Natural gas futures fell dramatically ahead of this week’s storage report after an explosion at the Freeport LNG facility from HH over $9.50 Btu to under $8 ahead of the report stabilizing to $8.25. The moves heighten the risk and volatility in the commodity. With markets back to worrying about a hot summer and hurricane season the EIA reported a build of 97 Bcf of working gas in storage last week.
With the global energy crisis LNG exports continue to grow LNG feed gas volumes over 13Bcf, a two-month high last week. That put exports near the 14 Bcf-plus record. Markets are on edge with have hot weather and production.
Europe is moving aggressively to wean itself off Russian natural gas supplies with U.S. exports of liquefied natural gas expected to remain strong for some time. Meanwhile a tightening backdrop in the natural gas market, unrelenting export demand highlighted by Germany’s dependance on Russian supplies and its impact on domestic supplies futures continue to be elevated with a lack of sustained production growth fueling concerns about adequate supplies ahead of summer, let alone next winter.
Into The Vortex Contents
Click on the links below to navigate to the relevant section.
- EIA Natural Gas Storage Forecast and Analysis
- Natural Gas Quick Summary
- Rig Watch
- LNG and Export Watch
- Natural Gas Import Watch
- Natural Gas Demand Watch
- Nuke Watch
- Natural Gas Futures Technical Analysis
- Option Volatility and Gamma
- DCOT Report
EIA Weekly Storage Report
- Report Date: 6/2/2022 Via TradersCommunity.com
- Release Time: Thursday 6/9/2022 10:30 a.m. ET
- Market Expectations
- Actual +97 Bcf Prior +90 Bcf
- Consensus Forecast +95 Bcf
- Cons. Range +88 Bcf to +105 Bcf
- Last Year: +100 Bcf
- 5 Year Average: +100 Bcf
Looking ahead to the next EIA storage report, TPH’s preliminary modeling points toward a build of 95 Bcf, tighter than the five-year avg. build of 100 Bcf.
- Wall Street Journal’s survey of analysts injections of
- Bloomberg’s poll median injection of
- Reuters’s poll estimates injections of
With “healthy corrections’ not withstanding we have seen mostly steady gains in the natural gas market since Russia’s invasion of Ukraine one month ago. Benchmark Henry Hub prices are well above the $8.000/MMBtu mark for May, traditionally a month in which prices sell off as temperatures warm. In addition to the Ukraine factor weather also has been supportive of prices as models continue to reflect periods of brisk temperatures that could keep demand elevated longer into the spring season.
Working gas in storage was 1,999 Bcf as of Friday, June 3, 2022, according to EIA estimates. This represents a net increase of 97 Bcf from the previous week. Stocks were 398 Bcf less than last year at this time and 340 Bcf below the five-year average of 2,339 Bcf. At 1,999 Bcf, total working gas is within the five-year historical range.
Broken down by region
- South Central region +26 Bcf increase +24 Bcf in nonsalt facilities and 3 Bcf in salts
- Midwest +25 Bcf decrease
- East +30 Bcf decrease
- Mountain +5 Bcf increase
- Pacific 11 Bcf increase
Current Storage Level vs. Last Year; 5-Yr
- Current Storage Level: 1,999 Bcf
- Storage 2020/Same Week: 2397 Bcf
- 5Yr Avg/Same Week: 2,339 Bcf
via Brynne Kelly @BrynneKKelly
Global Natural Gas Quick Overview
Via Ole S Hansen @Ole_S_Hansen
Natural Gas Market Price Influence Factors
Bearish Factors Include
- Economic damage and reduced natural gas demand caused by the Covid pandemic,
- Warm U.S. winter that resulted in weak demand for natural gas for heating.
- Over long spec positions
- Expectations that the high level of oil prices would increase shale drilling and natural gas extraction as a by-product
Bullish Factors Include
- Record foreign demand for U.S. nat-gas as flows to U.S LNG export terminals on April 18 rose to a record 11.921 bcf (data from 2014) and after U.S. LNG exporters loaded a record 81 cargoes in November, breaking the previous record of 75 set January of 2020, (This was before the Russian invasion of Ukraine – which has led to even greater demand for US LNG)
- The lower level of oil prices and ESG politics reduced shale drilling and natural gas extraction as a by-product
- Tighter U.S. natural gas supplies that are down -14.8% y/y and -2.6% below their 5-year average.
- High power burns
- Perception that gas supply and demand are more inelastic than ever before.
- Over short spec positions
Baker Hughes active rigs total in the U.S. onshore and Gulf of Mexico (GOM)
- US Baker Hughes Rig Count 10-Jun: 733 (prev 727)
- Rotary Gas Rigs: 151 (prev 151)
- Rotary Oil Rigs: 580 (prev 574)
For May the oil rig count rose for a record 21 months in a row, while the gas rig count was up for a ninth month in a row, the most since May 2017.
US Oil Rigs w/w changes by key shale basins
- Permian +3 to 344
- Eagle Ford +2 to 59
- Williston unchanged at 27
- Cana Woodford unchanged at 27
- DJ Niobrara unchanged at 15
- Canada averaged 95 active drilling rigs this week according to data from the Canadian Association of Energy Contractors. Of those rigs, 39% are drilling for natural gas, 49% are drilling for oil, 2% for other (helium, hydrogen, geothermal, or potash), and 10% are moving.
- Drilling activity by province is 78% in Alberta, 9% in Saskatchewan, 7% in BC, and 6% elsewhere. Precision Drilling holds the majority of the Canadian market share with 34%, Ensign Drilling with 24%, Savanna Drilling with 12%, and Akita Drilling with 6% via Camtrader
Talking About The Weather
Gulf of Mexico
The NHC predicts up to 21 named storms this hurricane season, up from the annual average of 14. Six to 10 of these storms could evolve into hurricanes.
Paths of Recent Gulf Hurricanes
European Energy Crisis
The energy crisis pounding the world with unheard of prices was impacting the domestic pricing. In Europe we saw up near record highs again. However European natural gas prices slumped to the lowest since start of the war in Ukraine on April 14. Stephen Stapczynski @SStapczynski cited a number of factors:
- Mild weather hitting demand
- Easter holiday market
- Russia/Norway supply slated to rebound
- Putin remains silent on possible halt to supplies
The EU also is considering requiring natural gas storage facilities to be filled at least 80% capacity for next winter. Given that European supplies are below historic averages coming out of winter, this would almost certainly keep demand for U.S. LNG elevated through 2022.
Daily Europe natural gas inventory by year.
Europe NG storage is at 48.4% of capacity. That is -5.8% vs 5yr avg.
U.S. Climate Prediction Center said Thursday there is a 53% chance that La Nina conditions could persist through the summer and a 45% chance of those conditions carrying into next fall.
This raises the likelihood of Atlantic hurricanes, which could disrupt natural gas operations on the Gulf Coast late in the summer and early fall. La Nina conditions tend to allow more tropical systems to strengthen into hurricanes, the forecaster said.
The phenomenon begins when the atmosphere reacts to a cooler patch of water over the Pacific Ocean.
Technical Analysis via KnovaWave
Henry Hub Natural Gas Futures Weekly Chart Outlook via @KnovaWave
Daily: US Natural Gas has continued higher after it completed 3 waves correcting the daily 8/8 spit correction to -2/8. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. We closed over the 2 most recent highs and +1/8 right. Support is Tenkan, Kijun below.
The Cloud top broke Kijun and Tenkan with a kiss of life. Meaning that 3 was either an a i or iv– impulse in a nutshell. Prior to this move the adjunct failure of the 50dma and Tenkan opened up the retest of 3.80-3.60 last time which fueled this week’s move higher. From there we fell sharply to the Kijun, A completion of 4 (bear) or (i) of 5 (bull) which gave this move sustenance
Notice the fractals of the move after completing the C of 4 bullish scenario played out the consolidation phase since it completed its IV (Bull Case) last year since then a series of 3 waves. For the bulls all this needs to hold for the highs to be a (iii) looking at possibilities we have the 161.8% at 7.026 if we get ‘silly’ 50dma support.
Like the larger wave on the way up it accelerated through previous highs (flat topped triangle energy) and over the resistance at 8/8 and new highs. We successfully tested that break in a pennant ABC. Previous highs (flat topped triangle energy) and 8/8 and new highs underscore the structure that fed the move and is key longer term.
Weekly: Notably no sharp reversal, like the previous impulsive spikes. We saw a clean break of the Kijun to close back over near highs. This move was fueled by a fractal of the classic double top playing out after a spit of the weekly Kijun was sent back off Tenkan only to reverse all the way to spit the 50wma for the energy needed. Resistance is Previous highs and Murrey Grid.
The Natural gas rebalanced after continued to fail and retrace with impulse after reaching its major target, the double top potential from 2014 which equated nicely to over 8/8 Weekly and showed true impulse off that to rebalance Chikou. It’s now a question of degree, 3 or 5? Impulse just shy of the 8/8 and Tenkan confluence. A question of continuation with the 50wma as resistance and cloud as support.
Natural Gas Production
In the April Short-Term Energy Outlook, the EIA said it expects output to average 96.9 Bcf/d in April and 97.4 Bcf/d for the full year. This would reflect a 3.8 Bcf/d increase over 2021 levels.
Rystad Energy analysis has Permian Basin drilling permits reaching new highs in March, roughly doubling levels from late 2021 and early 2022. The increase provides further evidence for a natural gas supply boom later this year, according to EBW Analytics Group adding a recent Kansas City Fed energy survey indicates that Midcontinent and Rockies producers plan to boost production by an average 7.5% by 4Q2022 despite difficulty finding labor and investor pressure to maintain capital discipline.
“While we continue to expect major natural gas production gains later this year, however, they may arrive too late to avert bullish pressure in early to mid-summer,” EBW senior analyst Eli Rubin said.
The EIA’s latest 914 report showed dry gas production slumping 2.59 Bcf/d month/month as every key state saw output slide in the coldest January since 2014. The Appalachian tri-state area saw production fall 1.03 Bcf/d from December, while Texas and New Mexico output slid a combined 0.81 Bcf/d.
Around 97% of production over the next two years will come from the Lower 48 states (L48), excluding the Federal Offshore Gulf of Mexico (GOM). The other 3% will come from Alaska and the GOM.
U.S. natural gas production growth will primarily come from the Appalachia region in the Northeast, the Permian region in western Texas and southeastern New Mexico, and the Haynesville region in Texas and Louisiana. EIA forecast that the Permian region will contribute 2.2 Bcf/d to production growth in 2022 and 1.2 Bcf/d in 2023.EIA
Natural Gas Exports Watch
Some US LNG export projects vying for FID:
- Corpus Christi Stage 3 — 10mtpa (mostly contracted)
- Plaquemines — 10mtpa (mostly contracted)
- Driftwood — 11mtpa (mostly contracted)
- Cameron T4 — 6mtpa
- Freeport T4 — 8.4mtpa
- Commonwealth — 8.4mtpa
- Rio Grande — 11mtpa
- via Stephen Stapczynski @SStapczynski
On Friday March 25, 2022, from a EU/NATO meeting in Poland , the Biden administration and European Union (EU) leaders announced a new effort to ensure Western supplies of natural gas to the continent through 2022 and beyond. The United States and the EU now have a joint goal to send an additional 15 billion cubic meters of LNG to EU countries in 2022, about 1.5 Bcf/d, with “expected increases going forward,” according to the White House.
U.S. exporters have little room to ramp up more in the near term, and Western governments do not have the power to order private companies in the LNG market to direct shipments to Europe.
Natural Gas feed to LNG facilities:
Sabine Pass, Cameron, Elba Island, Cove Point, Freeport & Corpus Christi combined
++Charts via RonH @RonH999 – Visit Ron for daily updates
Natural Gas Mexican Exports Watch
via RonH Energy
US natural gas exports to Mexico established a new monthly record in June 2021 surpassing 7 Bcf/d from then March-to-date average exports to Mexico continued to be flat against the previous month, at barely 5.6 Bcf/d, according to Wood Mackenzie. In the preceding five years, the average February-to-March growth rate was slightly above 4%.
Natural Gas Canada Import Watch
Source via RonH Energy
Natural Gas Demand Watch
via RonH Data @ronh999
Natural Gas Nuclear Power Watch
Source: via RonH Data @ronh999
ALERT Three Mile Island nuclear shut down permanently on Friday afternoon 9/292019.
Natural Gas Options Structure – Volatility (COT)
NYMEX ON NATURAL GAS OPTIONS CommodityVol.com @CommodityImpVol
Natural Gas Futures Commitment of Traders
Disaggregated Commitment of Traders (DCOT) via RonH Data @ronh999 @ole_s_hansen
Latest ICE and CFTC Open Interest Data:
Natural Gas DCOT futures only managed money traders WoW change
(Note at NG peak Highest Longs Ever 87% (since 2006) Lowest Longs 2020 24%)
- For week ending May 31
- Natural Gas DCOT futures only managed money traders
- WoW change -4,715 longs,
- +10,155 shorts,
- -14,870 net change,
- 49.3% net long.
The combined net long across 24 major commodity futures has fallen to a four-month low at 1.85m lots. From a recent pre-war and pre-China lockdown peak on Feb 22 at 2.23m lots, energy length is down 23%, metals down 67% while the agriculture sector is up 2% led by softs via Ole S Hansen @Ole_S_Hansen
Understanding DCOT Reports
Read Understanding Commitments of Traders Reports – COT, TFF and DCOT to help understand the disaggregated reports (DCOT) and how they break down the reportable open interest positions into four classifications:
1. Producer/Merchant/Processor/User 2. Swap Dealers 3. Managed Money 4. Other Reportables
Sources: TradersCommunity, EIA, RonH Energy, The Fundamental Edge, KnovaWave
From The TradersCommunity US Research Desk