Natural gas futures rose on Thursday despite little change in the supply/demand backdrop of the market. Although the latest storage data were bullish, prices were higher before the report was published, and the print didn’t detract from what likely will be growing surpluses later this month.
The March Nymex gas contract reached a $2.529 intraday high before settling at $2.430/MMBtu, up 3.4 cents from Wednesday’s close. April futures climbed 1.5 cents to $2.492.
Spot gas prices were mostly steady across the Lower 48. However, large price increases on the West Coast sent NGI’s Spot Gas National Avg. up 1.5 cents to $2.770.
Market observers may be perplexed by Thursday’s price recovery, especially considering that the rest of February is forecast to be rather mild. NatGasWeather said the latest data from the American and European weather models warmed for the important Feb. 17-19 period. This was the only shot at the pattern turning frigid again after this weekend’s brief cold snap.
With little indication that intimidating wintry weather may return this season, already stout storage inventories should continue to improve. What’s more, the gas market is nearly two months out from the traditional injection season, and some estimates show stocks finishing the winter at unseasonably high levels.
That’s not to say the market doesn’t respond with steep withdrawals when bitter cold weather does arrive. The latest government inventory data hinted at some tightening in balances with a larger-than-expected withdrawal.
The Energy Information Administration (EIA) reported a 217 Bcf pull from storage stocks, eclipsing even NGI’s high-side estimate.
“Texans don’t like cold,” said a participant on Enelyst, an online energy chat. “Or ice,” said another.
While most regions reported withdrawals that aligned with estimates ahead of the EIA report, the South Central region stunned analysts with a jaw-dropping net pull of 74 Bcf. The EIA said a massive 48 Bcf was withdrawn from nonsalt facilities, while 26 Bcf was taken out of salts.
Discussing the South Central withdrawal on Enelyst, participants noted that there were several factors that could have contributed to the steep withdrawal. In addition to the freezing conditions brought on by Winter Storm Mara, renewable energy took a hit. There were a couple of days of “nearly no solar,” according to an Enelyst participant. Some freeze-offs also led to a temporary decline in natural gas production, which likely led to a more significant pull on storage. Widespread power outages also resulted from the storm.
Outside of Texas, estimates were generally in line with actual withdrawals. The EIA said 67 Bcf was pulled out of Midwest stocks, and 49 Bcf was pulled from the East. Pacific inventories fell by 16 Bcf, while Mountain inventories slipped by 12 Bcf.
Ahead of the latest storage report, major surveys pointed to a total withdrawal of around 200 Bcf across the five EIA regions. A Reuters poll of 13 analysts had a range of expectations from 187 Bcf to 210 Bcf, with a median decrease of 194 Bcf. A Bloomberg survey of six analysts resulted in a median draw of 201 Bcf, and the Wall Street Journal’s poll of 14 analysts averaged a 199 Bcf withdrawal. NGI modeled a 212 Bcf withdrawal.
For comparison, 228 Bcf was pulled out of storage during the similar week last year, while the five-year average draw is 171 Bcf, according to EIA.
Total working gas in storage as of Feb. 3 stood at 2,366 Bcf, which is 233 Bcf higher than last year at this time and 117 Bcf above the five-year average, according to EIA.
With the spring shoulder season rapidly approaching, EBW Analytics Group said technicals suggested a further dip. After all, near-term weather is mild, and daily production has recovered 5.0 Bcf/d from freeze-offs within the past week.
“Summer contracts may find a degree of support at $3.00/MMBtu, but natural gas is likely to remain soft until the market can see through to a break from current bearish conditions,” EBW senior energy analyst Eli Rubin said.
Looking ahead, the analyst noted that oilfield service companies are reinforcing risks of a slowdown after the breakneck pace of 2022. Rubin pointed to comments by Liberty Energy Inc. CEO Chris Wright earlier this month during the quarterly earnings call with investors that management expects “to see some industry pullback in response to natural gas prices.”
In EBW’s view, though, the combination of near-term pipeline constraints likely to reemerge in the Permian and Appalachia could sideline growth from the two largest U.S. basins and ease oversupply concerns. Further, the typical spring supply bounce higher from winter lows is less likely in 2023 because of a lack of extended production freeze-offs.
“Until more solid evidence of decelerating supply growth emerges, however, analysts concerned about unchecked production growth, Freeport’s enduring outage and bearish late-winter weather risks may continue to weigh on Nymex futures.”
In related news, the Federal Energy Regulatory Commission on Thursday granted Freeport LNG Development LP’s request to resume loading cargoes from one dock. While the plant has not been cleared to restart operations, the approval is one in a series that must occur before production and shipments may resume after an explosion and fire last June, which knocked the facility offline.
Biggest Cash Swings In East, West
Spot gas action was muted throughout much of the Lower 48 on Thursday, with near-perfect temperatures softening gas demand in most markets east of the Rockies. Prices responded with day/day changes of less than 10 cents at the majority of U.S. locations.
On the West Coast, however, a strong winter storm was heading toward California to bolster demand. While temperatures are expected to fall, the National Weather Service (NWS) said there’s not much precipitation associated with the mid- to upper-level low.
Price action was mixed in the Rockies. Points along the El Paso Natural Gas Pipeline shot up around 60.0 cents on average, while Cheyenne Hub dropped 14.0 cents on the day to $2.260.
Meanwhile, well above-average temperatures were expected to stretch along the entire East Coast, according to NWS. The forecaster said there is the potential for numerous record-high minimum temperatures Friday morning from Florida to New England, and record-high afternoon temperatures across central Florida and from the New York City area to Boston.
Cooler temperatures are in the forecast along much of the Eastern Seaboard this weekend, according to NWS. However, Arctic air is expected to remain absent, and a return to much above-average temperatures is likely by early next week.As such, Northeast prices continued to soften on Thursday. PNGTS recorded a steep 64.5-cent day/day decline to $3.295. Tenn Zone 6 200L fell 24.0 cents to $2.305.