Pleasant April Temps Bring Price Discounts for Most Natural Gas Forwards Hubs – Natural Gas Intelligence

Comfortable April temperatures put downward pressure on regional natural gas forwards during the April 6-12 trading period, with most hubs posting discounts aside from a few locations in the western Lower 48 and in West Texas, NGI’s Forward Look data show.

Fixed natural gas prices at benchmark Henry Hub for May delivery shed 6.0 cents for the period to finish at $2.096/MMBtu.

While most trading hubs saw discounts for the April 6-12 trading period, there were notable outliers, including along the West Coast. In the Pacific Northwest, May fixed prices at Northwest Sumas climbed 29.9 cents to end at $2.726.

Forecast maps from Maxar’s Weather Desk as of Thursday showed below normal temperatures blanketing the western and northwestern portions of the Lower 48 for days six through 15 of the projection period.

“The six- to 10-day period features a trough over the eastern Pacific and the Northwest, feeding moisture into the Northwest and keeping temperatures on the cool side of normal,” Maxar said. 

Farther out in the 11- to 15-day window, the forecaster said the projected pattern is one that “has historically been a cooler influence for the West and Mid-Atlantic this time of year.” Consequently, the firm’s latest forecast “features below normal temperatures along the West Coast but is near normal in the East.”

The chilly forecast occurs as the Pacific region enters the spring injection season at a significant deficit to five-year average natural gas storage levels, Energy Information Administration (EIA) data show.

As of April 7, the Pacific had 74 Bcf in storage, a 57.5% deficit to five-year average regional stockpiles of 174 Bcf.

In Southern California, SoCal Border Avg. May fixed prices surged 26.0 cents week/week to finish at $2.951.

Physical natural gas prices in Southern California saw upward pressure during the period amid a short maintenance event on the El Paso Natural Gas (EPNG) south mainline, which had notable impacts to pricing at Ehrenberg on Monday and Tuesday, according to Wood Mackenzie analyst Quinn Schulz.

“Although this maintenance is finished, SoCal-Ehrenberg cash prices remain near current elevated levels,” Schulz told clients Wednesday. “This may be led by two factors. The first is that colder forecasts are coming in for California…The other factor may be anticipation of SoCal’s upcoming Line 5000 maintenance, scheduled to take place April 17-28.” 

This event could “cut collective receipts between Ehrenberg and Blythe by as much as 488 MMcf/d,” Schulz said.

Permian Basin hubs also saw notable strengthening, albeit from heavily discounted levels, as a number of pipeline maintenance events in the region appeared poised for imminent conclusion.

Earlier in the week, Wood Mackenzie analysts had highlighted an event on the Kinder Morgan Tejas Pipeline (KM Tejas) that was overlapping with restrictions on the EPNG and Gulf Coast Express (GCX) systems. The KM Tejas restriction began at the start of the month and was extended beyond its original planned conclusion earlier this week, according to the analysts.

The Wood Mackenzie analysts warned of “protracted downside risk” for Waha cash prices for the week as a result of the various pipeline events impacting the region. 

However, as of Thursday KM Tejas was on track to return to full capacity by the end of the week (April 14), with reduced capacity on GCX expected to last through Saturday (April 15), the firm said in a subsequent research note. 

El Paso Permian fixed prices gained 31.2 cents during the April 6-12 trading period, with the May contract finishing at 97.2 cents. Waha May fixed prices ended at 93.9 cents, a 31.4-cent gain.

Not What Bulls Needed

Meanwhile, Nymex futures have struggled to create convincing separation from the psychological $2 level as the market has been in a holding pattern awaiting the arrival of summer heat to potentially chip away at ample inventories.

A 16.1-cent rally for the May natural gas contract on Monday (April 10), raising prices to $2.172, saw little follow-through. A second-straight day/day loss in Thursday’s session saw the front month settle just above $2 at $2.007.

From a technical point of view, price action during the week left open the possibility that natural gas could continue to grind lower, according to ICAP Technical Analysis.

“Not the follow-through the bulls needed,” ICAP analyst Brian LaRose observed following Wednesday’s 9.3-cent sell-off. “In fact, the price action since the April expiration can best be described as an a-b-c structure — a corrective pattern.

“Now watching intently to see if the bulls can keep Henry Hub above the $1.992/$1.944 lows,” LaRose added. “If they cannot, the door would be open for a drop to $1.679, even a test of the $1.432 low put in place back in 2020.”

Chilly temperatures in March helped to trim storage levels versus historical norms, but “a balmy April could quickly restore oversupply fears in the coming weeks,” EBW Analytics Group analyst Eli Rubin told clients in a recent note.

This month’s bearish temperature outlook stands in stark contrast to “extremely bullish” weather in the year-earlier period, Rubin said.

“In our view, storage comparisons to both year-ago and even five-year average levels may be distorted in a bearish direction due to particularly low storage trajectories during 2018, 2021 and 2022 — three of the past five years,” the analyst said.

The summer could bring a shift in the outlook for natural gas, opening up the possibility for rising Nymex prices as “bearish influences fade,” according to Rubin.

“Bearish weather may soon retreat or even turn overtly bullish into the summer,” the analyst said. Recent EIA reports “are indicative of rapid tightening that can occur if weather turns supportive.

“…Demand strength from strong LNG will also be pronounced regionally in the South Central, while elevated coal-to-gas switching may also be more prominent in the South Central and Southeast regions.”