Natural gas futures flirt with $7.00 again as maintenance further cuts production
Natural gas futures traders stepped on the pedal on Tuesday, accelerating price gains after the latest production data showed another sharp drop in production. Contract expirations also played into intraday volatility along the Nymex curve, ultimately pushing the May contract up 18.1 cents to $6.850/MMBtu. June futures rose 17.3 cents to $6.978.
In short :
- Weather, pipeline works impacting production
- Contract expiration could lead to fireworks
- Maintenance makes money go up too
Spot gas prices also strengthened almost everywhere. NGI’s Spot Gas National Avg. picked up 33.0 cents to $6,795.
After Monday’s strong rebound, futures wasted no time and moved higher even earlier on Tuesday. The May contract opened the session at $6,836 and broke through the $7,000 mark before noon as production losses deepened in the Rockies. Production also declined elsewhere in the Lower 48 amid a slew of seasonal maintenance activity.
Data from the Wood Mackenzie Pipeline showed Northeast volumes falling by about 850 MMcf/d dd/d, with losses in Northeast Pennsylvania on Tennessee Gas Pipeline (TGP) and Transcontinental Gas Pipeline Co. Although there were no maintenance events associated with these dips, the dips on TGP were along a chain of dehydration plants east of Station 315, where there were operational restrictions for Tuesday’s gas day.
West Virginia production fell by about 235 MMcf/d, according to Wood Mackenzie, amid maintenance of the Eastern Gas Transmission System and the Hastings Extraction Plant. Texas Eastern Transmission Co. and Equitrans Midstream also planned work that had an impact on flows.
Elsewhere, Texas production fell by around 280MMcfd, while Midcontinent production fell by around 175MMcfd. Rocky Mountain volumes declined by around 235 MMcf/d with continued issues in North Dakota due to the blizzard that hit the region over the weekend.
The event caused “unprecedented damage and significant power outages”, according to Wood Mackenzie analyst Laura Munder. Additionally, the Wyoming Interstate Gas Pipeline was undergoing maintenance along the Three Mile Lateral to Rockies Express Pipeline (REX), she said.
REX, meanwhile, began a one-day event Tuesday at Julesburg Compressor Station for a flow-impacting emergency shutdown test through Seg 240. The event was in conjunction with a on the Southern Star Central gas pipeline at Cheyenne Compressor, which was due to last until Friday.
Bespoke Weather Services said lower output combined with lower wind output again tightened balances from last week. However, with stronger wind production expected by the end of the week, a timely return to production could quickly undermine market momentum.
“The price action ahead of the May contract expiration in the coming days is a tough call,” Bespoke said.
Over the next six weeks, however, EBW Analytics Group said the supply situation may improve. He expects storage deficits to likely slip from record three-year highs amid “huge” spring injections that could average nearly 100 billion cubic feet per week.
At the start of June, however, the July contract will assume the role of the first month, as the gas market becomes increasingly sensitive to weather conditions and prices increasingly volatile. There are “enormous” risks in both directions, according to EBW.
“In a cool summer scenario, inventories could continue to build at a rapid pace, easing stockpiling fears and potentially pushing prices back below $5.00,” said EBW principal analyst Eli Rubin. . “During a hot summer, however, Nymex futures could hit double-digits, suggesting that the balance of price risk could be on the upside.”
Rubin noted that, as April’s price surge aptly demonstrated, a rally “can catch fire and drive prices up quickly.” Other analysts agreed.
Mobius Risk Group said the trajectory of prices over the next year largely depends on the pace of storage injections this summer and how cold the coming winter will be. The company pointed out that the Nymex winter band (Nov-March) has lagged in recent trading sessions after hitting $7.913 on April 18. That said, the five-month band started in April below $6,000.
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Calendar year (CY) 2024 and 2025 strips, meanwhile, settled below $4.00 on Monday. Mobius advised traders with short positions to hedge their exposure at this level, particularly if the upside exposure is largely unprotected. Tuesday’s action, meanwhile, sent CY 2024 to an average of $4.032 and CY 2025 to $3.892.
“It stands to reason that two to three years would be more than enough time for growers to restart the growth machine that has often left the North American market awash with oversupply over the past decade,” Mobius said. “However, there are enough headwinds on the cost/labour/access to capital front for the exploration and production community ‘consumers should beware'” ‘they expect a return to prices below $3.00’.
Piping works fuel cash flow momentum
Spot gas prices rose on Tuesday amid relatively strong demand that continued through the weekend. NatGasWeather noted that the latest weather models have lost a few degree days for the next seven days. However, a mix of late-season cold weather systems were still expected to sustain demand at higher elevations in the northern and eastern United States.
The strong demand picture pushed spot gas prices at Transco Zone 6 NY up 91.5 cents a day to $6.785 on average for Wednesday’s gas flow. New England prices, however, fell from Monday’s highs.
Texas Eastern M-3 delivery money jumped 81.5 cents to $6.675, and Columbia Gas added 50.5 cents to $6.450.
Prices in the Southeast and Louisiana rose between 20.0 and 40.0 cents per day, while a few Mid-Mainland and Texas locations posted slightly higher gains.
Hubs in the Rockies and California have also raised prices, with ongoing pipeline maintenance limiting flows as demand increases. Northwest Sumas’ next day gas jumped 49.5 cents a day/day to $6,810 ahead of scheduled work upstream on Westcoast Transmission.
Wood Mackenzie said a unit outage at Westcoast Compressor Station 7 would add approximately 127 MMcf/d of capacity restrictions at Station 4B South. While this event would contribute to immediate flow reductions at Station 4B South, net operational capacity across the station is expected to fluctuate throughout the outage as sporadic maintenance activities will continue through May. The largest reductions in flows through Station 4B South were expected this Friday and next Wednesday (May 4), with net operating capacity limited to 1,428 MMcf/d, according to Wood Mackenzie.
“Given the net operating capacity on April 29, this will likely be the lowest throughput volume for April 2022,” Wood Mackenzie analyst Quinn Schulz said. “However, this would still be approximately 230 MMcf/d higher than minimum flows through Station 4B South in April 2021. Additionally, average flows so far for this month are approximately 221 MMcf/d higher than average April flows. latest.”