Northeast Natural Gas Forward Prices Crater Amid Mild Weather Outlook, Returning Pipeline Capacity
Natural gas forward prices found some footing during the May 4-10 period as the majority of U.S. locations were supported by strong power burns and easing production, according to NGI’s Forward Look. Key Northeast markets, however, continued to slide ahead of a multi-week span of mild weather that may expand already plump storage inventories in the region.
Overall, June forward prices averaged 3.0 cents higher through the period while the balance of summer (June-October) climbed an average of 2.0 cents, Forward Look data showed. Prices for the winter 2023-2024 (November-March) tacked on an average 3.0 cents, but the summer 2024 strip (April-October) fell 5.0 cents.
With maintenance wrapping up on portions of the Algonquin Gas Transmission system, prices there plummeted.
Algonquin Citygate June forward prices dropped 28.0 cents from May 4-10 to reach $2.971, and the balance of summer fell 18.0 cents to $2.830, according to Forward Look.
However, big gains were seen for the upcoming winter, with Algonquin Citygate’s five-month strip averaging 28.0 cents higher through the period at $12.363. Regional prices traditionally are higher in the winter season, but even more so because New England’s pipeline infrastructure is inadequate to meet strong demand that time of year.
A look at Algonquin’s electronic bulletin board Thursday showed that a two-day maintenance at the Oxford compressor station ended on Wednesday, easing gas flows throughout the region and causing the downturn at the front of the Algonquin Citygate forward curve. Work at Cromwell Unit 10 and the Weymouth station is expected to wrap by the weekend, and there are other maintenance events ongoing along the Algonquin system. However, any remaining constraints are not seen impeding the ability to meet modest heating or cooling needs.
Based on the current outlook, there may be a short-term bump in cooling demand through Friday before a return to near-perfect temperatures over the weekend. AccuWeather said temperatures in many areas away from the coast are expected to soar into the 80s, with drier air in place and thus a heightened risk of wildfires.
“Warmer air more reminiscent of late June will build into the Northeast for the last few days of the week,” said AccuWeather meteorologist Dean DeVore.
After five days with highs in the 70s, close to historical averages, both Philadelphia and New York City could see temperatures in the 80s on Thursday. The change in temperature is expected to be even more stark in New England, where daytime highs are seen rebounding from the 50s and 60s that were recorded earlier this week to the 70s and lower 80s.
“The warmth will hit its crescendo on Friday, when the mercury could come within earshot of 90 degrees in some of the normally warmer spots in the Mid-Atlantic, such as interior northern New Jersey,” AccuWeather said.
As quickly as the warmth builds, it is forecast to fade. High temperatures are expected to settle back into the 60s and 70s by Sunday and through next week, with the threat of rain and thunderstorms returning. Despite the stark difference, those temperatures are still fairly close to historical averages for mid-May and shouldn’t lead to any meaningful increase in demand.
The mild outlook is expected to continue for several weeks, with the lack of accompanying demand likely to result in more gas flowing into underground storage.
Will The Market Remain Oversupplied?
Storage inventories already are sitting well above historical levels following a mild winter. Although April brought about some cool conditions for the northern United States, it did little to make any significant dent in the surplus.
On Thursday, the Energy Information Administration (EIA) said stocks in the East region rose by 12 Bcf to 422 Bcf, which is about 56% higher than year-ago levels and about 31% above the five-year average.
The Midwest also continues to see much higher-than-normal storage inventory levels, while the Mountain region sat only about 2% above the five-year average based on the latest EIA report.
The South Central, a critical region for the gas market given the rise of exports on the Gulf Coast, remains on solid footing when it comes to storage. However, its surplus to the five-year average has dwindled over the past two months, with the latest inventory data no exception.
The EIA said South Central stocks increased by a net 25 Bcf to 1,002 Bcf. This is about 35% above year-earlier levels but only about 25% above the five-year average.
Mobius Risk Group pointed out that the 25 Bcf build in South Central stocks falls short of the 31 Bcf injected last year. Importantly, though, the year/year weather comparison in the region is anything but identical. This year has seen a significantly cooler-than-normal start to May, while the same period last year was hot enough to drive some notable early season cooling demand.
Total working gas in storage climbed by 78 Bcf to reach 2,141 Bcf, which is only about 18% above the five-year norm, according to EIA.
The 78 Bcf injection is contrary to the storyline of “troublesome” oversupply, according to Mobius. The firm noted that total U.S. degree days are also almost identical year/year.
That said, EBW Analytics Group pointed out that weekly heating demand is set to plunge 8.1 Bcf/d this week and could halve again over the next two weeks. This would occur even as early-season cooling demand remains stunted by cool weather in Texas resulting from widespread downpours.
“Although May heating demand can outpace early-season cooling demand early in the month, the combination of both currently balmy temperatures and a distinct lack of heat heading into Memorial Day weekend – the unofficial beginning of summer – may enable natural gas pricing to sag,” said EBW’s Eli Rubin, senior energy analyst.
Meanwhile, LNG exports also have softened amid seasonal maintenance at several liquefied natural gas facilities. Cameron LNG remains in maintenance, Corpus Christi has similarly retreated sharply lower to start the week and Sabine Pass is more than 0.6 Bcf/d off facility highs, according to EBW. Collectively, the 12.3 Bcf/d of daily LNG feed gas demand has slumped to match year-ago levels.
Against that backdrop, production is set to recover sharply following recent declines tied to maintenance. Once these planned turnarounds conclude, output could easily soar back to near-record levels. This points to an exploding year-over-year storage surplus ahead, according to EBW.
“Similar to the projected 125 Bcf explosion in the storage surplus versus the five-year average through mid-June, the year/year storage comparison could rocket higher by more than 175 Bcf by over the next seven EIA reports – even despite an extra 175 Bcf of price-induced coal-to-gas switching demand in the power sector relative to surging year-ago pricing,” Rubin said.
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