Natural gas futures opened the week lower as a trifecta of bearish factors, including a large drop in export feed gas demand, brought prices down a couple of notches. The July Nymex gas futures contract fell 2.7 cents to $3.070. August fell 2.5 cents to $3.089.
Spot gas prices were higher, however, as heat blanketed the Midwest and Northeast. NGI’s Spot Gas National Avg. climbed 12.0 cents to $2.880.
After maintaining the $3.00 mark last week in the face of moderate temperatures, weather models that showed much hotter conditions in key regions this week helped lift the July Nymex futures contract even higher, to around $3.100 on Friday. However, weather data in recent runs has backed off some of the hot weather, both in terms of intensity and location.
On Monday, the forecast shifted a little further cooler for the next couple of weeks but maintained the “impressive heat” for this week, according to Bespoke Weather Services. The firm said widespread daytime temperatures in the 90s were forecast for the Midwest and East this week, but a stronger trough diving into the eastern half of the nation next week would likely lead to cooler weather. With the change, the best heat would shift back toward the Rockies and Plains.
“This brings national demand a little below the five-year normal, briefly, before rebounding back to normal” moving toward June 20, Bespoke said.
Despite the change, June is on pace to be the 6th hottest on record in terms of national gas-weighted degree days, assuming temperatures come in at the five-year normal beyond day 15, “which seems plausible,” according to Bespoke. “Recall that early last week, the projection was for the third hottest June, so we have slipped a little, but remain in a hotter-biased pattern, overall.”
Meanwhile, liquefied natural gas (LNG) feed gas demand also declined further amid various maintenance events taking place at U.S. facilities. NGI data showed deliveries to U.S. export terminals at around 9.5 Bcf on Monday, up from an intraweek low of 8.7 Bcf but well off the 11.3 Bcf level reached on May 30.
A large decline in feed gas was seen at the Corpus Christi LNG export terminal. Flows to the South Texas facility dropped to around 1.6 Bcf, which is off from the 2.75 Bcf operating capacity, NGI data showed. Criterion Research LLC noted that if the maintenance event follows the trend of facilities like Cove Point, then flows could resume starting Wednesday.
On a positive note, exports to Mexico remain strong. So far this summer, U.S.-to-Mexico piped gas exports are averaging over 6.4 Bcf/d, according to Wood Mackenzie. An all-time high for the summer season, this volume represents a 1.7 Bcf/d rebound from the same period last year.
[Mexico Midterm: Tune into NGI’s Hub & Flow podcast as Senior Editor Christopher Lenton speaks with Lourdes Melgar of the Baker Institute and MIT about the upcoming vote in Mexico and what impacts it may have on the natural gas and energy sectors.]
“The first few days of June are already crossing the 7 Bcf/d line, driven by strong boosts in Mexico-bound flows from all U.S. complexes,” said Wood Mackenzie analyst Ricardo Falcon.
The summer-to-summer increment reflects a “sound recovery” from the Covid-19 pandemic, which had its hardest hit on the Mexican gas market between early April and mid-May 2020, according to the analyst. Wood Mackenzie’s current forecast sets exports to Mexico at an average of 6.8 Bcf/d, “probably reaching their peak in August at a monthly average of over 7 Bcf/d.
“Most of the upside potential in border flows rests with the power sector, where seasonal cooling loads will likely continue to push up gas burns,” Falcon said. “But weaker LNG sendout and Mexican dry gas production will also play a role: summer-to-summer, the former is 0.2 Bcf/d lower at a meager average of 0.04 Bcf/d, whereas the latter is 0.3 Bcf/d smaller at 2.2 Bcf/d.”
As for Monday’s price decline, Bespoke said the move lower “makes sense,” given not only the changes in the weather forecast, but also production having hit new recent highs over the weekend at just over 92 Bcf. “This matches the highest levels seen since April 2020.”
Meanwhile, weather-adjusted power burns have weakened. Bespoke pointed out the possibility of weaker burns last week, as nuclear output is higher and wind would likely not stay as “crazy low” as seen last week.
The firm also noted that the ongoing issues related to Texas Eastern Transmission (Tetco) provide some uncertainty to the market.
Last week, the U.S. Pipeline and Hazardous Material Safety Administration (PHMSA) issued an order requiring Tetco to reduce the operating pressure by 20% on its 30-inch diameter line from Uniontown, WV, through Kosciusko, MS. Tetco subsequently declared force majeure. Columbia Gas Transmission also had to declare its own force majeure because of the reduced flows at its Waynesburg, WV, interconnect with Tetco. The duration of these restrictions is not yet known.
“So far, the impact seems small, based on our data,” Bespoke said. “If that remains the case, we feel a drift to $3.00 in prompt month should take place.”
However, there are reports that Tetco may be required to reapply for a permit before restrictions are lifted. If this proves correct, the restrictions could remain in effect for many months, according to EBW Analytics Group. “While much of the gas affected is likely to be rerouted, flows from Appalachia to the Gulf could be reduced by as much as 1 Bcf/d, potentially constraining production in the Northeast and increasing prices at Henry Hub during this year’s injection season.”
Toasty Temps
With the mercury rising across the country, so too did gas prices.
AccuWeather said It felt like the middle of summer in parts of the Northeast this weekend. New York City’s Central Park finally reached 90 degrees and higher Sunday, and several record highs were broken both Saturday and Sunday across the region.
Newark, NJ, led the way by soaring to 97 degrees on Sunday, knocking the previous record of 94 from 2010 “out of the park,” according to AccuWeather. Queens, NY, and Burlington, VT, followed with record-breaking highs of 95 in both locations.
“Temperature departures will average 12 to 25 degrees Fahrenheit above normal across the Northeast and mid-Atlantic through Tuesday,” said AccuWeather lead long-range meteorologist Paul Pastelok.
However, as the week continues, heavy rain is expected toward the Ohio Valley Tuesday and Wednesday. An area of thunderstorms is forecast to stall, bringing “flooding downpours” to the Gulf Coast and Southeast Monday, then into the Ohio Valley Tuesday and to Arkansas over to southern Ohio by Wednesday.
A cold front is expected to hit the Northeast late in the week, bringing back “seasonable conditions” by the weekend, according to AccuWeather.
The extreme heat combined with the pipeline issues in the Northeast led to increased volatility throughout the East Coast.
In Appalachia, Texas Eastern M-2, 30 Receipt spot gas prices continued to fall, tumbling 50.5 cents on Monday to average $1.310. Columbia Gas, however, jumped 15.0 cents to $2.680.
Algonquin Citygate shot up an even more impressive 77.0 cents to $3.650.
Other parts of the country also saw higher spot gas prices. Transco Zone 4 was up 11.5 cents to $3.035, and Ventura was up 9.0 cents to $2.905.In Texas, Katy cash rose 14.0 cents to $3.015, but Waha plunged 35.0 cents to $2.280.
