US Natural gas futures reacted to scorching temperatures and humidity in the Southeast fueling robust cooling demand and seasonally warm temperatures permeating the northern third of the United States. These conditions are expected to persist for essentially normal demand through to upside risk. In the US last week, the EIA reported a higher-than-expected build of 58 Bcf of working gas in storage seeing natural gas futures reverse higher after being sold off sharply off weakness since the Freeport LNG explosion. The big miss in expectations confused the model’s assumptions on Freeport.
Attention turning to heat and Hurricanes. LNG is capped by how much you can ship, hence the Freeport impact.
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: 7/7/2022 Via TradersCommunity.com
- Release Time: Thursday 7/14/2022 10:30 a.m. ET
- Market Expectations
- Actual +58 Bcf Prior +60 Bcf
- Consensus Forecast +56 Bcf
- Cons. Range +52 Bcf to +63 Bcf
- Last Year: + Bcf
- 5 Year Average: + Bcf
Working gas in storage was 2,369 Bcf as of Friday, July 8, 2022, according to EIA estimates. This represents a net increase of 58 Bcf from the previous week. Stocks were 252 Bcf less than last year at this time and 319 Bcf below the five-year average of 2,688 Bcf. At 2,369 Bcf, total working gas is within the five-year historical range.
Broken down by region
- South Central region 0 Bcf increase +12 Bcf in nonsalt facilities and -12 Bcf in salts
- Midwest +24 Bcf decrease
- East +19 Bcf decrease
- Mountain +5 Bcf increase
- Pacific +9 Bcf increase
Current Storage Level vs. Last Year; 5-Yr
- Current Storage Level: 2369 Bcf
- Storage 2020/Same Week: 2621 Bcf
- 5Yr Avg/Same Week: 2,688 Bcf
via Brynne Kelly @BrynneKKelly
Looking ahead to the next few EIA storage reports we will have eyes on salt storage to see if the lost LNG feed gas demand from Freeport’s outage head there. Basically, it’s power demand increases or salt injections closer to peak hurricane season. Bespoke Weather Services said unless Freeport is out more than six weeks, the market may have issues with storage.
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
- Freeport LNG Outage
- 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 15-Jul: 756 (prev 752)
- – Rotary Gas Rigs: 153 (prev 153)
- – Rotary Oil Rigs: 599 (est 599; prev 597)
US Oil Rigs w/w changes by key shale basins
- Permian -1 to 348
- Eagle Ford unchanged at 60
- Williston unchanged at 37
- Cana Woodford unchanged at 27
- DJ Niobrara unchanged at 16
- Canada averaged 175 active drilling rigs this week according to data from the Canadian Association of Energy Contractors. Of those rigs, 29% are drilling for natural gas, 52% are drilling for oil, 2% for other (helium, hydrogen, geothermal, or potash), and 17% are moving.
- Drilling activity by province is 70% in Alberta, 19% in Saskatchewan, 3% in BC, and 8% elsewhere. Precision Drilling holds the majority of the Canadian market share with 26%, Ensign Drilling with 23%, Savanna Drilling with 11%, Akita Drilling with 5%, Bonanza Drilling with 5%, Horizon Drilling with 5% and Stampede Drilling with 5%. 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:
- Hotter weather hitting demand
- Russia halting transfer
- German rationing
- Freeport LNG down
- Norway supply to rebound.
- Putin constant threats
With Germany the epicenter of Russian gas bans the real threat of demand destruction is plain for all to see. Germany’s trade balance came in at minus €1bn in May, which is the first negative print since 1991 due to its energy problems & weakness in manufacturing.
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.
Daily Europe NG inventory by year. Europe NG storage is at 57.6% of capacity. That is -3.0% 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. Resistance is Tenkan +4/8 Support Kijun.
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 a sharp reversal off the previous high, like the previous impulsive spikes. We saw a clean break of the Kijun to close back over near highs. From there that retested the Tenkan in over a $1.50 daily fall and $1.00 regrab. 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
The needs to assess to clarify the implications of a potentially prolonged outage at the Freeport liquefied natural gas (LNG) terminal. This implies gas will flow to domestic consumption or into storage.
LNG feed gas demand fell to a four-month low under 10.4 Bcf/d in the latest estimates last Wednesday show. Prior to the Freeport explosion, with the global energy crisis LNG exports volumes were over 13Bcf, a two-month high last week. That put exports near the 14 Bcf-plus record.
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:
Crude oil only saw a small 2.4k lots net reduction with selling of Brent being almost offset by WTI. The comb long at 441k, a 7-wk low, stayed well clear of the Dec21 and April22 lows around 400k lots. Natgas flipped to a net short and a 27-month low.
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 July 5
- Natural Gas DCOT futures only managed money traders
- WoW change -5,003 longs,
- -3,032 shorts,
- -1,971 net change,
- 43.3% net long
Across 24 major commodity futures COT on commodities covering the week to June 28 saw speculators respond to a cont. loss of momentum driven by recession/demand worries by cutting bullish bets by 16% to a 23-month low. Broad selling led by 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