Seasonally Steep Storage Pull Not Enough to Bolster Natural Gas Futures, Cash Prices - Natural Gas Intelligence

Seasonally Steep Storage Pull Not Enough to Bolster Natural Gas Futures, Cash Prices - Natural Gas Intelligence
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Seasonally Steep Storage Pull Not Enough to Bolster Natural Gas Futures, Cash Prices

Natural gas futures flipped positive early Thursday after a government inventory report proved bullish relative to recent years. However, it ultimately was not enough to ease festering supply/demand imbalance concerns.

At A Glance:

- EIA prints 72 Bcf withdrawal
- Spring weather blossoming
- Production holds steady, stout

The April Nymex gas futures contract lost 1.7 cents day/day and settled at $2.154/MMBtu. May fell 2.4 cents to $2.283. A day earlier, both shed more than 17 cents.

NGI’s Spot Gas National Avg. on Tuesday fell 19.5 cents to $2.105. Cash prices have declined throughout the week.

The U.S. Energy Information Administration (EIA) on Thursday reported a withdrawal of 72 Bcf natural gas from storage for the week ended March 17. Prior to the report, polls showed draw expectations in the 70s Bcf. NGI modeled a 76 Bcf withdrawal.

The East and Midwest regions led with withdrawals of 36 Bcf and 29 Bcf, respectively, according to EIA. The South Central posted a pull of 6 Bcf. Mountain region stocks declined by 3 Bcf, while Pacific inventories were flat.

From a price perspective, the net result compared bullishly with a pull of 55 Bcf a year earlier and a five-year average decline of 45 Bcf. The decrease lowered inventories to 1,900 Bcf and reflected above-average demand for the covered period – the final week of winter – when a cold snap enveloped several regions of the Lower 48.

Winter weather extended into the start of the current week, and the next EIA print could again prove relatively steep. Early estimates for the week ending March 24 submitted to Reuters ranged from pulls of 38 Bcf to 76 Bcf, with an average decrease of 55 Bcf.

The projections compare with an increase of 15 Bcf a year earlier and a five-year average decline of 17 Bcf.

Still, stocks remained well above the year-earlier level of 1,396 Bcf and the five-year average of 1,549 Bcf. This followed a weeks-long stretch of relatively mild winter that spanned most of January through early March. Production also has hovered around 100 Bcf/d – close to record levels – and it held just shy of the century mark in estimates on Thursday.

The path toward a robust surplus relative to the five-year average as spring weather arrives “is almost a foregone conclusion with little time left in the withdrawal season,” Mobius Risk Group analysts said.

National Weather Service (NWS) data on Thursday showed a pattern of below-average temperatures through the end of March, though with the arrival of spring, cool temperatures often do not translate into strong heating demand.

Meanwhile, BMO Capital Markets analyst Phillip Jungwirth said there are few signs of a sharp pullback in production. Output growth “has been robust over the past year” – up about 6 Bcf/d. While production has steadied around the 100 Bcf/d level early in 2023, he said, “we expect growth to resume with rig activity resilient to lower prices.”

Jungwirth said output could outstrip demand this year, keeping a lid on near-term prices. Yet demand could surge in 2024 and beyond as LNG facilities come online to meet swelling global demand. Europe and Asia are both expected to ramp up calls for liquefied natural gas in coming years.

While the United States is pushing forward with renewable sources of energy in efforts to combat climate change, demand for LNG is expected to grow alongside advancing Asian economies that need gas to replace coal. Europe’s calls for the super-chilled fuel are projected to rise again ahead of next winter as the continent tries to supplant lost Russian supplies in connection with the Kremlin’s ongoing war in Ukraine.

“Renewables are going to be a big part of the future, but we aren’t there yet,” U.S. Global Investors Inc.’s Mike Matousek, head trader, told NGI. “The world is still going to need fossil fuels and gas in particular.”

RBN Energy LLC analyst Sheetal Nasta said in addition to the Freeport LNG facility gradually working to get back to nearly 2.4 Bcf/d of capacity after a fire last year, “hardly a day goes by without news related to U.S. LNG export capacity expansions.”

Announcements include upstream supply deals, offtake agreements and liquefaction capacity expansion. “One project is nearing commercialization, another five are under construction and due for completion in the next few years, still others are fully or almost-fully subscribed and will be officially sanctioned any day now, and the announcements keep coming,” Nasta said.

Spot Prices Sputter

Cash prices clunked on Thursday, led lower by a second day of price corrections in the West.

SoCal Citygate dropped $1.435 day/day to average $8.340, while SoCal Border Avg. fell $1.585 to $2.310 and Malin lost 64.5 cents to $2.775.

Elsewhere, prices were mixed with mostly modest gains and losses. Chicago Citygate shed 11.0 cents to $2.050 and Cove Point ticked up 4.0 cents to $2.050.

NWS data showed mild weather across much of the Lower 48 Thursday, with more of the same expected during the final trading day of the week.

Over the weekend, cooler air is projected to spread from the West through the central United States and onto the Northeast early next week, delivering freezing overnight lows and providing bumps in regional demand.

Farther out to the first several days of April, parts of the West and Midwest could see cooling rain and brief bouts of snow, but most of the South and East will enjoy comfortable conditions with highs ranging from the 50s to the 80s.

Despite the recent pullback in prices, California continues to grapple with severe weather and supply challenges, given its dependence on gas from Texas that is delivered via aging pipelines.

AccuWeather forecasters said Thursday that, following rare tornado touchdowns in Southern California earlier this week, another severe storm is on track to arrive early next week and drop heavy rain and snow on the state.

“There will be no rest for the weary in California next week,” said AccuWeather meteorologist Heather Zehr. She said Central and Northern California would likely face the brunt of next week’s storm.

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