Natural gas futures fell for the third time this week after the latest government inventory data showed the biggest increase in underground storage this year, reflecting falling demand and robust production. October Nymex gas futures fell 69.0 cents day/day to settle at $7.089/MMBtu. November fell 63.4 cents to $7,193.
In short :
- EIA releases injection of 103 billion cubic feet
- Construction marks the biggest of 2022
- The production is solid
NGI’s Spot Gas National Avg. fell 45.5 cents to $6,385 as cooler weather arrived with the official start of fall on Thursday.
Data from the National Weather Service (NWS) showed comfortable high temperatures ranging from the 60s to the 80s over large swaths of the Lower 48 on Thursday, from California to the Midwest to the Northeast. The same was planned for the weekend.
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Meanwhile, Bloomberg estimated production Thursday at 99.6 Bcf/d, just below the 2022 peak – and record – above 100 Bcf/d reported earlier this month.
Switching to heating demand, on the other hand, can take several weeks.
“The longer-term weather model maintains the theme of a warmer than normal October through November due to upper high pressure remaining strong over the northern half of the United States for weak demand for heating,” said meteorologist Rhett Milne of NatGasWeather.
The U.S. Energy Information Administration’s (EIA) latest storage report, released on Thursday, provided further evidence that supply and demand are beginning to align after a scorching summer that had raised doubts about domestic supply adequacy.
The EIA reported an injection of 103 billion cubic feet into natural gas storage for the week ended Sept. 16. The result beat analysts’ expectations and eased market concerns about supplies for the coming winter.
Construction marked the biggest of the year. The EIA reported an injection of 102 billion cubic feet for the week ended June 3. It was the only other triple-digit increase of the year so far.
The latest print exceeded expectations and historical averages, adding to bearish price sentiment.
Prior to the report, major polls showed median estimates hovering around an injection into 1990s Bcf. The EIA reported an injection a year earlier of 77 billion cubic feet and a five-year average injection of 81 billion cubic feet.
Construction in the week of September 16 brought inventories to 2.874 billion cubic feet.
The Midwest led all regions with construction of 35 billion cubic feet, according to the EIA. The South Central posted an increase of 31 billion cubic feet. It included an injection of 19 billion cubic feet into salt-free facilities and a 12 billion cubic foot increase in salts. The Eastern region posted an injection of 29 Bcf. Stocks in the mountain regions increased by 5 billion cubic feet, while stocks in the Pacific increased by 2 billion cubic feet.
Looking ahead, early estimates submitted to Reuters for the EIA print covering the week ending September 23 ranged from injections of 65 Bcf to 98 Bcf, with an average increase of 86 Bcf.
That compares to an injection of 86 billion cubic feet in the comparable week in 2021 and a five-year average build of 77 billion cubic feet.
While the storage situation has improved, the EIA said inventories remain well below the previous year’s level of 3.071 billion cubic feet and the five-year average of 3.206 billion cubic feet.
Analysts said robust and continued injections are needed to reduce deficits to historic norms and ensure sufficient supply in the event of a particularly cold winter.
Emily McClain, vice president of Rystad Energy, said “the risk of extraordinary events”, of a hurricane damaging production facilities or a winter freeze propelling demand “is not ruled out”. The potential for either could reignite “market jitters as we head into winter.”
Additionally, demand for U.S. LNG exports, which is already at historic highs, is expected to remain firmly intact through the winter as Asia and Europe stock up on gas after hot summers that have exhausted supplies on both continents.
Europe, in particular, finds itself increasingly dependent on American liquefied natural gas due to the Russian war in Ukraine. Amid the fallout from the conflict, Russia cut off most of the gas it had previously sent to Europe via pipeline. As a result, European countries are calling on residents to reduce their gas consumption this year.
“With 15% demand rationing as the European Union’s target, Europe will likely be able to survive the total Russian supply disruption this winter if we see average winter temperatures,” he said. said Krishna Sapkota, senior partner at Enverus Intelligence Research. However, “our scenarios show that the absence of sufficient gas supply rationing this winter would mean that European countries would run out of gas supplies by February 2023 if winter temperatures are lower than usual.”
Given global uncertainties, Schork Report analysts predicted a surge in natural gas prices this fall. “Volatility is here to stay in the gas market,” they said.
Sputter Spot Price
Spot prices fell for a second straight day on Thursday and the third time this week as demand waned and NWS forecasts signaled weaker consumption through the weekend.
Lower 48 hubs posted losses, with prices in the East leading the decline.
Florida Gas Zone 3 fell 54.0 cents to $7,985, while Cove Point fell 75.0 cents to $7,350 and Millennium East Pool fell 59.0 cents to $5,480.
Meanwhile, a disturbance in the southeastern Caribbean, with a 70% chance of cyclone formation by the National Hurricane Center (NHC) on Thursday, provided fresh fodder for market participants.
“The disturbance is expected to move west-northwest across the eastern Caribbean Sea ‘by Friday’ and be over the central Caribbean Sea this weekend,” said the NHC.
As for potential impacts on U.S. energy interests, model runs suggest “large spread on cyclone destination, as well as intensity,” involving a range of scenarios, according to NatGasWeather.
“Potential impacts are difficult to predict, but recent years have shown that the net effect has been more bearish than bullish due to slower LNG exports and loss of demand due to cooler temperatures and outages. current,” the company said.
According to NatGasWeather, an extended downtime for an LNG terminal would present an “exceptionally bearish” scenario for US prices, while the loss of production out of the Gulf region would put upward pressure on prices. In Texas on Thursday, El Paso Permian was down 64.5 cents at $4.595 and Katy was down 33.5 cents at $6.620.