After entering the summer cooling season at sharply elevated price levels, natural gas futures fell during the May 25-June 1 trading window as the market continued to try to take take into account the risks posed by overdue national stocks, according to NGI Future Prospects.
Fixed price declines of around 25 to 45 cents for July delivery were the norm across the Lower 48 during the period, in line with the benchmark Henry Hub, which lost 29.7 cents weekly. to fall to $8.396/MMBtu.
In the Midwest, Chicago Citygate fell 35.3 cents to $8.474, while in the Northeast, Transco Zone 6 NY fell 34.1 cents to end the period at $8.148.
Meanwhile, Nymex futures wobbled over the period, including a sell-off of 58.2 cents on Tuesday, May 31, immediately followed by a rally of 55.1 cents the following day. The July contract fell 21.1 cents in Thursday’s session to settle at $8.485 following an Energy Information Administration (EIA) storage print that turned out to be higher than consensus expectations.
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Lack of bearish storage
The latest EIA report resulted in an injection of 90 billion cubic feet for the week ended May 27, a figure that beat expectations and sent Nymex futures plummeting.
Still, the print offers little reason for comfort, according to Bespoke Weather Services.
It was “understandable” for prices to decline given the failure to compare to consensus, “but further easing needs to occur before the market can show true comfort with the trajectory of storage this summer,” Bespoke said. This would prove especially true if a “warmer pattern unfolds once we hit the middle of this month, which is our expectation at the moment.”
The bottom 48 stocks ended at 1.902 billion cubic feet as of May 27, 15.1% below the five-year average of 2.239 billion cubic feet, according to the EIA.
This summer could be the first without triple-digit construction in six years, Energy Aspects observed in a recent research note.
This comes as prices along the summer band “have not provided injection incentives”, according to the company. The market is “looking for industrial price triggers as structural demand growth is difficult to reverse.”
Demand for natural gas in the power sector has remained robust despite higher price levels, and coal price dynamics help explain why, according to RBN Energy LLC analyst Sheetal Nasta.
“A tight coal market and record coal prices in the eastern United States have prevented the switch from gas to coal in recent months, although the gas market is also facing a supply shortage and the Gas prices are trading at shale-era highs,” Nasta said.
Even as natural gas prices soared, “coal prices were just as high,” resulting in “a rather inelastic electricity demand market for gas like we’ve never seen.” before,” the analyst said. This means that “as long as the gas market remains tight and coal is not available to meet additional electricity demand, there is no limit to the price increases of the two fuels”.
LNG switches to Asia?
According to NGI’s LNG Insight tracker, volumes flowing to US liquefied natural gas (LNG) export facilities hovered around just under 13 million Dth/d on Thursday after spending the last week between 12 and 13 million Dth/d.
A “glut” of LNG cargoes in northwestern Europe “has placed spot cargo prices in Asia at a touching distance from Europe,” according to a recent note from the Rystad Energy analyst, Lu Ming Pang. “All factors remaining constant – such as no further cuts in Russian gas to Europe – we could see a rebalancing of LNG ships away from the region, which has become an LNG black hole – attracting all cargo available.”
It is possible that prices in the Pacific will increase enough to encourage LNG cargoes to move there rather than in the Atlantic, where transport costs are lower, according to the analyst.
“However, if Asia were to pull LNG cargoes into the Pacific due to the impending warmer summer, ad hoc vessels would be deployed on longer routes to Asia-Pacific, consuming remaining shipping capacity. in the market and possibly leading to higher charter rates,” Pang said.
EBW Analytics Group also highlighted the potential for demand in Asia to attract more LNG.
“Furthermore, even if European storage stocks rebuild at a rapid pace, huge ongoing supply risks from Russian imports could prevent winter risk premia from slipping too far – even if summer prices near-term remain under downward pressure,” EBW analyst Eli Rubin told clients.
Given “grossly undersupplied” US storage, “an efficient market should incorporate the risk of US and global price convergence – allowing overseas developments to influence the pricing of Nymex risk premiums, particularly for winter contracts,” Rubin added.
Discounts in Western Canada
In terms of regional base shifts for the May 25-June 1 period, there was a noticeable weakening in the centers of the Permian Basin and the producing regions of Western Canada.
In the Permian, Waha’s July base slipped 16.8 cents to end the period 90.7 cents off Henry Hub, while El Paso’s Permian fell 16.4 cents to end at 86.6 cents from the national benchmark, Look forward the data showed.
North of the border in Canada, meanwhile, the NOVA/AECO C base fell 37.7 cents, ending the period with a $3,024 discount to Henry Hub for July delivery.
According to Wood Mackenzie analyst Quinn Schulz, Wood Mackenzie analyst Quinn Schulz predicts that planned maintenance of the Westcoast Energy Inc. system is expected to stop approximately 280 MMcf/d of throughputs through an interconnection with the Nova Gas Transmission Line system ( aka NGTL).
Over the past 30 days, flows through the interconnector averaged 268 MMcf/d and peaked at around 405 MMcf/d, the analyst said.