Natural gas futures closed the week lower as the latest storage data – the tightest of all summer – was seen as a one-time event in an otherwise bearish backdrop. With the next two weeks likely to include only a few days of cool weather, the November Nymex gas futures contract fell 22.0 cents to $ 5.345 / MMBtu.
In one look :
- Coming ahead seen not quite so cold
- Wind to untie the balance
- Money is softening
Spot gas prices also pulled back ahead of the week, with NGI’s Spot Gas National Avg. down 48.0 cents to $ 5.080.
The countdown to winter is on. Stocks still weren’t giving a clear picture of where they might land at the end of the injection season, so traders looked to weather patterns on Friday for where to close another volatile week. After some back and forth in the weather models, the latest data showed that cooler air would arrive next Saturday (October 23).
Until then, however, the temperatures must have been mild. Even when cooler air arrives, NatGasWeather said October 23-26 may be the only four-day period in the next 15 days when demand is expected to be near normal.
“We continue to look into late October and early November for more impressive cold snap in the US, but where overnight data hasn’t shown a cooler trend,” NatGasWeather said.
The forecaster also pointed out that the longer-term European pattern favored a warmer-than-normal pattern over much of the Lower 48 through mid-November.
Bespoke Weather Services offered a similar assessment of the data. The company said the overnight models were “just a tick cooler” and the below-par demand model remains firmly in place overall. The data revealed more variability in the last third of the month, allowing colder lows to pass through the Midwest and East.
There is “no real source of cold air” to exploit, according to Bespoke, as the Pacific side of the model has remained “very hostile” to any delivery of cold air to the United States. Nonetheless, this was a “notable step change” from a few days ago.
“We see this as a window of variability,” Bespoke said. The forecaster still favors warmer weather to win before early November, “although we will continue to monitor the blockade as it poses risks to the hot view if it continues to be underestimated by all directions of the model.” .
Will the wind boost storage constructions?
The longer it takes for cold weather to set in, the better will be the state of storage stocks in the United States when the winter season is underway. However, as the latest government data show, risks remain.
The Energy Information Administration (EIA) said stocks for the week ending Oct. 8 rose 81 billion cubic feet to 3.369 billion cubic feet. Although the injection reduced the deficit to year-ago levels of 31 Bcf, the deficit from the five-year average remained intact at 174 Bcf.
Wood Mackenzie analyst Eric Fell said the 81 Bcf injection seemed tight 4.0 Bcf / d compared to the previous five-year average over degree days and normal seasonality. The latest injection is “a stark contrast” to the week before, with the weekly total declining by 37 billion cubic feet per week despite a slight increase in the total number of degree days.
According to Fell, the main driver of this massive week-to-week change was, once again, the production of renewable energy in the electric battery. The analyst said nuclear and renewable generation fell 30 GWh (AGWh) on average per week, reaching year-round lows, and well below the five-year average.
“Wind was the biggest culprit, with unusually low wind production for the week,” Fell said.
Wind production fell 23 AGWh and tied the record for the largest week / week decline set in June. Weekly wind production was so low for the week that it was even lower than during winter storm Uri in February, when many wind turbines were frozen.
Notably, the tightness caused by the wind in the last storage report is likely to be reversed in the next EIA report, as wind production experiences a substantial rebound. “We are on the verge of seeing the biggest weekly increase in wind generation on record,” Fell said.
The cold arrives in Asia
While the mild weather is likely to last a bit longer in the Lower 48, weather models showed cold air was starting to move across Asia over the next few days, increasing demand.
Maxar’s weather office said scattered showers are expected to hit eastern South Korea and Japan at the start of the one to five day period as a weak frontal border pushes east. A strong zone of high pressure was then to form over eastern China, producing a flow from northern northeast China, South Korea and Japan to southeast China.
“This vast region will see temperatures drop below normal over the one to five day period and in the six to 10 day period as the high level persists,” the Weather Desk said.
Although temperatures are expected to warm up again afterwards, Energy Aspects said its baseline scenario is that Asia is expected to draw more liquefied natural gas (LNG) shipments from the Atlantic Basin from December to February than it does. has done so so far this fall.
The consulting firm’s outlook for the Japan Korea Marker (JKM) -Title Transfer Facility (TTF) peak spreads in winter reflects the economics of shipping US LNG to Asia via the Cape of Good Hope. Projections assume that congestion appears at the Panama Canal throughout the period.
“We expect spreads of $ 4.29 in December, falling to $ 3.29 in February 2022, as freight rates begin to drop $ 1.52 above the latest Chicago Mercantile Exchange futures curve. on average over the period, ”Energy Aspects analysts said.
There is still some good. The Energy Aspects price forecast takes into account the 10-year average temperatures throughout the winter. A colder-than-expected peak winter in Northeast Asia – as suggested by another increase in the likelihood of a La Niña pattern over the past week – could provide more advantages to JKM-TTF spreads, by especially towards the end of the season.
LNG imports from Northeast Asia could increase by 2.6 million tonnes (mt) from the company’s baseline forecast in November-March if temperatures are 10% below normal in 10 years, “and up to 0.7 mt (about 10 cargoes) in a single month,” said the Energy Aspects team.
Fall like dominoes
Near perfect weather across most of the country, even in Texas, caused significant losses in the spot gas market on Friday.
The National Weather Service said that while cooler temperatures were unlikely to break many (if any) records, daily temperature deviations of 10 to 20 degrees below normal were expected initially in the Rockies and the high plains. The front across the Rockies was then expected to move rapidly east on Saturday, paving the way for drier, more autumnal temperatures from the Great Lakes to the western Gulf Coast. Most of the east coast is also expected to receive a dose of much cooler temperatures by Sunday.
With the arrival of fall in the Lone Star State, spot gas prices in the area have plunged. Spot gas prices in Katy fell 41.5 cents to $ 5,180 for gas delivery through Monday, with similar steep declines seen elsewhere.
Several places in the middle part of the country recorded steeper declines due to lack of demand for heating or cooling. Consumers Energy cash was down 57.5 cents to $ 5.080 for the three-day period on gas, and Ventura was down 57.0 cents to $ 4.965.
Spot gas prices at Henry Hub averaged $ 5,460 after falling 37.0 cents day / day, while further east, Cove Point averaged $ 4,990 after dropping 41 , 0 cents.
Northeastern markets slipped mainly between 50.0 cents and 80.0 cents day / day, and in the Rockies, Northwestern Sumas led the region’s losses with a decline of 69.0 cents to $ 5,490 for gas delivery through Monday.
Spot prices north of the border in western Canada also fell despite some pipeline maintenance that would restrict gas flows to the region.
Nova Gas Transmission Ltd. (NGTL) announced that firm transit revenue in the Upstream James River Region (USJR) would be reduced by 33%, effective Friday and until further notice. The outages are attributed in part to ongoing maintenance events at the Berland River 1A compressor station and Latornell compressor station, according to Wood Mackenzie.
The affected segments include Segments 2, 3, 4, 5, 7, Part 8 and Part 9, including the Aitken Creek, Big Eddy, Groundbirch East, Gordondale and January Creek interconnections. Meanwhile, interruptible transit revenues in the USJR region are to be reduced to zero until further notice.
“The USJR region takes gas produced in Alberta and transports it either westward to end users via pipelines in British Columbia or via pipelines that serve markets in the western United States and from eastern Canada, ”said Wood Mackenzie analyst Quinn Schulz.
Despite the restrictions, prices in Western Canada collapsed on Friday. NOVA / AECO C lost 41.0 cents to an average of C $ 4.970 / GJ for gas delivery through Monday.