Natural Gas Forwards Steady as Market Waits for Summer Cooling Demand
With the market weighing mild shoulder season weather and bloated storage against weaker production, regional natural gas forward prices generally held steady at the front of the curve during the April 4-10 trading period.
Fixed prices at benchmark Henry Hub finished the period at $1.888/MMBtu for May delivery, up 4.3 cents week/week, according to NGI’s Forward Look. Numerous Lower 48 hubs similarly finished within a nickel of even.
There were some exceptions, notably in the Permian Basin, where the region’s oil-driven economics contributed to an inversion of natural gas prices for May delivery.
Permian Pain Point
Fixed prices at El Paso Permian, Waha and Transwestern all sold off sharply for May and across the peak summer contracts during the April 4-10 trading period, Forward Look data show.
Amid weak demand and pipeline constraints, daily spot prices in the Permian have averaged in the negatives more often than not since mid-March, NGI’s Daily Historical Data show.
Negative near-term pricing in the region has shown few signs of letting up recently; if anything, price pressures have increased. Between the April 4 and April 10 trade dates, Waha spot prices went from averaging minus-33.0 cents to minus-$2.015.
That market pressure spilled over into May fixed price forwards, pulling regional hubs into the negatives. For example, natural gas for May delivery at Waha ended the April 4-10 trading period at minus-18.6 cents, down 40.3 cents week/week.
According to the U.S. Energy Information Administration (EIA), the South Central region injected 18 Bcf into storage during the week ending April 5, with regional stockpiles ending at 1,014 Bcf, 36.3% higher than the five-year average.
Adding to the pressure on Permian natural gas prices, Kinder Morgan Inc.’s Gulf Coast Express Pipeline has planned maintenance for a compressor overhaul at multiple stations in effect until early May. More work is slated for mid-May, according to the operator.
Pricing points downstream of the Permian also came under downward pressure for May in recent trading. SoCal Border Avg. May fixed prices fell 8.7 cents week/week to $1.503.
Surplus Seen Lingering on Mild Temps
Recent forecasts suggested spring weather might do little to ameliorate the uncomfortably large storage cushion inherited following a mild winter.
Somewhat cooler conditions expected over the northern United States around April 19-24 could deliver “closer to seasonal demand” for natural gas, though models were struggling to pin down exactly how much cold will reach northern and eastern portions of the Lower 48, according to NatGasWeather.
“Also of consideration, much of the weather data favors a very nice U.S. pattern returning April 26-May 5 with highs of 50s to 80s for a swing back to very light national demand,” the firm said.
According to EBW Analytics Group analyst Eli Rubin, the mild weather-driven demand on tap, by stalling the market’s efforts to bring down storage surpluses, could “open pockets of weakness” for natural gas prices.
“It remains possible that the storage surplus versus the five-year average will be higher at the end of April than at the end of March,” Rubin said.
That said, the firm expects “fundamental upside to materialize into early summer,” according to the analyst.
The market may have to endure “an extended period of subdued prices this spring” first, Rubin said. “Eventually, however, the market may rally” as a combination of weaker production, stronger liquefied natural gas demand and summer cooling demand helps “soak up excess inventories to put Nymex futures on a sustainable path higher.”
EIA reported a larger-than-expected 24 Bcf injection for the week ended April 5 that kept the Lower 48 surplus versus the five-year average unchanged at 633 Bcf.
The result appeared to amplify market concerns over the excess molecules in storage at this point in the season. The May Nymex contract plunged double-digits Thursday.
“The current surplus to the five-year means that any pressure from regulators to fill storage to mandatory levels for the coming winter will be absent for quite some time,” analysts at Gelber & Associates said. The “sizable” build from the latest EIA print speaks to “the sheer amount of cheap gas in the market.”
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