With cooler weather on tap, weekly cash natural gas slide, and futures

Spot gas prices fell during the August 1-5 trading week as robust production numbers fended off intense heat across much of the country. With thunderstorms blowing across the Midwest, and colder weather expected in some areas by the end of the week, NGI’s National Weekly Gas Average. It fell 63.5 cents to $8,020/MMBtu.

Nymex futures also finished the week lower even as the bulls announced Freeport LNG that they will restart all three liquefaction trains in October. After digesting the LNG export facility’s return, and with recent government inventory data easing, the September Nymex contract settled Friday at $8,064, versus 21.9 cents from Monday’s close.

The heavy losses recorded in the money markets in the first week of August were led by the Southeast, which continues to bake in the scorching hot weather. But with double-digit gas prices rising in some parts of the region, coal generation is seen to shoulder some of the loads previously used by gas.

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Florida Gas Zone 3 fell $2,425 per week to an average of $10,295 for the August 1-5 trading period. Transco Zone 5 dropped $2,165 to $10,495.

Significant losses of over $2 extended into Louisiana, but the majority of locations in Bayou saw prices fall between 50.0 cents and $1.00 per week. Henry Hub fell 69.0 cents to $8.105.

A similar drop in prices spread across most of the country. In the Northeast, however, several locations ended the week on high after they posted record temperatures that soared into the 90s and approached the century mark.

PNGTS cash prices averaged $12,640 for the week, up $2,650. The Tenn Zone 6300L picked up 10.5 cents over the course of the week to an average of $8,425.

Forecasts showed cooler weather, at least temporarily, this weekend as the region is set to wash away more torrential rain. The best chance of widespread rain and severe thunderstorms late Friday is from Washington, D.C. and Baltimore to Philadelphia, New York, and Boston, according to AccuWeather. The wet pattern may continue through Saturday.

“It feels like a gradual return to sauna conditions in the Northeast generally from Sunday through Tuesday as pressure rises over the nearby Atlantic,” said Joe Lundberg, AccuWeather’s chief meteorologist. Temperatures in northern New England may recover as quickly as possible on Sunday due to the ongoing drought.

futures contracts down. Are more losses in the future?

In a summer dominated by record temperatures, news on Wednesday that Freeport LNG’s “initial operations” will allow 2 billion cubic feet/day to be exported provided the market with an unexpected jolt in the last half hour of trading.

And the quick response to prices – a massive intraday hike of 93 cents – seemed justified. After all, the market struggled to rebuild storage stocks as the intense heat in June and July required more gas for power generation. In Texas alone, the electric grid operator in 90% of the state — the Electrical Reliability Council of Texas (ERCOT) — saw its peak power loads set new records in 11 days this summer.

The sweltering heat was a setback amid an intense uphill battle to close the more than 300 billion cubic feet storage gap that has been in place since winter.

Thursday’s Energy Information Administration (EIA) inventory report provided some optimism that stocks may begin to loosen. The Energy Information Administration said inventories for the week ending July 29 rose by 41 billion cubic feet more than expected. The number exceeded both the previous year’s injections and the five-year average build.

Compared to normal grade and seasonal days, the 41 billion cubic feet injection appears loose/down at 1.9 billion cubic feet per day versus the prior five-year average, said Eric Vail, senior analyst at Wood Mackenzie. This is notable because above average injections occurred during a period when grade days were above normal.

However, Vail said that while nuclear and renewable generation was close to unchanged week/week, there was a marked increase in coal generation – about 8 GWh average – resulting in lower gas flaring compared to the previous week.

EBW Analytics Group said daily cooling demand is expected to remain very strong through Monday before declining thereafter. Forecasts show that energy-generated gas flaring could drop by 4.0 billion cubic feet per day in the middle of the week.

However, expectations for weakening Texas winds may support energy burns in gas-heavy ERCOT, according to EBW. The company noted that electricity loads should remain higher than normal, but demand is likely to remain far from recent records.

“Cooler weather and climbing weekly injections may represent a short-term peak in the storage deficit versus the five-year average, laying the foundation for a thinning of physical balances in early fall,” said Eli Rubin, senior analyst at EBW.

Largely Tighter 4Q2022

The trade-off between mitigating physical balances, especially if a tropical threat emerges later this month, versus an uncomfortably narrow storage trajectory, may be the defining market dynamic for natural gas destined for mid to late August.

In fact, Freeport’s potential LNG return will occur in October just before the official winter season begins. With the call for US LNG to help Europe refill storage stocks in preparation for a drop in Russian imports continues, and Asian buyers’ appetite for pre-winter storage grows, US feed gas shipments could swell to more than 13 billion cubic feet per day.

The storage track at the end of October likely dropped to 3,325 billion cubic feet with the news of Freeport, roughly equaling its forecast of 3.3 trillion cubic feet when Freeport initially stopped in early June. On a seasonal basis, the market currently has less than three months left in the injection season to address the growing deficit in storage. This points to the risk of more severe upward pressure in Nymex gas futures.

Moreover, most of the typical “increased” demand from the previous Freeport comeback occurs in November and December, and the most likely end-March storage target holds the EBW below 1,000 billion cubic feet.

“Although the near-term heat may dampen the bullish effects of Wednesday’s news, market expectations for the fourth quarter of 2022 have tightened considerably,” Rubin said.

Less money before the weekend

Spot gas prices were significantly lower on Friday, with the usual slack in demand during the three-day delivery period, slashing cash across the country. However, there are cold air forecast flows in the Pacific Northwest that should ease demand and produce some precipitation in the area as well.

The National Weather Service (NWS) said a cold front will slowly advance across the Pacific Northwest and into the Northern Plains over the next few days. An advanced cold front was expected to bring thunderstorms across the northern plains before reaching the upper Midwest. Some of these storms may become more organized over parts of the upper Midwest, with heavy rain likely near a developing wave of surface low pressure.

Meanwhile, monsoon rains will continue to dominate areas further south over the Great Basin and the Four Corners region, according to the NWS. She said precipitation could shift east across the central and southern Rocky Mountains over the weekend.

The volatile outlook caused prices to drop across the region at the end of the week. KRGT Rec Pool spot gas is down 19.5 cents a day to $7,765 on average. El Paso San Juan fell 36.5 cents to $7,590.

Losses were more significant in California, where Malin fell 24.0 cents to $7.775 and the SoCal Border average. It fell 60.5 cents to $9,305.

Wood Mackenzie said up to 177 million cubic feet per day will be cut across the Redwood route for Pacific Gas & Electric starting Saturday (August 6) through August 16 due to maintenance on the Redwood pipeline. This will bring flows through the Redwood Path about 163 million cubic feet/day below the previous 30-day average and 249 million cubic feet below the previous 30-day maximum.

According to PG&E’s maintenance schedule, capacity through the Redwood track will resume briefly near maximum capacity on gas day 17 before being cut again by 330 million cubic feet per day of gas days August 18-30.

“Similar cuts to the Redwood track in mid-June had insignificant effects on PG&E Citygate’s cash prices as demand remained relatively moderate,” said Wood Mackenzie analyst Quinn Schulz. “However, this circumstance may present more upside risks as this maintenance creates tighter risks to short-term supply.”

In the northeast, heavy rain forecasts over the weekend failed to stop small increases in several locations. The Iroquois Zone 2 cash price was up 4.0 cents to $8,290.

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