Weekly natural gas cash prices climbed higher as summer heat lingered across much of the Lower 48, offsetting bouts of regionally cooler air and heavy rains ushered in by Hurricane Ida.
NGI’s Weekly Spot Gas National Avg. for the Aug. 31-Sept. 3 period jumped 26.0 cents to $4.365, led higher by gains across the Midwest and Texas.
Ida crashed into Louisiana Aug. 29, delivering widespread wind damage and flooding rains that knocked out power for hundreds of thousands of customers. It also pushed offline natural gas production in the Gulf of Mexico (GOM), though the idled output was offset in part by cooler air early in the week.
Ida weakened as it moved up the East Coast, but it still packed a powerful punch, drenching major markets with record rains. New York City and Philadelphia both endured traffic-paralyzing floods.
This impacted prices along the East Coast at points during the week – weekly prices were down at several Northeast hubs — but heat elsewhere supported weekly prices overall. Persistent summer conditions bolstered prices across California, the Southwest and the nation’s midsection.
Amid production cuts in Hurricane Ida’s wake and festering storage worries, meanwhile, the October Nymex contract rallied throughout the week and settled at $4.712/MMBtu on Friday, up 8% from the prior week’s finish.
Forecasters anticipated cooler temperatures in the Midwest and East during the week ahead. But by the middle of the month, much of the country could again see summer-like conditions, fueling cooling demand, Bespoke Weather Services said.
This is “rather typical of a La Niña base state at this time of the year,” the forecaster said. “Obviously, absolute temperatures will not be where they were in the middle of summer, but demand is demand, and it does look to run above normal levels especially as we move into the middle third of the month, as upper level ridging returns to the eastern U.S.”
Natural gas futures forged higher during the week as supply/demand imbalance concerns mounted.
After slamming into Louisiana, Ida forced energy companies in the Gulf of Mexico to shut in nearly all of the oil and gas produced in the region for much of the week. This dragged output below 90 Bcf on several days.
For most of July and August, output had already hovered just below the 93 Bcf/d level that Bespoke says is needed to align supply with demand following a scorching domestic summer and amid ongoing strong demand for U.S. exports of liquefied natural gas (LNG).
Cooling demand proved robust throughout the summer months and LNG volumes have held between 10 Bcf and 11 Bcf for months. Demand from both Europe and Asia for U.S. exports of the super-chilled fuel is expected to be strong through the winter because supplies on both continents are anemic.
“Higher demand and low gas storage levels in all major gas markets abroad continues to signal a tighter U.S. gas market throughout the remainder of the year,” said Rystad Energy analyst Emily McClain.
Against that backdrop, futures rebounded sharply from a slow start on Monday by gaining 31 cents over the course of trading on Tuesday and Wednesday, reaching a new 2021 high.
A weak storage print from the U.S. Energy Information Administration (EIA) on Thursday extended the rally, with the prompt month tacking on another 2.6 cents that day before finishing the week Friday with another gain of 7.1 cents.
EIA on Thursday reported an injection of 20 Bcf natural gas into storage for the week ended Aug. 27. The result was shy of already modest expectations due to solid domestic demand and export levels during the covered week.
Major surveys had pointed to a below-average build in the mid-20s Bcf. NGI modeled a 28 Bcf injection. Last year, EIA recorded a 36 Bcf build for the period. The five-year average increase was 53 Bcf.
The latest build lifted inventories to 2,871 Bcf. Still, that was far below the year-earlier level of 3,450 Bcf and the five-year average of 3,093 Bcf. Analysts said that, if winter lasts longer than normal, U.S. stockpiles of gas could prove precariously light by early 2022. Weakened production following Ida – GOM output could take weeks to be fully restored – compounded matters.
Should GOM outages “continue into late September — as appears increasingly possible — the natural gas market focus is likely to be on stagnant production and a low storage trajectory during the last six weeks of the injection season,” EBW Analytics Group said.
Cash prices were mixed Friday, with ongoing gains in the West but declines in the Northeast. NGI’s Spot Gas National Avg. shed 6.0 cents to $4.420 in Friday trading for weekend through Tuesday delivery.
Ida left in its wake cool air across the Northeast, easing gas demand in that key region. Algonquin Citygate near Boston fell 47.0 cents to $3.430 and Iroquois Zone 2 in New York lost 25.0 cents to $3.950.
These declines were mostly offset by surges out West. SoCal Citygate jumped 51.0 cents to $5.990, while KRGT Del Pool gained 42.5 cents to $5.535 and El Paso S. Mainline/N. Baja rose 32.5 cents to $5.960.
A combination of strong demand and insufficient pipeline capacity that constrains supply kept upward pressure on prices in the West throughout the summer, and that continues to be the case early in September, said RBN Energy LLC analyst Jason Ferguson.
The lofty prices are “signaling the need for construction of newbuild gas pipeline capacity to the region. Without it, markets west of the Permian Basin have been hard-pressed to take advantage of the supply growth in West Texas and have struggled to consistently maintain adequate natural gas supplies for some time now,” Ferguson said.
To make matters worse, he added, last month a segment of El Paso Natural Gas Pipeline, “a primary artery for moving Permian gas west, experienced a rupture, further tightening supplies.”
Looking out to the middle of September, NatGasWeather said strong cooling demand was expected to continue in the West and much of the South. However, “the northern U.S. and much of the East will be near perfect with highs of 70s to 80s.”