March Forecast Trends Disappoint Natural Gas Markets as Forwards Retreat
Declining March heating demand expectations inspired coast-to-coast discounts for regional natural gas forwards during the March 2-8 trading period, NGI’s Forward Look data show.
April fixed prices at benchmark Henry Hub fell 27.1 cents to end the period at $2.548/MMBtu, and week/week fixed price discounts of around 20-30 cents were the norm for much of the Lower 48.
The discounts occurred as the latest forecasts served up a notably less bullish outlook for March cold compared to week-earlier expectations.
The latest midday run of the Global Forecast System model maintained above-normal heating degree totals throughout the 15-day projection period, enough to drive slightly stronger than normal demand nationally, according to NatGasWeather.
“However, the pattern isn’t nearly as cold as what was advertised late last week, and that’s led to disappointment,” the firm told clients Thursday. “Essentially, the weather data was solidly bullish late last week but only slightly bullish in recent data.”
With the storage surplus to the five-year average “still stout at over 350 Bcf, prolonged periods of much below-normal temperatures are going to be required if surpluses are to meaningfully decrease the next couple months,” NatGasWeather added. “Either that, or the supply/demand balance will need to tighten much further.”
Basis swings for the March 2-8 period showed elevated California premiums moderating. PG&E Citygate front-month basis finished the period at plus-$3.906, a 29.1-cent swing lower week/week. SoCal Citygate April basis shed 37.0 cents to end at plus-$2.152, Forward Look data show.
Meanwhile, discounts were somewhat more muted at Emerson, where pipeline maintenance was seen restricting flows during the period.
Ongoing maintenance at the St. Vincent Compressor Station on the Great Lakes Gas Transmission (GLGT) system was impacting around 300,000 MMBtu of Canadian imports into the United States, according to Wood Mackenzie.
The maintenance began March 1 and was expected to last through March 24, Wood Mackenzie analyst Lorraine Bailey said.
Sub-$2 Too Low, But $3 Too Rich
Nymex futures opened the work week with a steep sell-off Monday (March 6) following bearish weekend forecast trends. The April contract had settled a hair above $3 on March 3 but was back down around $2.50 less than a week later.
The prompt month settled at $2.543 Thursday, off 0.8 cents on the day.
Nymex futures near the $3 mark had seemed a little too rich for analysts at Tudor, Pickering, Holt & Co. (TPH), even with coal-to-gas switching in the power sector lending support to prices.
“As much as $1.99 felt like an overshoot to the downside to us on the front end of the curve (power burn was likely to support balances), the push toward $3.00 feels like too strong a correction as well,” the TPH analysts told clients Monday.
Data from the week-earlier period suggested the market was 2 Bcf/d oversupplied on a weather-adjusted basis while benefiting from higher levels of natural gas in the power stack, the analysts said.
“Supply has been running a bit hotter than expected” so far this quarter, “with an average of 100.5 Bcf/d, notably driven by strength in the Permian and Haynesville,” according to TPH.
Meanwhile, the TPH analysts said they will be “closely watching LNG demand” during the second quarter “as data points from corporate conversations suggest the industry may go into a heavier turnaround this year after delaying maintenance in 2022 given strong export margins.”
Based on recent supply/demand balances, TPH said it continued to model storage surpassing 4 Tcf this year under normal weather, which would “continue to force the strip lower to correct supply heading into 2024.”
Freeport Ramp-Up
Rystad Energy recorded an all-time record 13.5 Bcf/d for total U.S. liquefied natural gas feed gas deliveries on March 4, helped by the partial return of volumes flowing to the long-idled Freeport LNG terminal.
“So far, feed gas has averaged over 13 Bcf/d in March, higher by 0.5 Bcf/d when compared with the previous month,” Rystad analyst Emily McClain said in a recent research note. “Freeport LNG feed gas levels have risen to over 1.3 Bcf/d at the start of the week and are expected to climb as the operator continues to ramp up production.”
The ramp-up is poised to continue after FERC authorized Freeport LNG Development LP to restart service on its final train.
The latest Federal Energy Regulatory Commission action clears the way for all three of Freeport’s liquefaction trains “to be recommissioned and returned to service,” Wood Mackenzie analysts said.
“Freeport has already been authorized to place both Trains 2 and 3 into service,” the firm told clients Thursday. “Train 3 has likely already completed cooldown and been returned to service, while power readings indicate that Train 2 has likely completed cooldown, but recent magnetic field readings have shown inconsistent power draw to the facility after a brief shutdown” late Monday (March 6).
“It is currently unknown what has caused this inconsistent power draw, but it is likely related to issues fully restarting the trains at the facility,” the Wood Mackenzie analysts added.
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