Natural gas futures, weekly cash prices fluctuate as production surges, fall weather approaches

Weekly cash prices for natural gas fell sharply amid rising production and near-term forecasts of mild temperatures across much of the bottom 48.

NGI’s Weekly Spot Gas National Avg. for the period September 6-9, it fell $1.010 to $7.865/MMBtu. Cash prices fell in each of the four sessions of the holiday trading week. The period has been shortened due to the Labor Day holiday on Monday.

Conditions throughout the week were ripe for demand – with ongoing summer heat across much of the Lower 48 and scorching triple-digit highs in California and the Southwest. However, forecasts pointed to milder conditions in the coming week and further into September.

At the same time, production surpassed 100 Bcf/day at points during the week, hitting highs for the year and easing concerns about a supply/demand imbalance.

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As the trading week ended, SoCal Border Avg. fell $2,040 to $10,690 while Cheyenne Hub was down 99.5 cents to $7,455 and Algonquin Citygate was down 64.5 cents to $7,595.

Nymex futures also tumbled during the week. The October prompt month contract saw steep falls on Tuesday and Wednesday, trading at $7.996/MMBtu to close Friday’s trading, down 9% from the previous week’s close.

Easing weather demand expectations and increasing supply also provided cover for bears in futures markets during the week.

“Comfortable temperatures are set to arrive” for the upcoming trading week “as weather systems track across the US with highs of 60 to 80,” said NatGasWeather meteorologist Rhett Milne.

He forecast national demand would slacken with rains and lower temperatures in parts of the Lower 48, including Texas and the West.

futures flounder

Natural gas futures found some momentum on Thursday, closing in the green on the day – after the US Energy Information Administration (EIA) reported an injection of 54 Bcf of natural gas into storage for the week ended September 2.

The result was in line with major survey expectations but fell short of the five-year average of 65 Bcf and left shares below historical norms.

Stored working gas rose to 2,694 Bcf as of Sept. 2, according to the EIA. However, shares were 222 bcf lower than a year earlier and 349 bcf below the five year average.

This extended a summer-long trend driven by sustained intense heat and robust cooling needs.

The EIA, in a separate report, estimated that gas in underground storage was 2.7 Tcf at the end of August, down 12% from the five-year average. It forecast stocks would end the injection season at around 3.4 Tcf, 7% below the five-year average.

But Thursday’s gain was overshadowed by the previous two days’ sharp losses. The prompt month posted a modest gain of 8.1 cents on Friday.

In addition to forecasts for fall weather and higher production, EBW Analytics Group analyst Eli Rubin noted the bearish impact of a decision by the Environmental Protection Agency (EPA) this month. The agency chose not to waive an emission control requirement for turbines at Cheniere Energy Inc.’s LNG plants.

The affected Cheniere operations at Sabine Pass and Corpus Christi currently account for more than half of US liquefied natural gas exports, Rubin said. EPA revived emission limits after 18 years of staying, and as part of the change, the agency rejected Cheniere’s offer for an exception to the rule.

A spokesman for Cheniere said the change will not have a significant impact in the short term as the company can gradually adapt over time.

Still, the sheer potential for a drop in LNG export activity — a strong demand driver — has unsettled natural gas traders, Rubin said. This developed at a time when Europe is increasingly dependent on US supplies of the super-cooled fuel to break away from Russian gas imports amid the Kremlin’s war in Ukraine.

“Any disruption could wreak havoc on the U.S. and global natural gas markets,” Rubin said.

Rystad Energy analyst Wei Xiong echoed the sentiment, saying Russia’s already constrained gas supplies to Europe could mean the continent will run out of supplies next winter. She pointed out that this month Russia halted natural gas supplies to Europe via its main pipeline to the continent – Nord Stream 1 (NS1) – over an alleged oil leak at a compressor station. Prior to the outage, NS1 supplies were already limited but were flowing at 1 Bcf/d.

Serious supply adequacy problems could develop early next year based on the latest estimates of European Union (EU) stock levels, Xiong said.

“This risk will increase if Nord Stream 1 remains closed or runs at very low rates and if there is a cold winter or spring is late,” Xiong said. “EU gas storage facilities could be significantly exhausted by March or April 2023.”

Spot prices on Friday

Spot natural gas prices stuttered for the fourth time in as many days on Friday as an imminent respite from the summer heat loomed. Spot Gas National Avg. for gas delivery through Monday fell 37.5 cents to $7.435 on Friday.

NatGasWeather said Friday the northern and eastern parts of the Lower 48 would cool over the weekend and see mild conditions in the coming week. Additionally, Hurricane Kay’s outer bands in the Pacific were expected to bring rain and lower temperatures to the west coast.

After enduring nearly two weeks of triple-digit highs, the company said seasonal highs will return to California in the 80s. Parts of the south could also record similar heights.

Looking ahead to the second half of September, the northern half of the country could see “mostly comfortable highs in the mid-70s and 80s,” with “only modest coverage of highs into the 90s over the southern US with relatively light domestic demand,” he said NatGasWeather said.

With this bearish forecast as a basis, prices fell across all regions of the Lower 48 on Friday.

Waha in Texas lost 32.0 cents a day to average $6.595, while Chicago Citygate lost 11.0 cents to $7.380 and Florida Gas Zone 3 fell 13.5 cents to $8.880.

In the West, on the other hand, prices plummeted from their recent highs. KRGT Del Pool fell $3,880 to $7,770 and SoCal Border Avg. lost $3.075 to $8.255.

Further out, the National Oceanic and Atmospheric Administration (NOAA) released an updated outlook on Thursday that predicted a 91% chance that the current La Niña pattern would affect weather conditions through fall and a 54% chance into the coming winter . NOAA cited cooler-than-average water in the east-central Pacific and long-range climate models.

If a La Niña winter develops, it would be the third year in a row. During such winters, the southern half of the country tends to be warmer, while the northern half is often colder than normal. That would bode well for natural gas consumption in markets throughout the upper Midwest and Northeast.

La Niña patterns also often exacerbate droughts in California and the Southwest. This would reduce hydropower and potentially increase demand for natural gas in these regions.