Natural Gas Futures, Spot Prices Fall Second Day as Market Braces ... - Natural Gas Intelligence

Natural Gas Futures, Spot Prices Fall Second Day as Market Braces For Bearish Storage Report - Natural Gas Intelligence
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Natural Gas Futures, Spot Prices Fall Second Day as Market Braces For Bearish Storage Report

Natural gas futures faltered on Wednesday, a second-consecutive loss, as analysts anticipated another soft government inventory print and traders started to look past a late-winter surge of cold and toward likely benign spring weather.

At A Glance:

- Analysts see modest storage draw
- Forecasts call for near-term cold
- Mixed reads on gas production

The April Nymex gas futures contract settled at $2.439/MMBtu, down 13.4 cents day/day. May lost 14.4 cents to $2.546.

Over on the cash side, NGI’s Spot Gas National Avg. shed 16.5 cents to $2.700.

NatGasWeather said cooler air and multiple bouts of late-winter storms would likely drive seasonally strong heating demand through the second half of March. The weather models Wednesday were “slightly to moderately bullish the next 15 days,” the firm said.

It also noted the Freeport LNG export plant in Texas, forced out of commission last June following a fire, is in the midst of ramping up to 2.38 Bcf/d of capacity, adding to the demand side of the equation. Production estimates also have hovered around 98 Bcf/d this week – down about 2 Bcf/d from recent highs.

“If prices fail to rally in this environment, it could prove problematic for the bullish case,” NatGasWeather said.

Still, production proved strong through most of 2023, as heating demand was below average through January and February across large swaths of the country. This minimized the need for utilities to pull gas from storage. Underground supplies, as a result, are stout for this time of year.

“Supply is still quite strong and surpluses healthy, so it would take prolonged cold for much of April” to meaningfully alter the storage picture, NatGasWeather added.

The market will turn next to the U.S. Energy Information Administration’s (EIA) weekly storage report on Thursday. It will cover the week ended March 10. Analysts again expect a bearish result relative to recent history.

NGI modeled a withdrawal of 64 Bcf. The five-year average for the period is a pull of 77 Bcf, while last year saw a 86 Bcf draw for the week.

Major surveys produced withdrawal estimates ranging from 49 Bcf to 76 Bcf. Bloomberg’s poll landed at a median draw of 63 Bcf, while a Reuters survey found a median expectation of 61 Bcf.

The Wall Street Journal’s survey produced an average draw estimate of 62 Bcf.

In its last inventory assessment, EIA reported an 84 Bcf withdrawal for the week ended March 3, well below the five-year average decline of 101 Bcf. Inventories totaled 2,030 Bcf – 359 Bcf above the five-year average.

“The holding pattern for the U.S. natural gas market in 2023 is continuing and shows no signs of ending, even as we exit winter and approach storage injection season,” Rystad Energy analyst Ade Allen said Wednesday.

Given forecasts this week, “some reasonable late-winter withdrawals are possible, but it won’t be enough to move the needle on storage,” Allen added.

One of the primary drivers for subdued prices is the current situation surrounding South Central storage, where supplies are strong, in part because of the liquefied natural gas outage at Freeport in Texas, Allen said. “The return of Freeport LNG export volumes and elevated gas burns due to increased competition in the thermal stack has provided some much-needed balance for the region.” However, the market is not convinced “that will be sufficient as we head into the shoulder season.”

Production Drops?

While production fell this week, East Daley Analytics said Freeport LNG’s restart “appears to be skewing pipeline samples out of the Haynesville Shale and creating a distorted view of natural gas supply trends.”

The firm said pipeline flows in East Texas and northern Louisiana were at an all-time high in February, but receipts began to trail off at the end of last month and early in March.

Most of the declines have occurred in samples from Energy Transfer’s Tiger and Gulf Run pipelines, East Daley analysts said. “The trend has sparked some speculation that Haynesville producers may have started to shut-in wells in response to lower gas prices,” East Daley analysts said.

“Color us skeptical of the shut-in theory,” they added. East Daley “believes declining samples instead are linked to start-up of Freeport LNG on the Texas Gulf Coast. With Freeport now cleared to resume commercial operations, pipeline deliveries have ramped recently. Volumes to Freeport jumped by 1 Bcf/d from Feb. 27 to March 5, for example. East Daley analysts said they think more gas is being redirected south on Texas intrastate pipelines to Freeport LNG rather than flowing east to northeastern Louisiana.

“The shift of volumes from interstate to intrastate systems, which do not appear in daily pipe scrapes, creates the illusion of declining supply,” the analysts said.

Cash Prices Sputter

Spot natural gas prices were dragged lower on Wednesday by retreating prices in the East. A winter storm barreled into the Northeast and nearby regions midweek, but milder conditions were forecast to return by Thursday and carry into the weekend.

Niagara fell 12.0 cents day/day to $2.280 and Transco Zone 6 NY dropped 33.5 cents to $2.270.

Elsewhere in the East, Columbia Gas lost 15.5 cents to $2.175, while Cove Point shed 32.0 cents to $2.380.

Prices declined in most other regions, too. California proved an exception, with SoCal Border Avg. up 41.5 cents to $5.275.

However, another “frosty upstream weather system will sweep across” the United States this weekend and early next week, with rain, snow and freezing temperatures for “strong national demand,” NatGasWeather said.

Forecasts from Maxar’s Weather Desk Wednesday showed below-normal temperatures covering much of the country throughout its 15-day projection period.

“Below and much below-normal temperatures are widespread in coverage from early to mid-period, with the forecast trending additionally colder…in the South and East,” Maxar said of its six- to 10-day forecast.

The 11- to 15-day forecast continued to show below-normal conditions over the western Lower 48, according to the forecaster.

“Above-normal coverage is limited to the East Coast at the start of the period,” Maxar said. “As low pressure passes, the East Coast also cools toward normal or slightly below normal levels during the second half.”

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