Energy CX Insights: Market Update: September 11, 2024

This Week's Update:

Over the last week there hasn’t been significant volatility in the natural gas market with most of the movement in the outer years. Cals ’27-’28 are down six and nine cents, respectively, as Golden Pass LNG requested a completion extension out to 2029. Nearterm calendar strips were relatively flat, up or down a penny over the last week. The Oct’24 prompt month contract is up about $0.109/MMBtu week-over-week on expected production cuts and tighter storage results. 

Fundamentals:

• Natural gas production is down about 2 Bcf/d over the last seven days.
• Demand is mainly flat. Power burn demand pulled back by about 2 Bcf/d but was offset by an equivalent rise in res/comm demand.

EIA/Gas Storage: For the week ending August 30, 2024, the EIA reported an injection of 13 Bcf into underground storage vs. an estimated injection of 28 Bcf. Inventories are 3,347 Bcf, 208 Bcf or 6.6% more than the same period last year and 323 Bcf or 10.7% more than the 5-year average.

Weather impact:

• DTN’s 16-30 day forecast shows warmer-than-normal temperatures in the Upper Midwest, delaying the start of the heating season and limiting both late-season cooling and early-season heating demand. Tropical storm risks persist, but the bearish temperature outlook could continue to pressure NYMEX futures in the near term.

In short:

• September is expected to be the coolest in 15 years, but the October contract remains historically low compared to Henry Hub prices.

• • Power sector gas burns may lose another 5.1 Bcf/d next week as the autumn season arrives early.

  • Despite this, the wide October-December spread, low October contract, and no immediate storage issues suggest potential for price increases.

  • In the longer term, higher prices could trigger increased supply by early winter, which, combined with winter weather, could pressure NYMEX futures down over the next 90 days.

• We hold a modestly bullish near-term outlook—as a seasonal rally into the early heating season is likely. The October contract should go up in price, with large seasonal spreads, an October contract trading below historical norms, and minimal storage concerns unless significant bearish factors emerge. 

  • All said, Gas prices are still good, and now is still a good time for buyer’s to add to their portfolio before prices begin to increase into the early heating season.

  • Looking ahead, early-winter cold forecasts could boost prices, but the long-term outlook remains bearish. By mid-October, returning supply—potentially 3.0-5.0 Bcf/d—could weigh on prices, especially with oversupplied storage levels in both the US and Canada. While winter weather could still override these fundamentals, the market faces risks of prices falling below $3.00/MMBtu by 2025, potentially presenting another good buying opportunity for our customers.

In Depth:

Near Term:

• Dry gas production started decreasing in early September, easing a significant near- to medium-term bearish threat. Late August had seen a rise in production to meet cooling demand, but early September pipeline nominations suggest a drop of 2.0-2.5 Bcf/d, leading to a brief relief rally. Further production cuts are expected into mid-September as weather-driven demand declines, providing support for the October contract.

• Weather-related demand may briefly increase this week but is likely to drop again, with national cooling demand potentially falling by 19 CDDs, cutting power sector gas burns by 4.0 Bcf/d. Demand could remain low into mid-September, especially if a potential tropical storm (30% chance) south of the Dominican Republic develops.

• LNG feedgas demand has rebounded above 13.0 Bcf/d due to cooler temperatures and Freeport LNG’s return to full capacity. However, this is still 2.7 Bcf/d below all-time highs. While some modest upside is expected over the next 7-10 days, issues at Calcasieu Pass and Plaquemines continue to limit maximum output.

• September 2024 is on track to be the mildest in 15 years, hampering efforts to reduce the year-over-year storage surplus, which stood at 209 Bcf as of August 9th. Low cooling demand and physical prices near $2.00/MMBtu continue to weigh on NYMEX futures.

30-45 Days:

• The front of the strip has room to rise over the next 30-45 days, with large seasonal spreads, an October contract trading below historical norms, and minimal storage concerns unless significant bearish factors emerge. A seasonal rally into early heating season is likely, but long-term, the market remains oversupplied due to:

1. Lifting of 2.5-3.0 Bcf/d of curtailed supply.

2. The Matterhorn pipeline resolving Permian bottlenecks.

3. Unleashed deferred production.

4. Regional demand increases in the Marcellus.

• The October-December spread, now at 86.1¢/MMBtu, reflects an oversupplied front and winter premiums driven by deliverability risks and freeze-offs. This wide spread mirrors last year, when a similar gap collapsed by late September.
• Low production is key to near-term price support, with further cuts needed to lift prices. Recent price bounces were due to declining production, though data quality issues persist, including EIA revisions. The Matterhorn pipeline, which could add 1.0-1.5 Bcf/d of supply, remains a bearish threat, as do hurricane risks that could disrupt demand or production.
• Looking ahead, early-winter cold forecasts could boost prices, but the long-term outlook remains bearish. By mid-October, returning supply—potentially 3.0-5.0 Bcf/d—could weigh on prices, especially with oversupplied storage levels in both the US and Canada. While winter weather could still override these fundamentals, the market faces risks of prices falling below $3.00/MMBtu by 2025.

Natural Gas Prices:

For contracts expiring in next 3 months (or NMR): DRT Prices for 12-mo contract starting in Oct & Nov below:

• Why buy now? – Oct & Nov 12-mo contracts near 2-year renewal floor.

For contracts expiring in 9-12 months:

• Why buy now? – Gas 2025 renewals are still near Feb lows