Weekly natural gas cash prices fell as mild temperatures and low heating demand paved the way for price corrections.
NGI’s Weekly Spot Gas National Avg. for the period March 20-24, it fell 40.0 cents to $2,320.
Prices declined in four of the five sessions last week. Weather favored the Bulls at the start of the week, with cool conditions permeating much of the Lower 48. But the cold crowded out mid-week and was replaced by mostly benign weather, which dampened demand. Production, meanwhile, has held near 100 Bcf/day – close to record levels.
“Producers are still very active,” despite the low prices so far in 2023, Mike Matousek, chief trader at US Global Investors Inc., told NGI.
By the end of the trading week, the Chicago Citygate was down 34.0 cents to $2.110 and the Algonquin Citygate near Boston was down $1.015 to $2.045.
Recently restored pipeline capacity on a key Kinder Morgan line also contributed to some price declines in the West. SoCal Limit Avg. fell 41.0 cents to $4.045 and KRGT Del Pool lost 54.5 cents to $4.755.
The April Nymex contract also struggled for much of the week as it was hampered by looming spring weather and ample supplies. It settled at $2.216/MMBtu by Friday’s close, up 6.2 cents on the day but down from last week’s close of $2.338.
Forecasters were predicting some regional surges in demand over the coming week as weather systems spread from west to east, delivering cool winds and rainfall. However, headline demand is not expected to prove strong as spring weather settles in the south.
Additionally, even amid current price pressures, many analysts expect increased supply this year as producers maintain momentum for an expected increase in LNG export demand from 2024 onwards. New LNG plants are slated to come online next year – and more in the years to come – to meet strong European and Asian demand for super-cooled fuel.
RBN Energy LLC analyst Sheetal Nasta said that along with the gradual restoration of capacity at the Freeport LNG plant after a fire last year, “hardly a day goes by without news of US LNG export capacity expansions.”
Announcements include upstream supply agreements, offtake agreements and liquefaction capacity expansion. “One project is close to commercialization, another five are under construction and scheduled for completion in the next few years, others are fully or nearly fully subscribed and being officially approved every day, and the announcements keep coming,” Nasta said.
futures fight
Futures markets, which have been under pressure for most of 2023, lost ground again last week amid near-term supply/demand imbalances.
Thursday’s inventory report from the US Energy Information Administration (EIA), while moderately optimistic, did little to change market sentiment. EIA reported a withdrawal of 72 Bcf of natural gas from storage for the week ended March 17th.
This compares to a 55 Bcf drop a year earlier and a five year average drop of 45 Bcf. The drop took inventories down to 1,900 Bcf and reflected above-average demand for the period covered – the final week of winter – when several regions of the Lower 48 were gripped by a cold snap.
Still, stocks ended the winter season well above last year’s level of 1,396 Bcf and the five-year average of 1,549 Bcf, leaving markets in doubt about the transition of supply and demand into the mid-season.
Tudor, Pickering, Holt & Co. (TPH) analysts estimated that on a weather adjusted basis the market was 3 Bcf/d oversupplied for the period to March 17 compared to 2 Bcf/d the previous week.
“With withdrawal season ending in two weeks, cumulative draws have amounted to only about 1.6 Tcf (down 0.5 Tcf from the five-year average),” TPH analysts said.
The cold weather that lasted until mid-March could result in another relatively solid pull. Early estimates for the week ended March 24 provided to Reuters ranged from pulls of 38 Bcf to 76 Bcf, with an average decline of 55 Bcf.
The projections compare to an increase of 15 Bcf a year earlier and a five-year average decrease of 17 Bcf.
“But looking ahead to April, the latest forecasts point to a total of around 370 degree days for the month,” or 17% below the five-year average, TPH analysts said on Friday.
Cash prizes on Friday
Friday’s spot natural gas prices for weekend-to-Monday delivery varied by region but rose overall for the first time in an otherwise dismal week for bulls. Spot Gas National Avg. rose 18.0 cents to $2.285.
NatGasWeather said below-average temperatures early next week would sweep across the western, central and northern United States, yielding lows in the teens to 30s and highs in the 30s to 50s for decent national demand. But the firm said the favorable conditions in the south are proving to be a notable offset.
The forecaster said in the first week of April, “A mild ridge will dominate the southern and eastern US early with highs of 50 to 80 for light demand.” However, weather systems should continue over the west and Midwest and pave the way for cool downpours and short bursts of snow. These conditions could reach the northeast later in the week. But again, comfortable conditions in the south could keep overall spot market demand in check.
Contrary to this prospect, prices in the west, having slumped earlier in the week, rebounded and led Friday’s uptrend.
SoCal Citygate gained $1,185 day/day to average $9,525 and Malin rose $1,085 to $3,860.
In the Rockies, Kingsgate is up $1,610 to $4,000 while El Paso Bondad is up 70.0 cents to $2,495.
East Daley Analytics noted continued price weakness in West Texas on Friday.
The long-awaited return of Kinder Morgan’s El Paso Natural Gas Line 2000 in February brought a few weeks of price relief to producers in the Permian Basin as it freed up capacity to send more fuel west.
“The return of Line 2000 on Feb. 15 added 600 MMcf/d of take-away to the Southwest region, freeing up space in congested pipelines and allowing Permian gas to move to higher bidders,” East Daley analysts said. Prices at Waha rose in response.
However, prices at the main West Texas hub have struggled since then, falling in March. On Friday, Waha fell 24.0 cents to 67.5 cents. West Texas rates were the lowest in the Lower 48.
This “indicates that newly available pipeline capacity is already filled, confirming East Daley’s view that Permian gas production will grow rapidly toward pipeline extensions planned in the second half of 2023.” said the analysts. “In our Permian supply and demand forecast, we assume that the exit pipelines are currently operating at 97% of effective exit capacity from the basin and will be operating at an average of 99% of effective capacity by year-end 2023.
The pipeline limits also explain relatively high prices in the West, a region that relies on Permian gas.
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