Global supply fears drive huge gains for U.S. natural gas futures despite improving backdrop decline of 48

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Fueled by a possible winter energy shortage overseas, US natural gas futures prices rebounded sharply from the bruises of the previous week. November prices jumped 42.0 cents on average during the September 23-29 trading period, while the winter band (November-March) jumped 49.0 cents on average, according to NGI’s future outlook.

The gains at the front of the curve occurred amid the wild price action along the Nymex futures band. The October contract hit an intraday high of $ 6.280 on Tuesday before falling to $ 5.841. The November contract, meanwhile, fell dramatically on day one into an early position in an apparent disconnection from global supply issues. November settled at $ 5.477 on Wednesday, a day after hitting an intraday high of $ 6.318.

The last two trading days of the week resulted in even more wild swings, both ways. When the dust settled, the November Nymex contract was at $ 5.619, down 24 cents from Thursday’s close.

EBW Analytics Group analysts noted that there had been brief periods during the last volatile week where bid / ask spreads exceeded 10.0 cents. The low liquidity, probably due to the withdrawal of some players in a context of significant price movements, could further reinforce the structurally high volatility of the market.

Even with Friday’s pullback, US gas prices are at their highest level in years. However, the push is only a fraction of what happened in Asia and Europe this summer. Both regions are struggling to replenish storage stocks after last winter depleted reserves and the hot summer prevented significant reconstruction. Global spot gas prices have climbed to more than $ 30,000 / MMBtu, and China made even more noise on Thursday when it called on its energy companies to secure their supplies at all costs.

Robert Yawger, director of Energy Futures, Mizuho Securities USA LLC, said that overall, South Korea, China and Japan are the top three destinations for US liquefied natural gas (LNG) exports. Brazil, the UK and Turkey are at the top, and India, Spain, Singapore and the Netherlands tend to round out the top 10, with Taiwan and Portugal just outside the top. 10.

“The natural gas markets in Asia and Europe were both trading at record highs this morning even before the title ‘at any cost’ was released,” said Yawger.

Energy Aspects analysts noted that European companies were actively rebuilding their inventories ahead of this winter, despite low or even negative summer 2021 spreads compared to the winter 2021 band. Thus, storage stocks should be similar to supplies from the winter 2018-2019.

However, Gazprom PJSC is running out of its own stocks in Europe, which means there could be delivery problems for Russian gas this winter in the event of unforeseen disruptions in the capacity of Russian export gas pipelines. In addition, Gazprom could use part of the additional capacity it would have next year via Nord Stream 2 to reload its storage sites, “to the detriment of the gas available for its discretionary sales to Europe”.

If Russia’s export volumes during the winter are lower than expected, the reduction in storage will likely increase in the coming months, according to Goldman Sachs Commodities Research. This would make European gas markets even more vulnerable to colder than average temperatures and therefore increase the risk of further TTF price spikes during the winter.

“It is important to note that the potential upward impact on the market of a restricted pipeline flow in Russia would be particularly significant if Gazprom planned to supply at least part of its contractual winter volumes in Northwest Europe by taking physical delivery to the hub to compensate for the drop in pipeline flows in the context. stocks already depleted in the region, ”said a team of Goldman analysts led by Samatha Dart. “This could create physical compression at TTF,” potentially sending gas prices much higher than they already are.

The two new US LNG facilities scheduled for commissioning in the coming months could not arrive at a more opportune time. Cheniere Energy Inc. has received federal approval to introduce feed gas to the sixth train at Sabine Pass. Calcasieu Pass also tendered certain cargoes before start-up. Over the next month, feed gas volumes could approach 12.5 Bcf / d.

But while positive for gas prices, there are other factors that present a greater downside risk in the future.

Notably, there is little cold weather on the radar in October. At best, the first chance for any heating demand may come in the second half of the month, but even that is not likely.

Bespoke Weather Services said the trend continues to favor very hot weather in the northern half of the country, keeping early-season heating degree days well below normal. A lack of strong heat in the southern United States also keeps cooling degree days low.

“It’s hard to bring down the first half of October’s demand, but if the back half is also hot, as current indications suggest, we could break the 2016 record for the hottest October since. 1963, “said Brian Lovern, chief meteorologist at Bespoke. . “On top of that, the model looks set to continue its hot theme beyond Day 15, which means we can’t rule out a race for the record-breaking gas-weighted degree-days of October 2016. “

Rising storage estimates

Despite the never-ending thirst for gas overseas, the fall outlook in the United States bodes well for market players concerned about domestic supply this winter. After storage refills have been delayed for much of the summer due to heavy demand for cooling, milder climate change is leading to a series of plump injections to come.

On Thursday, the Energy Information Administration (EIA) said inventories for the week ending September 24 were up 88 billion cubic feet, in line with expectations.

Inventories reached 3,170 Bcf but remained below the previous year’s level of 3,745 Bcf and the five-year average of 3,383 Bcf, according to the EIA.

[Want to know how global LNG demand impacts North American fundamentals? To find out, subscribe to LNG Insight.]

The EIA indicated that the Midwestern and Eastern regions led with construction of 30 Bcf and 28 Bcf, respectively. South Central added 23 Bcf to inventory, including an injection of 12 Bcf in salt-free facilities and an 11 Bcf increase in salts. The Mountains region injected 5 Bcf while the Pacific stocks increased by 3 Bcf.

Yawger noted that although US stocks are now within the five-year average, “there is a demand for LNG that did not exist in the past.”

Nonetheless, market watchers are increasingly comfortable with the storage path in the coming weeks. After previously forecasting that stocks could be below 3.4 Tcf at the end of October, estimates are now 3.6 or more.

A lower storage deficit from the five-year average – which could drop to just 150 Bcf by mid-October – and the potential to inject 200 Bcf more than a year ago the end of October could help ease the growing pressure on natural gas. eventually, according to EBW Analytics Group.

The company noted that production has also rebounded in recent days to pre-Hurricane Ida highs, largely thanks to the return of production in the Gulf of Mexico. At the same time, any producer with the ability to ramp up the business and push forward additional production volumes can also help boost totals. However, “there is little short-term ability to add supply, and the net effect is probably minimal,” according to EBW.

“Over the next few weeks, however, growers’ plans to increase production through the onset of winter should increasingly materialize, likely helping production reach new highs,” analysts said. EBW.

Prelude to winter

Although California grabbed the headlines throughout the summer due to its tight supply conditions and record-breaking demand, the Northeast has proven itself to reign supreme in the U.S. gas markets by winter. Futures prices in the northeast hit levels typically seen during the cooler months of the year, not before the calendar even rolled back to October.

Looking forward data showed that Algonquin Citygate’s prices in November rose more than $ 1.00 from September 23 to 29 to reach $ 8,923. December prices jumped over $ 2.00 to $ 17.416, while the full winter band climbed from $ 2.26 to $ 16.24. The summer 2022 (April-October) strip fell behind with a modest rise of 6.0 cents to $ 3.520.

Transco Zone 6 NY also saw strong increases throughout the winter, according to data from Forward Look. November prices climbed 73.0 cents to $ 5.451, and December rose 59.0 cents to $ 7.149. The full winter band averaged $ 8,160 after gaining 92.0 cents on the week, while next summer gained less than a nickel to average $ 3.080.

Looking ahead to the winter ahead, AccuWeather’s official outlook for the Northeast indicates that cold weather may arrive sooner than usual.

“This winter, I think, is going to be colder, at least for the interior sections of the Appalachians to the Ohio Valley and the Great Lakes,” said AccuWeather senior meteorologist Paul Pastelok.

Temperatures in those areas were near normal last winter, but this year the winter as a whole is expected to average 1 to 3 degrees below normal, he said.

The first waves of cold air are expected in the northeast in November, when Pastelok said there could be “a few rounds of cold weather and some snow,” particularly in the interior of the northeast. .

According to AccuWeather, the early arrival of cold air will be just the first hill on a roller coaster expected this winter. The severity and frequency of snow and cold air are expected to ease a bit in mid-December before making a strong comeback in January.

“This is the month that stands out,” said Pastelok.

This is also the time of winter when there may be enough cold air entrenched in the area for snowstorms to cause widespread disturbance.

Sometimes during the month of January there is a period when the cold air calms down, called by some meteorologists a “January thaw”. But this winter, that respite from the freezing weather could come a few weeks later, making it more of a “February thaw,” according to Pastelok. This would provide a window for the snow and ice to melt before the end of winter, when the polar vortex could visit.

“In late winter and early spring, there could be another attempt to move or divide the polar vortex,” he said. This would send frigid arctic air into the eastern United States, “extending winter weather well beyond March 1, which marks the onset of meteorological spring.”

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