LNG recovery and production revisions fuel big gains for natural gas futures prices

In one look :

  • LNG feed gas returns above 11 billion cubic feet
  • Production further reduced
  • Heat fuels cash gains in the Pacfic NW, Canada

Natural gas futures rebounded mid-week as export demand rose sharply after maintenance and production fell for the second day in a row. The July Nymex gas futures contract jumped 7.5 cents day / day to $ 3.333. The August contract gained 7.5 cents to $ 3.352.

Spot gas increases also became widespread ahead of the warmer weather on the east coast. However, big losses in California left NGI’s Spot Gas National Avg. unchanged at $ 3,095.

On Wednesday, slight changes continued to be made to the long-range weather forecast. However, the trend was still expected to result in relatively weak demand east of the plains over the next few days, according to NatGasWeather.

Still, the overall US trend is expected to get hotter for the five to 15 day forecast and is likely considered to have an “uptrend” from Saturday June 26 to July 5. National cooling degree days are expected to be greater than Normal.

“Sure, the pattern could be more intimidating, but there is still enough coverage from highs reaching the upper 80s to 100s to result in smaller than normal weekly builds in the last week of June and the first week of July.” , NatGasWeather said. “And the upper trend favors well above normal temperatures through the second week of July to maintain strong domestic demand for the 15 to 20 day period.”

With weather demand lagging a few more days, Wednesday’s upturn in feed gas consumption serving liquefied natural gas (LNG) facilities in the United States fueled price momentum early in the session.

July’s Nymex contract opened at $ 3.257, almost flat until Tuesday’s close, then surged to an intraday high of $ 3.383. The steep surge came as feed gas deliveries to Lower 48 LNG export terminals rose above 11 billion cubic feet, with Sabine Pass maintenance appearing to be over. Robust global demand also indicated little to no slowdown – and potentially moderate growth ahead – for domestic exports in the second half of the year.

EBW Analytics Group pointed out that European gas storage is currently at its lowest seasonal level on record. The prices of securities transfer facilities are at their highest seasonal level in 13 years.

Prices later this year will depend heavily on Gazprom’s ability to complete construction by this fall of the Nord Stream 2 pipeline, according to EBW. The results of the German elections in September could also influence prices.

“If the German Green Party, which opposes the pipeline, plays a major role in forming a new government, the permits required to start the pipeline could be delayed or denied, potentially creating extremely tense gas market conditions this winter, ”said EBW.

Meanwhile, the team of analysts at Tudor, Pickering, Holt & Co. (TPH) were closely monitoring power generation. As summer approaches, analysts expect the destruction of demand to play a large role in balancing the market as prices recover.

“We focused on whether our modeled gas-to-coal switching relationship would hold up and result in less power consumption from gas,” TPH said.

TPH previously forecast about 1.3 Bcf / d less energy consumption through September on the modeled sensitivity of a 25-cent price increase, resulting in 1 Bcf / d less demand. In early summer, however, there was less elasticity than the modeling suggests.

“During 2Q2021, electricity production was on average 62.3% (around 28.2 Gcf / d) of thermal electricity production compared to our modeling of 61.8% (around 27.5 Gcf / d, “TPH analysts said. Thermal production averaged 61.0% (about 35.1 Bcf / d), more in line with what we expected given the rise prices.

If last week’s result was an outlier and earlier trends continued, analysts at TPH said there could be more benefit in their modeled electricity demand as the third quarter approaches. This would provide “strong support” for pricing.

“Storage is currently 6% short of the five-year average, with our latest modeling suggesting peak storage at 3.4 Tcf versus the five-year average of 3.7 Tcf,” TPH said. . “Beyond the injection season, our modeled under-supply persists until 2022 and increases to push prices down to the level of $ 3.25 / MMBtu, from the current curve at $ 2.93 / MMBtu. “

Regarding Thursday’s government inventory report, Reuters polled 17 analysts, whose estimates ranged from a construction of 56 Bcf to 79 Bcf, with a median injection of 68 Bcf. NGI also modeled a construction of 68 Bcf. A Bloomberg survey of 10 analysts produced a narrower range of estimates, with a median injection of 64 billion cubic feet.

The Energy Information Administration (EIA) is expected to release its weekly storage report at 10:30 a.m. ET on Thursday. Last year, EIA recorded an injection of 115 Bcf, and the five-year average injection is 83 Bcf.

“It’s a tough build to predict due to the record heat from the west to the plains, but quite comfortable across the Great Lakes and the northeast,” NatGasWeather said. “We are currently expecting low Bcf in the mid-1960s.”

The company added that the latest model of the Global Forecast System at noon maintains the hot model expected from Saturday to July 5. With the baseline summer heat about to arrive and with the weather pattern looking “warm enough” for the first half of July, buying has intensified. .

“What could also influence recent trading is the upcoming expiration of July 2021 options and futures on Friday and Monday,” NatGasWeather said. “With $ 3.30 having been quickly clawed back in July / August, the bulls have regained control and are looking to hit year highs that are only pennies higher.”

Dangerous heat

Spot gas prices continued to gain ground on Wednesday as warmer weather returned to the Gulf Coast after a series of thunderstorms. The most significant heat, however, was seen towards the Pacific Northwest, fueling gains across the region.

AccuWeather said “record heat” had already started to develop in some areas, with conditions expected to get even warmer in the coming days. “We’re going to be looking for all-time records in some places,” said AccuWeather chief meteorologist Bernie Rayno.

The forecaster said some of the places that could see temperatures rise above normal include those along the Interstate-5 corridor between Seattle and Portland, OR.

According to AccuWeather, it’s not just the Pacific Northwest where all-time records can be set. Canada may set a new high temperature mark with a heat wave this weekend until early next week. The current record of 113 degrees was set on July 5, 1937 in Midale and Yellow Grass, Saskatchewan.

“Kamloops, Kelowna, and Lillooet, BC all have a chance of reaching or slightly exceeding the high temperature mark in Canada,” said Brett Anderson, senior meteorologist at AccuWeather.

As for pricing, overnight KRGT Rec Pool’s gas climbed 22.0 cents to an average of $ 3.445, and Malin climbed 25.0 cents to $ 3.525.

In Western Canada, spot gas from Westcoast Station 2 returned only 6.0 cents for an average of $ 3,140.

Along the Gulf Coast, Henry Hub climbed 11.0 cents to $ 3.330, and in the southeast, Transco Zone 5 gained 4.5 cents to $ 3.375. Prices further east also gained momentum before the heat returned to this region. Algonquin Citygate spot gas added 8.0 cents to $ 2,620.

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About Aldrich Stanley

Aldrich Stanley

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