Amid signs of renewed production strength, and with seasonal to cooler-leaning summer temperatures expected over population centers in the Midwest and Northeast, natural gas forwards conceded ground during the June 29-July 5 trading period, NGI’s Forward Look data show.
Natural gas fixed prices at benchmark Henry Hub shed 1.7 cents for the period to end at $2.658/MMBtu for August delivery. Most Lower 48 hubs finished in the red, with fixed price discounts generally confined to within a dime.
Traders during the period were left to price in production gains and warm but not overly impressive temperatures — a recipe for preserving the already ample natural gas storage surplus the market is carrying into the heart of summer.
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Maxar’s Weather Desk as of Thursday was calling for cooler-than-normal temperatures over the Midwest during the six- to 10-day timeframe, with warmer conditions farther west.
“A strong upper-level ridge continues to bring very hot conditions across the Desert Southwest with highs forecast to peak near record levels in the mid to upper 110s in Phoenix,” Maxar said. “…Heat also expands westward into California with peak highs ranging from mid 90s in Burbank to mid 100s in Sacramento.”
Meanwhile, the forecaster called for “persistent” below normal temperatures from “the northern Plains to Great Lakes, with Chicago having highs in the low to mid 80s throughout the period. Seasonable heat is seen in the East, hottest on day seven when highs peak into the low 90s from New York to Washington, DC.”
In the Midwest, Chicago Citygate shed 3.7 cents for August delivery, falling to $2.383. On the East Coast, Transco Zone 6 NY gave up 6.4 cents to finish at $1.743.
Rapid Refill In Cali
In terms of basis differentials, a number of western hubs saw notable price weakening during the June 29-July 5 period, with California points in particular posting hefty discounts, Forward Look data show.
SoCal Citygate front-month basis plunged 72.7 cents week/week to end at plus-$3.761. PG&E Citygate, meanwhile, posted an 18.8-cent basis discount to end at a $1.908 premium to Henry.
The shrinking California basis premiums follow a period of outsized storage refills in the region, which had exited this past winter with inventories well shy of historical norms.
Milder California demand for the month of June has in effect “rapidly replenished” inventories for the PG&E and Southern California Gas (SoCal) systems, according to Wood Mackenzie analyst Quinn Schulz.
As of the end of June, SoCal had injected 14.4 Bcf since the start of the month, which is “the quickest absolute rate of injection compared to this time frame in the five years prior,” the analyst said.
Accordingly, SoCal inventories stood at a 5.9 Bcf deficit to the five-year average, versus a 13.2 Bcf deficit as of June 1, Schulz said.
PG&E similarly saw inventories climb by 28.5 Bcf from June 1 to June 28, shrinking the year-on-five-year deficit from 33.6 Bcf to 17.5 Bcf, according to the analyst.
“In both cases, persisting loose demand in June for California helped lead these injection rates,” Schulz said. “Historically, PG&E demand in June averaged 1.61 Bcf/d over the past five years, whereas PG&E demand for June 2023” was estimated at 1.37 Bcf/d on average.
“As for SoCal, June demand over the past five years averaged 2.04 Bcf/d, while June 2023 average demand was 1.74 Bcf/d.”
Futures Sputter
Nymex natural gas futures came under pressure to open the month of July as samples showed surging production and as forecasts failed to deliver the kind of heat needed to stir bullish sentiment. The August Nymex contract skidded 4.8 cents to settle at $2.609 Thursday.
Just before the Fourth of July holiday, updated production estimates from Wood Mackenzie showed output reaching a new all-time high above 102 Bcf/d, reflecting a roughly 1.9 Bcf/d week/week increase.
“The increases are concentrated in Texas and Permian New Mexico, up around 1.5 Bcf/d and around 800 MMcf/d, respectively,” Wood Mackenzie analyst Laura Munder told clients. It’s possible the increase in volumes was “slightly overstated due to the holiday effect.”
The renewed signs of production strength added selling pressure in the pre-holiday trade; August dipped 8.9 cents day/day for the July 3 session.
EBW Analytics Group analyst Eli Rubin highlighted recent resilience in spot gas pricing for both Henry Hub and Waha Hub despite the apparent production gains.
“This suggests either pipeline flows may be misleading about the magnitude of gains…or regional gas demand gains may be stronger than anticipated amid widespread heat over Texas and across the Mexican border,” Rubin said. “Further, incremental Permian gas production gains may be limited by constrained pipeline egress capacity and infrastructure limitations.”
This could mitigate “the extent of any near-term downside to Nymex gas futures — until the 0.5 Whistler pipeline expansion enters service in September,” Rubin added.
While not yet reflected in pipeline scrapes, the latest rig numbers continued to indicate a pullback in activity.
Enverus said Thursday its U.S. rig count stood at 732 for the week ended July 5, a decline of four week/week. Domestic drilling activity for the period was down 1% month/month and 13% year/year, according to the firm.
“Among major plays, the Gulf Coast added two rigs in the last week to reach 86, and the Denver Julesburg Basin was flat at 16,” Enverus analysts said. “The Anadarko and Permian basins dropped three rigs each to 52 and 319, and Appalachia lost two rigs for a total of 46.
“Falling by one rig, the Williston Basin had 35 running.”
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