After four solid weeks of strong increases, natural gas futures prices collapsed during the trading period ending Tuesday as the start of the fall season marked the start of cooler weather and a decrease in gas demand. October prices plunged an average of 54.0 cents from September 16 to 21, while November fell an average of 55.0 cents, according to NGI’s future outlook.
The big price discounts have spread throughout the winter strip as a more favorable weather outlook has been seen, resulting in a series of storage injections much larger than those that have accumulated over the summer. The strip from November 2021 to March 2022 averaged 52.0 cents over the period, Looking forward the data showed. Summer prices were also 13.0 cents lower on average.
Given the rapid and steep rise in the Nymex futures band over the past month, at least some pullback was expected despite an otherwise favorable backdrop. The arrival of cooler weather in the Lower 48, however, has accelerated the declines, as temperatures as far south as Texas are expected to slide to more comfortable levels after the long sweltering summer.
Bespoke Weather Services said that while weather is not a key issue for the gas market at this time of year, “it is rather difficult to establish a lower demand pattern until early October.” The 15 day forecast shows heat in places that normally experience heating degree days, and there is a lack of heat in the south / southeast resulting in few cooling degree days.
“Our tendency remains for the warmer La Niña influences to prevail throughout October, keeping the risk pointing to weak demand even beyond the current 15-day outlook,” Bespoke said.
On Tuesday, October’s Nymex gas futures contract was $ 4.805 / MMBtu, up from $ 5.460 the previous Wednesday’s settlement peak. The winter band fell to $ 4,890, while the 2022 summer package averaged $ 3,630.
Demand for LNG is also decreasing
Along with the seasonal drop in temperatures, demand for liquefied natural gas (LNG) has also fallen from recent highs, despite continued robust demand abroad.
The Cove Point LNG terminal near Lusby, Md., Closed on Monday for scheduled maintenance that is expected to last until October 10.
Volumes had also been lower at the Freeport LNG facility after a power outage during Hurricane Nicholas. The storm made landfall near Matagorda Bay, Texas, earlier this month.
Freeport had started restarting the facility over the past weekend (September 18-19), but encountered electrical problems. On Wednesday, however, it was receiving about 2 billion cubic feet of feed gas.
The restart of operations at Freeport comes as global demand for LNG remains fierce. Asian buyers are setting the price of gas at exorbitant prices in order to swallow up enough supplies before winter. The market was terribly short last year.
Europe, meanwhile, has struggled to compete with Asia as it struggles to replenish storage stocks left behind shortly after last winter. A hot summer added to the drop in supply.
Feverish demand and the resulting spikes in world prices have caught the attention of the International Energy Agency, which called on Russia this week to increase gas availability in Europe, underlining “its credentials as a reliable supplier in the European market “.
Gazprom PJSC recently completed the controversial Nord Stream 2 (NS2) pipeline and is working on its commissioning by the end of the year.
The extreme tightness and high gas prices in Europe are eerily similar to the drama that unfolded in Texas last winter during winter storm Uri. Several gas suppliers in the region have closed their doors amid the energy crisis.
With domestic prices falling, that means US LNG is still more in the money sending supercooled fuel supplies overseas. Analysts believe export demand will remain strong through the winter months, even with two more LNG export facilities expected to come online during this time.
Bearish technical drivers
EBW Analytics Group said the sharp reversal in natural gas prices as the bulls were running out of steam led to a bearish technical setup, and the company expects prices will likely continue to decline in the coming trading sessions.
EBW analysts acknowledged that the fundamentals had indeed turned sharply bearish. Mild climate change, increased gas production in the wake of Hurricane Ida, lower LNG demand, and last week’s bearish storage report all contributed to a softening backdrop for the natural gas.
“But the decline is mostly technical in the aftermath of last month’s torrential rise,” they said.
The Schork Group noted that the October contract closed on Tuesday within three ticks of its first daily support of $ 4.802. As for Wednesday’s price action, a drop below $ 4.620 would alert further weakness towards the company’s second support point of $ 4.542. Below this point, the Schork Group has third support at $ 4.460.
“Again, a force above $ 4.997 opens the door to our second resistance level of $ 5.083,” he said. “Over here we’ll be looking for resistance at $ 5.177.”
Wednesday’s price action was rather subdued as the October Nymex contract stabilized on that day. November climbed to $ 4.855.
“Ultimately, a brief return to cold is likely to re-inject an element of fear – and a resurgence of winter risk premiums – into the market, even if the most likely scenario continues to favor average prices in the low range of 4, $ 00, “EBW analysts said.
For now, Thursday’s government storage report could offer the next price catalyst, especially if the recent easing is confirmed. The latest two reports from the Energy Information Administration (EIA) came down from expectations, although inventories remain well below usual levels at this time of year.
As of September 10, inventories stood at 3,006 Bcf, 595 Bcf less than a year ago and 231 Bcf less than the five-year average.
Eyes on the west
Aside from the typical scrutiny of south-central stocks, which are difficult to assess due to the extensive network of pipelines that are not federally regulated and subject to the same transparency standards as other systems, some Market watchers can also investigate whether stocks in the Pacific region are actually growing.
The sweltering summer heat boosted demand for gas in the West, while a lingering drought in the region created supply problems when water levels fell so low last month that a large hydropower plant had to close. The region, and California in particular, has had to resort to increased imports of electricity, which often comes from gas-fired power plants.
The situation has worsened to the point that the Energy Ministry recently approved an additional 200 MW of gas-fired power to be used when needed to avoid a crisis. Aliso Canyon storage withdrawals, rare since the discovery of a leak at the site in 2015, have also taken place in recent weeks.
On September 10, after removing an additional 3 billion cubic feet from storage, stocks in the Pacific stood at 240 billion cubic feet, about 23% lower than a year ago and 18% below average over five years, according to the EIA.
The difficult conditions have led to volatile trade across the West, especially in California. Spot prices and forward curves have seen huge gains in recent weeks and despite a pullback along the forward curve in recent days, a strong premium remains in place.
SoCal Citygate prices in October fell 27.0 cents between September 16 and September 21, but were still at $ 7.851, more than $ 3.00 above Henry Hub, according to Looking forward. SoCal Citygate November fell a much more substantial 57.0 cents to $ 9.548, while the winter band was down 40.0 cents to $ 10.790. Prices for the summer of 2022 averaged $ 6.35, or 15.0 cents for the week.