Natural gas forward prices were mostly higher for the July 6-12 period as a drop in production and sweltering summer heat drove larger-than-normal gains in Appalachia and the Southeast, according to NGI’s Forward Look.
August forward prices climbed an average of 4.0 cents through the period, Forward Look data showed. The balance of summer (August-October) rose 2.0 cents on average, as did the winter 2023-2024 strip. Prices for next summer (April-October) fell 3.0 cents on average.
Among the big movers for early July were locations in Appalachia. For example, Eastern Gas South August fixed prices jumped 18.0 cents from July 6-12 to reach $1.506, according to Forward Look. The balance of summer tacked on 13.0 cents to average $1.320, while the winter 2023-2024 strip slipped 1.0 cent to $2.684. Summer 2024 prices also softened, slipping by an average 2.0 cents to $2.350.
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Similar price increases were seen at Texas Eastern M-3, where August rose 16.0 cents through the period to $1.696 and the balance of summer picked up 11.0 cents to average $1.440, Forward Look showed. Winter 2023-2024 prices were substantially higher, up a whopping 31.0 cents to $5.238, but the summer 2024 strip fell 2.0 cents to $2.550.
Aegis-Hedging Solutions LLC said the rise in Appalachia forward prices, particularly at the front of the curve, could be attributed to stagnant production growth coupled with strong near-term cooling demand amid unusually high daytime temperatures.
“The basin’s supply base has been growing rapidly for the last 10 years and is finally showing signs of depletion or at least slowing production growth,” Aegis analyst Rishi Rajanala said.
As for the heat stoking air-conditioner usage in the region, though, the support prices have been getting from the scorching temperatures is not likely to last based on the latest weather models.
NatGasWeather said models backed off the intensity of hot weather for the next couple of weeks because of strong weather systems forecast to move across the Great Lakes, Ohio Valley and portions of the Northeast. For now, demand is robust as the East Coast warms into the upper 80s to mid-90s, but the cooler trends should keep temperatures closer to seasonal levels in about a week.
Aegis said the most significant factor affecting Appalachia prices in the coming months is the potential completion of the Mountain Valley Pipeline (MVP). Despite President Biden’s efforts to move the pipeline forward by way of the Fiscal Responsibility Act, which he signed last month, construction was halted once again following a pair of rulings by the U.S. Court of Appeals for the Fourth Circuit.
Pipeline sponsor Equitrans Midstream Corp. was expected to resume construction on the beleaguered MVP on Wednesday (July 11). The Fourth Circuit’s rulings could delay plans to bring the project into service by the end of the year, Equitrans said. An oral argument before the circuit court on the consolidated motions is scheduled for July 27.
ClearView Energy Partners LLP noted that MVP may seek a review by the Supreme Court if the motions to dismiss are denied. During the oral argument, ClearView analysts plan to consider a third possibility – that the Fourth Circuit could transfer the question to the U.S. Court of Appeals for the District of Columbia (DC) Circuit, instead of granting or denying the motions to dismiss.
“We continue to think that at the end of the day, the Supreme Court would be more likely than not to dissolve the Fourth Circuit’s stays and terminate the proceedings there,” the ClearView team said. “We don’t think the highest court would, however, intervene in any proceedings properly before the DC Circuit, assuming MVP’s opponents ever file them there. We also do not currently expect that a constitutional challenge at the DC Circuit would necessarily succeed.”
Subdued Price Action Elsewhere
Despite all the excitement in Appalachia, most U.S. markets were in limbo awaiting fresh news to meaningfully move prices in one way or another. With overall production recovering back above 102 Bcf/d following pipeline maintenance, and storage inventories still plump despite an increase in cooling loads, prices remained mostly range bound from July 6-12.
August fixed prices at Henry Hub, the national benchmark, edged up only 2.0 cents through the period to $2.635. The balance of summer tacked on only 1.0 cents to average $2.640, while the winter 2023-2024 strip slipped as much to average $3.501. Prices for summer 2024 averaged $3.280 after slipping 2.0 cents.
EBW Analytics Group said that although there is still plenty of summer remaining, independent forecaster DTN’s medium-range outlook showed strong heat subsiding by early August. At the core of the shift is that temperatures are expected to remain seasonal across both the Midwest and the entire length of the Eastern Seaboard, curbing the call on power sector gas demand.
Instead, national cooling degree days (CDD) may falter 18 CDDs shy of year-ago levels, according to EBW. The firm acknowledged that medium-term forecasts can often prove misleading. However, converging model guidance and an emerging downstream trough across the eastern US could likely detract from near-term upside for Nymex futures.
That said, the next month and a half could mark a fundamentally bullish inflection point for the gas market as current storage surpluses erode.
Stocks as of July 7 stood at 2,930 Bcf, 569 Bcf higher than last year at this time and 364 Bcf above the five-year average, according to the Energy Information Administration (EIA). Ahead of the report, analysts were looking for a build in the low 50s Bcf. NGI modeled a 50 Bcf injection.
The latest EIA report included an upside revision in the prior week’s data for the South Central region. As of July 7, stocks there stood at 1,147 Bcf, which is 17.5% above the five-year average.
Elsewhere, East inventories were about 19% above the five-year average, while stocks were about 17% higher in the Midwest and 14% higher in the Mountain region, according to EIA. Pacific stocks continued to lag the five-year average by about 15%.
Looking ahead, EBW said the combination of narrowing supply growth, strengthening feed gas demand to serve liquefied natural gas export terminals and loose historical comparisons into the fall may open the door for a more protracted tightening of the supply/demand balance.
“As a receding surplus detracts from storage containment fears, it could begin to pry open the door to extended upside for Nymex futures, particularly if pricing drops in the near term,” EBW senior energy analyst Eli Rubin said.
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