Sustained sweltering heat over Texas helped stir bullish sentiment, promoting broad-based gains for regional natural gas forwards during the June 15-21 trading period, NGI’s Forward Look data show.
As the Lone Star State heat wave firmed up the cooling demand outlook just in time for the official start of summer, July fixed prices at benchmark Henry Hub rallied 25.8 cents week/week to reach $2.600/MMBtu.
Houston Ship Channel similarly picked up 25.5 cents to exit the period at $2.523 for July prices. In West Texas, El Paso Permian July fixed prices surged 37.2 cents to $2.183.
[Mexico Making Moves: NGI sits down with Mexico’s CNH Commissioner Moreira to discuss rising natural gas production in the country coupled with promising new natural gas discoveries, which could help to offset steadily climbing demand from increased nearshoring. Currently importing more than half of their natural gas from the U.S., Moreira also underlines the importance of creating a natural gas price index in Mexico. Tune into the Hub & Flow podcast.]
“A strong ridge remains in place over Texas, promoting persistent heat with highs reaching low to mid 100s in Dallas and San Antonio and near 100 degrees throughout in Houston,” Maxar’s Weather Desk said Thursday in its latest six- to 10-day projections. “The ridge begins to shift westward late in the period, expanding heat into the Desert Southwest and California.”
In the perennially constrained Southern California Gas territory, SoCal Citygate saw outsized gains for the period, adding 63.4 cents to reach $6.307. That reflected a 37.9-cent positive basis swing week/week for July delivery.
Meanwhile, a more temperate outlook for the eastern Lower 48 saw July prices at a number of Midwest, Northeast and Mid-Atlantic hubs fail to capture the same gains compared to the national benchmark.
Maxar was modeling near to below normal temperatures for population centers in the Midwest and along the Interstate 95 corridor for late June into early July, including highs in the low 80s for New York City.
Transco Zone 6 NY July fixed prices tumbled 6.7 cents to $1.756, while farther upstream, Eastern Gas South eased 0.9 cents to $1.491.
Nymex Outlook ‘Decidedly Mixed’
Nymex futures whipsawed a bit during the June 15-21 period, including a 14.0-cent sell-off coming out of the Juneteenth holiday break and a 10.5-cent gain in the following session. The July contract nudged 1.1 cents higher on Thursday as the market digested a larger-than-expected inventory build in the latest Energy Information Administration (EIA) storage report.
EIA reported a 95 Bcf injection for the week ended June 16 that lifted Lower 48 inventories to 2,729 Bcf, or 362 Bcf above the prior five-year average.
The week-earlier EIA print missed to the bullish side and “catalyzed a short-covering rally,” EBW Analytics Group analyst Eli Rubin said in a recent note. This set the stage for a “decidedly mixed” near-term price outlook, according to the analyst.
“LNG demand is particularly weak below 11.0 Bcf/d, and weather models calling for extended heat continue to postpone and weaken the arrival of higher demand,” Rubin said. “Still, tighter conditions in recent weeks have proactively thwarted a blowout in the storage surplus.
“Looking forward, a market acceptance of higher storage levels, tapering supply” and “growing confidence” that liquefied natural gas exports won’t see economic shut-ins “may provide structural tailwinds into mid-summer,” the analyst added.
Looking Upstream
In terms of assessing the upstream outlook, U.S. drilling activity declined by an estimated eight rigs during the week ended June 21, according to Enverus. The firm’s latest tally showed domestic activity down 3% month/month and 12% year/year.
“Just two major plays saw activity increase: The Gulf Coast added three rigs to reach 85, and the Denver-Julesburg Basin picked up one to hit 18,” Enverus said. “All other major plays tallied declines. The Permian slid by seven to 329. The Anadarko and Appalachian basins dropped five rigs a piece to 51 and 41, respectively.”
Meanwhile, planned maintenance on the Texas Gas Pipeline has complicated the task of monitoring production volumes flowing out of the Haynesville, according to recent analysis from Tudor, Pickering, Holt & Co. (TPH).
“The maintenance will last through July 11, taking roughly 600 MMcf/d offline,” TPH analysts said. “The interconnect affected the most is a connection with the Gulf South Pipeline. The majority of the contracts that receive gas at this point are held by Gulf South and deliver volumes throughout various connections on the pipeline.”
Over the past month, flow samples show Haynesville output declining by around 1 Bcf/d, according to TPH estimates.
“Some of this decline is likely due to slowing activity in the basin, but a portion is likely due to interstate to intrastate switching,” the TPH analysts said. Maintenance disruptions “can drive end users to source gas from other pipelines, sometimes intrastate pipelines that are not required to report flows.”
Canadian Prices In Check
Elsewhere, production out of Western Canada has continued to show impacts from wildfires, with pipeline maintenance also contributing to curtailments, according to RBN Energy LLC analyst Martin King.
“There is still no clear sign as to when the wildfire situation might dissipate, although a recent bout of much cooler temperatures and rain has at least stabilized the situation,” King said in a recent note. “Year-to-date, production growth has eased back to 0.6 Bcf/d, and well below 1.1 Bcf/d that prevailed in April before the fires upended the market.”
Still, even as production levels have taken a “significant hit,” prices in the region have not responded in kind, the analyst observed.
“Plentiful gas in storage, especially in Eastern Canada where storage is at record highs for this time of year, has been far more important in holding back gas prices than production downside in Western Canada — at least so far,” King said.
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