeled a 57 Bcf withdrawal. That compares with a five-year average decline of 17 Bcf.

Still, as McClain noted, plump storage levels are to persist. For the week ended March 17, EIA reported a withdrawal of 72 Bcf. The decrease lowered inventories to 1,900 Bcf but left supplies far above the five-year average of 1,549 Bcf.

Freeport LNG Forges Hope

On bulls’ side in the near term – and likely the long term – is steady demand for U.S. LNG exports. Both Asia and Europe are reliable buyers now and are expected to accelerate calls for liquefied natural gas as American capacity increases next year and beyond.

LNG feed gas demand estimates Wednesday topped 14 Bcf/d – approaching record levels – as the Freeport LNG plant in Texas continued its recovery from a 2022 fire and explosion. Freeport nominations hit 1.7 Bcf/d Wednesday as the plant works back to capacity near 2.4 Bcf/d.

“There is some potential upside to prices as Freeport LNG advances feed gas deliveries and subsequent LNG exports in the coming weeks,” McClain said.

Moreover, new LNG capacity is on the way. East Daley Analytics noted Wednesday that two export projects have reached a final investment decision (FID) in March, “bringing into focus a second LNG demand wave.”

Venture Global LNG announced it would move forward with Phase 2 of the Plaquemines LNG facility in southeastern Louisiana, while Sempra Energy also took FID on Phase 1 of the Port Arthur LNG project near Port Arthur, TX. Several more projects are in the works for coming years, East Daley noted.

“Developers are seeing strong commercial interest for U.S. LNG projects, driven recently by interest from European buyers as fallout from the Russia-Ukraine war” continues, East Daley analysts said.

However, as RBN Energy LLC analyst Jason Lindquist pointed out Wednesday, the U.S. natural gas pipeline system is sorely in need of upgrades and expansions to ensure supplies can be delivered to LNG facilities on the Gulf Coast. He echoed recent comments from executives across the natural gas value chain in emphasizing that federal permit reform that hastens regulatory decision-making is needed to ensure the United States can meet both domestic and global demand. Currently, major projects often take years to secure approvals.

“Credible regulations and appropriate safeguards such as the Clean Water Act’s focus on protecting the nation’s water supplies are essential” considerations, Lindquist said. “Still, the reality is that the permitting process for some important, badly needed projects can drag on for three, six or even nine years or longer. And permitting delays not only drive up project costs, they also put additional stress on infrastructure that’s already in place and prevent some projects from ever becoming a reality.”

Cash Prices, Hurricane Outlook

Spot gas prices in much of the nation’s midsection and the South declined as benign weather conditions either settled in or quickly approached.

Chicago Citygate lost 14.0 cents day/day to average $2.010 and Michigan Consolidated shed 6.5 cents to $2.070. In the Midcontinent, Ventura fell 17.5 cents to $2.000.

NatGasWeather said the cool conditions that lingered in the far northern Plains and Rockies at midweek would keep furnaces cranking overnight Wednesday and Thursday. Seasonally cold air could permeate some far Western markets as well.

However, the firm added, mild temperatures across much of the South, Midwest and East were expected to provide an offset and leave overall demand modest moving into early April. Heating demand could then steadily fade moving farther into next month.

Meanwhile, prices in California that have proven volatile this year in part because of supply interruptions from the Permian Basin, could be impacted by a series of spring maintenance events in the Golden State over the next few weeks, Wood Mackenzie analyst Kevin Ong said.

Prices were mixed Wednesday in California. PG&E Citygate climbed 47.0 cents to $7.135, while SoCal Citygate lost 33.0 cents to $9.245.

Further out, AccuWeather said Wednesday its early hurricane forecast calls for the 2023 season to generate activity near the historical average of 11-15 named storms. Four to eight of those storms are expected to reach hurricane strength, with one to three achieving major hurricane status, the firm said in a report. A major hurricane carries maximum sustained winds of 111 mph or greater.

“We are also projecting two to four direct impacts on the United States,” said AccuWeather meteorologist Dan Kottlowski.

Based on the 30-year average from 1990 to 2020, a typical hurricane season consists of 14 named storms, seven hurricanes, three major hurricanes and four direct impacts on the U.S., AccuWeather said.

“Based on climatology and an evolving El Niño pattern during August through October, the highest chance for direct and significant impacts will be from the Florida Panhandle around the entire state of Florida to the Carolina coast,” Kottlowski said. “There appears to be a lower chance for direct impacts over the western Gulf of Mexico and for the Northeast U.S.”

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