Natural Gas Forwards Prices Skid Lower as Market Looks Beyond Summer Heat
Both regional natural gas forwards and Nymex futures came under selling pressure during the Aug. 17-23 trading period as the market looked beyond recent sweltering summer temperatures, which have only dented a lingering inventory surplus.
Fixed prices at benchmark Henry Hub slid 9.5 cents to $2.494/MMBtu for September delivery, NGI’s Forward Look data show.
Fixed price discounts were more pronounced for western Lower 48 hubs that have been trading at relative premiums to the rest of the country. SoCal Border Avg. sold off 55.4 cents for September delivery to end at $3.777. Malin tumbled 52.1 cents to $3.170.
This coincided with price declines farther upstream in West Texas, where El Paso Permian shed 32.6 cents for the period, finishing at $1.830 for September.
Discounts were also the theme from the Midwest to the East, where downright fall-like conditions were expected for late August into early September.
Dawn ended the period at $2.150 for September delivery, off 10.3 cents. Algonquin Citygate fixed prices plunged to only $1.251, a 29.0-cent drop week/week, Forward Look data show.
“High pressure settles into the Midwest during the early half” of the six- to 10-day time frame “before moving toward the East Coast from mid to late period,” Maxar’s Weather Desk said in its latest forecast Thursday. “Cooler changes are associated, as Canadian air is now projected to be entrained.
“A round of below and even much below-normal temperatures accompanies the high pressure, with the coolest days having lows in the 50s and highs in the 70s in Chicago and Philadelphia,” the forecaster said. “The South also cools when compared to the near term, with near normal temperatures in the Southeast but Texas still featuring above normal temperatures.”
Production Strength, LNG Weakness
Production remained robust during the Aug. 17-23 period, while LNG feed gas demand underwhelmed, estimates showed as of Thursday.
Domestic output had averaged 101.8 Bcf/d over the prior seven days, according to Wood Mackenzie estimates. On the demand side, recent seven-day average liquefied natural gas feed gas volumes of 11.5 Bcf/d served to undercut recent power burn strength, the firm’s estimates showed.
Still, a large bullish miss in the latest U.S. Energy Information Administration (EIA) storage report provided modest uplift for Nymex futures following consecutive down days. The September contract climbed 2.2 cents to settle at $2.519 Thursday. November, meanwhile, picked up 4.9 cents to reach $3.093.
Analysts at Gelber & Associates attributed pre-report selling for Nymex futures partly to “reduced fears of Australian LNG strikes following a deal made between Woodside and unions. That said, the storage miss appears to have rendered that inconsequential when it comes to price.”
Support from recent weather-driven demand strength had the potential to “fall rapidly” heading into the expiration of the September contract in the upcoming week, EBW Analytics Group analyst Eli Rubin observed in a recent research note.
“The front month contract has lost ground during the last two trading sessions in each of the past five months,” Rubin said.
Looking further out, the projected end-October storage carryout was recently seen trending below 3,825 Bcf as prices have fallen, according to the analyst.
“If production drifts lower, LNG strengthens and weather leans bullish, moderate strength is possible over the next 30-45 days,” Rubin said.
MVP and Appy Producers
Following a recent decision by the U.S. Court of Appeals for the Fourth Circuit to dismiss cases against the project, the Mountain Valley Pipeline (MVP) appears to have the green light to pursue plans to wrap up construction by the end of the year.
Still, analysts at East Daley Analytics said they continue to “see the potential for delay, particularly if the project timeline slips into winter and cold temperatures disrupt construction work.”
The firm said it is modeling a start-up date in the second quarter of next year. In any case, the incremental Appalachian takeaway capacity provided by MVP’s startup may not see much use right away, according to the East Daley analysts.
“Most producers are content to keep production flat, so we anticipate spare egress capacity regardless if MVP is built,” the analysts said. “Nevertheless, we view MVP as valuable to jumpstart new infrastructure investments required to connect the Northeast to the next wave of demand from LNG exports.”
Modeling from RBAC Inc. points to notable discounts for Transco Zone 5 pricing versus a scenario where MVP isn’t built, savings that would benefit end-users.
“We found that customers in the region were paying a 33% premium on their natural gas costs without the project,” RBAC analyst Robert Kachmar said. “This is the same story for MVP Southgate, which promises to pass along similar cost reductions to an even larger population in Virginia and North Carolina.
“These pipelines serve regions historically known for coal production and consumption,” Kachmar added. “In fact, numerous power plants in the region still run on coal…By facilitating delivery of a reliable fuel source that only is cheaper, but reduces emissions as well, these pipelines benefit consumers and the environment at the same time.”
Appalachian hub Eastern Gas South saw downward basis pressure at the front of the curve during the Aug. 17-23 trading period, while winter pricing there held steady in terms of its differential to Henry Hub.
Eastern Gas South September basis slid 7.5 cents, ending at minus-$1.619. January basis finished at minus-83.4 cents, off 0.3 cents week/week.
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