Newly Prompt October Nymex Natural Gas Contract Debuts with Thud; Bullish Backdrop Questioned

Bears gained the upper hand Tuesday as October took over the prompt position along the Nymex futures curve, with prices down sharply early in the session. With cooler weather on the horizon and an ongoing outage at a key LNG export terminal seen improving balances, the October Nymex contract settled 29.4 cents lower day/day at $9.042/MMBtu. November futures slid 29.7 cents to $9.103.

At A Glance:

  • Rain keeping temperatures in check
  • Two storms brewing in Atlantic
  • Cash prices sink except in West Coast

Spot gas prices were mostly lower as well, except in California and parts of the Rockies. Cash prices in those regions continued to tack on gains amid widespread heat and strong demand. NGI’s Spot Gas National Avg. slipped 11.0 cents to $8.865.

Though the hot near-term outlook for the West Coast is crystal clear, weather models appeared to be struggling with how much more heat the Lower 48 could see over the long range. NatGasWeather said there were mixed trends in the latest data, with the Global Forecast System model adding cooling degree days (CDD) but the European Centre model losing CDDs. There were no major changes in the coming pattern, according to NatGasWeather, with near to slightly stronger-than-normal demand the next 15 days.

The Labor Day weekend should be fairly hot, with highs of upper 80s to lower 90s ruling much of the southern two-thirds of the country, the forecaster said. More seasonal demand is favored the next few days and Sept. 6-13, as weather systems track across the country, limiting temperatures to the 70s and 80s over the northern states. Extreme heat during this period was limited to the West.

NatGasWeather said the focus for the rest of this week’s trade is on if bears can finally win more than one or two battles and hold prices under $9. Bulls have been given the benefit of the doubt they would buy the dip until proven otherwise, and they have yet to do so, the firm said.

“Is this signifying a considerable change in trader behavior that would suggest strong bullishness is waning?”

Peak Hurricane Season

Also noteworthy are two disturbances in the Atlantic being monitored by the National Hurricane Center (NHC). The first is a broad area of low pressure several hundred miles east of the Lesser Antilles, which was producing a large area of disorganized showers and thunderstorms. The disturbance was forecast to move slowly toward the adjacent waters of the northern Leeward Islands, with a 50% chance of formation through Thursday and an 80% chance through Sunday, according to the NHC.

At the same time, a tropical wave and broad area of low pressure were off the west coast of Africa, the agency said. The NHC expects the system to become a short-lived tropical depression over the far eastern Atlantic during the next few days, where it should dissipate in cooler waters.

On their current tracks, neither disturbance was expected to impact U.S. oil and gas production but instead serve as a reminder that the gas market is in the middle of peak hurricane season. Hurricanes tend to be known more for their impact on demand since less gas is needed for power generation when temperatures fall. But nearly all Gulf of Mexico gas production was shuttered ahead of Hurricane Ida last year. It took about a month for it all to return. Liquefied natural gas facilities were spared, but power outages were widespread.

Hurricane Laura, meanwhile, took Cameron LNG offline for more than a month in 2020.

This year, operations are already shut in at Freeport LNG following a fire in June, with initial production at the Texas facility not expected until early to mid-November.

“For the Lower 48 gas market, it cast a bearish shadow on an otherwise bullish injection season because it improved prospects for low storage levels to catch up,” said RBN Energy managing editor Sheetal Nasta. “At the same time, it had bullish repercussions for the global LNG market, particularly Europe, which is battling its own gas shortage scenario, made exponentially worse by the geopolitical ramifications of Russia’s invasion of Ukraine.”

[Decision Maker: A real-time news service focused on the North American natural gas and LNG markets, NGI’s All News Access is the industry’s go-to resource for need-to-know information. Learn more.]

Notably, there’s another 10 Bcf/d of LNG demand scattered across facilities in Texas, Louisiana and Georgia that could be impacted if a storm were to make landfall along the Gulf Coast. As such, Nasta said there is substantial baseload demand at risk for the Lower 48 balance — and significant supply risk for Europe — if a major hurricane were to strike.

“It’s safe to say that these days, predicting whether a hurricane will ultimately be a bearish or bullish market event has become a much more nuanced and fraught exercise,” according to Nasta. Regardless, if hurricane forecasters are correct in their predictions for above-average hurricane season, the gas market is likely in for some stomach-churning volatility this shoulder season.

In the longer term, as LNG exports rise, hurricane-related volatility is expected to have a progressively greater impact on domestic supply, demand, flows and storage, not to mention international markets, Nasta said. “Increased seasonality and volatility are now a mainstay of energy markets, both in the U.S. and globally, and unless energy policies and industry efforts align to fix the emerging imbalances, higher prices will be too.”

Dwindling Cash Prices

With increased cloud cover and rain chances in the forecast along the Gulf Coast throughout this week, spot gas prices plummeted on Tuesday.

Texas Eastern, S. TX next-day gas tumbled 45.5 cents day/day to average $8.505 for Wednesday’s gas delivery, while Carthage in East Texas plunged 38.0 cents to $8.165. Losses were modest in the western part of the state.

In Louisiana, Henry Hub slid 29.0 cents on the day to $8.960, while farther east, Tenn Zone 1 100L tumbled 31.0 cents to $8.410.

Larger price discounts were seen on the East Coast despite a notable drop in production.

Wood Mackenzie said output in Pennsylvania was down around 500 MMcf/d day/day, split evenly between the Southwest and Northeast parts of the state. Ohio production was down around 160 MMcf/d concentrated on Rockies Express Pipeline with no maintenance that began on Tuesday. However, Wood Mackenzie noted there is ongoing maintenance at the Chandlersville Compressor Station that is slightly impacting Segment 380.That work is expected to end on Sunday (Sept. 4).

Despite the reduction in output, prices crumbled on Tuesday. Millennium East Pool spot gas dropped 47.5 cents to $8.280, and Transco-Leidy Line fell 52.0 cents to $8.325.

In the Northeast, Tenn Zone 6 200L tumbled 41.5 cents on the day, averaging $8.780 for Wednesday’s gas day.

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