Natural Gas Forwards Continue to Struggle as Market Wrestles with Storage Glut
As an outsized storage surplus continued to hang over the outlook, regional natural gas forward prices shed value during the March 21-27 trading period, NGI’s Forward Look data show.
Front month fixed prices at benchmark Henry Hub fell 12.7 cents for the period to end at $1.577/MMBtu. However, the benchmark also saw double-digit losses for the May and June contracts.
Fixed prices for June 2024 delivery at Henry dipped below $2.000 during the period to $1.959, Forward Look data show.
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April Futures Swoon
The April Nymex futures contract finished its last day of trading during the March 21-27 period, rolling off the board with a whimper Tuesday at only $1.575. According to historical data obtained by NGI, that ranks among the lowest monthly settlement prices for natural gas futures on record going back decades.
A few months into the pandemic, the July 2020 contract settled at $1.495. Other than that, all other monthly final settlement prices lower than April 2024 occurred in the early to mid-1990s, historical data show.
The last April contract to finish lower than April 2024 was April 1995, when the contract closed at $1.566. Based on the Consumer Price Index, the April 1995 contract would be valued at around $3.20 in today’s dollars.
The historically weak finish for April Nymex futures followed a stretch of meager pricing at Henry Hub in the physical market, EBW Analytics Group analyst Eli Rubin noted.
According to NGI’s Daily Gas Price Index, daily average spot prices at Henry Hub fell as low as $1.240 in March and fell below the $1.500 mark on numerous occasions.
It has been a winter to forget for natural gas bulls, one that has left the market with a lofty storage surplus to whittle down in the coming months.
According to U.S. Energy Information Administration data, total Lower 48 storage stood at 2,296 Bcf as of March 22, 669 Bcf above the prior five-year average. The agency reported a 36 Bcf withdrawal for the week ended March 22, shrinking the year-on-five-year surplus for the first time since January.
“Market inroads reversing the storage surplus versus the five-year average could help stem bearish risks in the immediate term,” according to Rubin. “Still, weather-driven demand could fall 12-14 Bcf/d over the next three storage weeks, while a lack of demand or capacity for injections…may maintain near-term downside price risks.”
Permian Constrained, For Now
Consistent with recent natural gas spot pricing in the Permian Basin, El Paso Permian, Transwestern and Waha fixed prices for April delivery exited the March 21-27 trading period in the negatives.
April fixed prices at El Paso Permian, for example, dropped 13.4 cents week/week to end at minus-0.9 cents, Forward Look data show.
Still, pricing further along the curve foreshadowed strengthening basis differentials for the region later this year.
A $1.691 discount to Henry Hub at Waha for April 2024 in recent Forward Look prices compares to a negative differential of just 59.9 cents for December 2024.
East Daley Analytics analysts recently called 2024 a “mullet year” for the Permian Basin, in reference to the classic haircut. In other words, 2024 is poised to feature a “party in the back” as “new natural gas infrastructure unlocks growth late in the year.”
Flows of associated natural gas out of the prolific Permian remain subject to constraints until the Matterhorn Express Pipeline is ready to enter service. This could keep “supply growth in check” until the second half of 2024, the East Daley analysts said.
Springtime pipeline maintenance appears to be only adding to the pressure on Permian producers trying to get their gas downstream.
The El Paso Natural Gas Pipeline (EPNG) on Tuesday said it was extending the duration of “anomaly repairs” on its Line 2000 downstream of the Casa Grande C Compressor Station, with work now expected to last through May.
Operational capacity through EPNG’s GILA and CASA C constraints, both in Arizona, will continue to be reduced, the operator said.
“The high water table near the Gila River is making access to the anomaly difficult,” EPNG told shippers in a notice on its electronic bulletin board. “Temporary groundwater wells are being installed to reduce the influx of groundwater into the excavation area and facilitate safe access for the repair crew to complete the anomaly repair.”
Still, recent forward pricing downstream of the EPNG constraints in Southern California suggests limited buying pressure for the next few months.SoCal Citygate May fixed prices tumbled 26.6 cents to $2.105 during the March 21-27 trading period. SoCal Border Avg. May fixed prices exited the period at $1.509, down 18.7 cents, Forward Look data show.
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