The U.S. Energy Information Administration (EIA) on Thursday reported an injection of 41 Bcf natural gas into storage for the week ended July 14. The result fell shy of median expectations in polls and further fueled upward momentum for Nymex natural gas futures.
At A Glance:
- BREAKING: U.S. EIA reports 41 Bcf injection into storage
- Production estimates decline
- European heat adds wrinkle
Natural gas futures lost ground on Wednesday, despite intense near-term heat and lower production estimates. Coming off an 11.7-cent gain, the August Nymex gas futures contract shed 2.6 cents day/day and settled at $2.603/MMBtu. September fell 3.3 cents to $2.585.
NGI’s Spot Gas National Avg. declined 5.0 cents to $2.540 as relatively high but volatile prices in the West cooled off.
Production on Wednesday slipped a tick below 99 Bcf/d, according to Bloomberg’s estimate. That was down from around 100 Bcf/d to start the week and down from 101 Bcf/d much of last week.
Wood Mackenzie analyst Laura Munder said the decrease was focused in Northeast Pennsylvania and on the Transcontinental Gas Pipe Line (Transco) in particular, “with over 90% of the decline along Transco at Chapin, Carverton and Puddlefield receipts.”
Munder cited maintenance scheduled for this month on Transco’s 24-inch diameter Leidy Line A as the likely cause of the restricted receipts in the firm’s sampling.
The weather, meanwhile, remained bullish – both in reality this week and in expectations for the remainder of July and into next month.
NatGasWeather noted Wednesday “dangerous heat holding from California to Texas into the foreseeable future,” while the national eight- to 15-day forecast “remains the hottest of the past 40 years.”
However, the firm added, forecasts have tended to shift cooler as the actual dates draw closer, the firm added, leaving uncertainty about the outlook to permeate the natural gas market.
“This makes each new run of the weather models important, since the onus is on widespread heat holding and not disappointing,” NatGasWeather said. “Overall, we view trade as a battle between what are currently hot/bullish weather patterns versus hefty/bearish surpluses.”
Indeed, natural gas in storage through nearly all of 2023 has held at a hefty surplus to the five-year average. This followed a relatively mild winter and, aside from maintenance events in recent weeks, robust production levels that have often touched record highs above 102 Bcf/d.
The U.S. EIA on Thursday released its latest inventory data covering the week ended July 14. Analysts expected an injection strong enough to keep supplies well above norms.
Estimates submitted to Bloomberg spanned injections of 37 Bcf to 58 Bcf, with a median of 44 Bcf. Reuters’ polling landed at a median of 49 Bcf and found estimates ranging from injections of 41 Bcf to 58 Bcf. The Wall Street Journal’s survey generated a narrower range and an average build expectation of 47 Bcf.
NGI modeled a 41 Bcf increase. That compares with a 35 Bcf build a year earlier and a five-year average increase of 45 Bcf.
EIA reported an injection of 49 Bcf into storage for the week ended July 7. It put inventories at 2,930 Bcf – well above the five-year average of 2,566 Bcf.
“Storage levels remain elevated through November in our model and keep gas prices under pressure,” analyst Jack Weixel of East Daley Analytics said Wednesday.
In a bearish scenario forecast by East Daley, storage could peak at 3,909 Bcf at the end of October, Weixel said. He noted that inventories have exceeded 3,900 Bcf in only four other injection seasons since 2006, when EIA began tracking weekly storage changes.
“At those times, Henry Hub spot prices traded from a low of $2.09/MMBtu in November 2015 to a high of $3.44 in November 2012,” Weixel said. “In weighing the potential price response later this year, we discount the 2012 results, since gas production from tight oil development was significantly lower then…We forecast a $2.40/MMBtu Henry Hub price at the end of October ’23.”
LNG Demand Mounting?
Demand for U.S. exports of LNG – under pressure recently because of maintenance-induced interruptions at Gulf Coast liquefied natural gas facilities and eased demand from Europe – could soon start to climb, analysts at Tudor, Pickering, Holt & Co. (TPH) said Wednesday.
TPH analyst Colton Bean said LNG demand from China picked up in June and this continued into July. “Meanwhile, in Southeast Asia, Singapore hit an all-time high for LNG imports” this summer, he said.
With heat waves canvassing parts of that continent and Europe, competition for U.S. LNG could mount, providing price support. Export volumes have hovered around 13 Bcf/d in July – off from 2023 highs around 15 Bcf/d. Should belated maintenance work culminate this month, LNG feed gas levels could climb to meet the increasing global demand.
Goldman Sachs Group analyst Samantha Dart said strengthening demand from Asia could attract European buyers. “LNG availability for Europe continues to tighten,” Dart said, while Asian demand has “picked up, now moving net higher year-on-year.”
South Korea LNG imports, in particular, “have now moved up year-on-year supported by weeks of realized (and still forecast) hotter-than-average weather,” Dart said. “Further, China’s strong LNG imports in June have held thus far into July, consistent with signs of sequential improvement in manufacturing growth. Lastly, even though Japan LNG imports have remained significantly down year-on-year, local gas inventories have now normalized, suggesting restocking ahead of winter is still to come.”
Physical Market Prices
Next-day cash prices, on the rise for much of July, gave up ground Wednesday as prices in the West gave back some of their strong gains in recent sessions.
Southern Border, PG&E fell 62.0 cents day/day to average $3.745, while SoCal Border Avg. lost 61.5 cents to $4.020.
In the Rockies, Questar shed 16.0 cents to $3.490.
Despite the declines, forecasters see demand holding strong. NatGasWeather said that, in addition to severe heat across Texas, the Southwest and Southern California, temperatures are climbing across multiple other regions. “What’s also aiding strong demand is highs of 90s over the South and Southeast, as well as very warm upper 80s to mid-90s over the East Coast.”
Looking to next week, most of the Lower 48 “will be very warm to hot with highs of upper 80s to 110s, hottest California to Texas,” the firm added. “Very strong demand.”
The Southwest deserts are projected to remain in focus for extreme heat, according to AccuWeather.
“For the past 19 days,” the firm said Wednesday, “Phoenix has sweltered under temperatures at or above 110 degrees amid an unrelenting heat wave, shattering a record that has stood for nearly 50 years.”
The previous record streak of 110-degree days was set from June 12-29, 1974, the firm added.
This summer’s streak isn’t likely to end soon. “This record is forecast to be obliterated, as AccuWeather has 110-plus” highs forecast “every day through at least the middle to latter part of next week,” AccuWeather meteorologist Renee Duff said.
In the Southwest on Wednesday, however, El Paso S. Mainline/N. Baja declined 63.5 cents to $3.715, and KRGT Del Pool fell 55.5 cents to $4.355.
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