Natural Gas: Will LNG Save the Day Amid Benign Weather?

  • Three-week run higher lifts gas from $2 lows but not beyond mid-$2 range
  • Longs bank on more LNG demand, less gas output amid price-unfriendly weather
  • Another beefy storage build of 75 bcf seen for last week in US gas

For a third week running, bulls are in the green bay. And for a third straight week, the gains in futures trading of the fuel haven’t taken gas beyond the mid-$2 mark as benign weather puts a cap on demand.

That leaves longs in the market to hope on just one thing for now: higher LNG takeup and less output.

To hear the narrative of the trade journal, gas producers have ramped up activity to support strong demand for US exports of liquefied natural gas and an anticipated surge of sales in coming years amid supply shortages in Asia and Europe.

The new export capacity of LNG from plant expansions in the United States is also expected to come online in 2024 and in ensuing years.

To be sure, the reopening of Texas-based Freeport LNG, which was idled for eight months due to a fire, has provided a boost for natural gas demand as well as prices.

Other LNG facilities, though, are approaching summer maintenance projects that could curb feed gas flows, with Texas-based Corpus Christi Liquefaction’s 23.5-million-tonnes-per-annum plant, particularly in the news for the closure of a liquefaction train over scheduled upgrades.

Houston-based energy markets advisory Gelber & Associates said in a note issued on Wednesday to its clients in the natural gas space.

“LNG terminal exports have yet to rebound; currently exports are at 13.6 billion cubic feet per day as opposed to the 14.5 bcf/d seen prior to … Monday.”

In addition, weather for the foreseeable future appears unlikely to drive stronger consumption levels – unless summer heat arrives early.

NatGasWeather said in a forecast carried by naturalgasintel that the latest temperature outlook remained largely unchanged — or bearish for longs in the game.

The forecaster added:

“The pattern through the first week of May showed above average heating degree day totals over northern portions of the country. But lighter-than-normal cooling degree day totals for the southern United States will provide an offset, leaving demand modest.

The pattern for the second week of May favors the northern U.S. warming into the perfect 60s to 80s, while the southern U.S. warms into the 70s to 90s for light to very light national demand. The most bullish case would be the current cool versus normal pattern rapidly transitions to widespread heat for the second half of May, although the weather data has yet to suggest that outcome.”

Source: Gelber & Associates

NatGasWeather also projected that US gas production needed to decline by 2 billion-3 billion cubic feet daily or the balance in won’t be as tight as needed to meaningfully decrease surpluses this summer without a prolonged period of hot and bullish weather patterns. The forecaster added,

“With recent weather data suggesting heat shouldn’t be expected in the next two to three weeks, a run toward $3 might not be warranted,”

The debate on when the bearish tide would irrevocably turn for ‘natty’ — as the all-season fuel for heating and cooling is known — has raged since gas prices began their headlong fall from 14-year highs of $10 per mmBtu, or million metric British thermal units, in August.

At brief intervals this year, the market had appeared to be on a cusp of a serious rebound — like in late February when it got above $3 after breaking below $2 earlier that month for the first time since September 2020.

Over the past two weeks, the phenomenon reappeared when the front-month gas contract on the New York Mercantile Exchange’s Henry Hub rallied to almost $2.40 — a level it had not reached since late March — exciting traders and analysts over the prospect of $3 pricing and beyond.

But as fast as those outbreaks occurred, the bubble to the upside popped as well, dragging the market back toward the low $2 levels, risking a break of that key support.

That has left Henry Hub prices in so-called “no man’s land” despite three straight weeks of gains that have lifted the front-month by some 25% from an April 6 low of $1.992.

The struggle to reach new ground was largely due to production holding at around or above 100 bcf per day despite softer demand and prices far below 2022 highs.

Said Nikoline Bromander, senior analyst at Rystad Energy:

“On the supply side, the market is hoping to see some elasticity as prices have declined precipitously. In spite of [that], activity has remained resilient, and our summer dry gas production forecast is expected to average 100.3 bcf/d.”

The Rystad analyst forecasts a 1.5% increase in dry gas supply year on year, amid expectations for a near 12% growth in the Permian Basin relative to the summer of 2022. Bromander added,

“At this time, the path of least resistance is lower prices,”

US gas storage for the week ended April 14 rose by 75 billion cubic feet, or bcf, after all the burning done for power generation as well as for heating as some unexpected chill for this time of the year surfaced, the Energy Information Administration, or EIA, reported last week.

That 75-bcf injection bumped up total gas inventories to 1.930 trillion cubic feet, or tcf, EIA records showed. At current levels, the gas storage stands at 34% above the year-ago level of 1.442 tcf and nearly 21% higher than the five-year average of 1.601 tcf.

In its weekly update of storage data due at 10:30 ET (14:30 GMT) today, analysts tracked by expect US utilities to again have injected 75 bcf into storage after burning what they needed for heating and power generation from the gas produced during the week ended April 21.

If that estimate is correct, the injection would be much bigger than the 42-bcf addition seen during the same week a year ago and versus the five-year (2018-2022) average increase of 43 bcf.

Accordingly, the forecast for the week ended April 21 would lift stockpiles to 2.005 trillion cubic feet, or tcf — some 35% above the same week a year ago and about 22% above the five-year average.

There were around 62 heating degree days (HDDs) last week compared with a 30-year normal of 68 HDDs for the period, data provider Refinitiv said in a forecast.

HDDs measure the number of degrees a day’s average temperature is below 65 degrees Fahrenheit (18 degrees Celsius) to estimate demand to heat homes and businesses.

Said Gelber, the Houston-based markets advisory service:

“Turning to the upcoming EIA storage report, there is a wide range of expectations for the week ending April 21st, with the market generally in the range of mid-60s to low-80s in terms of expectations. Many factors have been at play from rising coal and natural gas generation, lower wind generation, and last week’s record LNG exports leading to this wide range of expectations.”

Analyst Brian LaRose of ICAP Technical Analysis said with fundamentals remaining mostly bearish, the front-month June contract may see “more sideways to lower price action” during its run at the front of the curve.

“To avoid drifting listlessly,” he said, “bulls will need to get June over $2.543.”


Disclaimer: The content of this article is purely to educate and inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.



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