Into The Vortex – EIA Reports Natural Gas Storage Rose 107 Bcf

EIA reported a higher-than-expected build of 107Bcf of working gas in storage last week as fall shoulder season moves away. Salt Dome Cavern stocks grew +22 Bcf from +6 last week. Natural gas prices in December rebounded Wednesday with weather forecasts tipping colder temperatures and Freeport LNG terminal affirming a projected opening date is November 21. The Freeport terminal accounted for around 20% of all U.S. natural gas exports Before the explosion on June 8.  

Natural gas Production

The caveat this year has been the unknown in Europe since Russia’s invasion of Ukraine, the price of coal switching and the shutdown of Freeport LNG. Record production and reduced LNG have pressured U.S. natural gas futures lower. U.S. natural gas dry production reached a record high of 98 bcf/d in September. Over in Europe natural gas volatility continues, Europe and Russia are playing havoc with European prices. All that is left of Russian gas flows to Europe is one operating point in Ukraine via Sudzha. TurkStream, the only other pipeline still in operation supplies gas to Russia ‘friendly’ nations.

Into The Vortex Contents

Click on the links below to navigate to the relevant section.

  1. EIA Natural Gas Storage Forecast and Analysis
  2. Natural Gas Quick Summary
  3. Rig Watch
  4. Weather
  5. LNG and Export Watch
  6. Natural Gas Import Watch
  7. Natural Gas Demand Watch
  8. Nuke Watch
  9. Natural Gas Futures Technical Analysis
  10. Option Volatility and Gamma
  11. DCOT Report

Energy prices remain the biggest upward contributor for input inflation. German producer prices in September on annual basis PPI had energy prices again the biggest upward contributor (132.2% vs 139.0% in August), the distribution of natural gas (192.4%) and electricity (158.3%). Excluding energy, producer prices rose 14.0% from a year earlier.

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.

EIA Weekly Storage Report

  • Report Date: 10/27/2022 Via TradersCommunity.com
  • Release Time: Thursday 11/4/2022 10:30 a.m. ET
  • Market Expectations
  • Actual +107 Bcf Prior +52 Bcf
  • Consensus Forecast +101 Bcf
  • Cons. Range +95 Bcf to +104 Bcf
  • Last Year: +6 Bcf
  • 5 Year Average: +28 Bcf
US Natural Gas Storage Stage

Summary

Working gas in storage was 3,394 Bcf as of Friday, October 21, 2022, according to EIA estimates. This represents a net increase of 52 Bcf from the previous week. Stocks were 142 Bcf less than last year at this time and 197 Bcf below the five-year average of 3,591 Bcf. At 3,394 Bcf, total working gas is within the five-year historical range.

Broken down by region

  • South Central region +44 Bcf increase +22 Bcf in nonsalt facilities and +22 Bcf in salts
  • Midwest +35 Bcf decrease
  • East +23 Bcf decrease
  • Mountain +5 Bcf increase
  • Pacific -1 Bcf increase

Current Storage Level vs. Last Year; 5-Yr

  • Current Storage Level: 3,501 Bcf
  • Storage 2020/Same Week: 3,602 Bcf
  • 5Yr Avg/Same Week: 3,636 Bcf
EIA Storage Report
us natgasl locations
Natgas EIA Storage Futures

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


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Via Ole S Hansen @Ole_S_Hansen

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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 results 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
  • The Gulf coast hurricane season looks to be quite inactive. The North Atlantic Ocean has experienced the quietest months of July and August since 1941. Named storms have skipped August in the Atlantic only three years on record: 1997, 1961, and 2022. (This is bullish or bearish depending on where the storm comes onshore)

Bullish Factors Include

  • Record foreign demand for U.S. nat-gas 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
  • Discussion of a European gas price cap

Rig Watch 

Baker Hughes active rigs total in the U.S. onshore and Gulf of Mexico (GOM)

  • US Baker Hughes Rig Count 28-Oct: 768 (prev 771)
  • Rotary Gas Rigs: 156 (prev 157)
  • Rotary Oil Rigs: 610 (est 614; prev 612)

US Oil Rigs w/w changes by key shale basins

  • Permian +2 to 343
  • Eagle Ford -1 to 66
  • Williston -1 to 39
  • Cana Woodford +2 to 28
  • DJ Niobrara unchanged at 20

Canada Rigs

  • Canada Rotary Drilling Rigs 21 Oct 2022
  • 212 with 145 Oil & 67 NatGas
  • +2 weekly (+1 oil +1 Gas), +46 yearly (+47 oil – 1 gas)
Canada Rigs via BOE
  • Drilling activity by province bounces between 71% in Alberta, 19% in Saskatchewan, 8% in BC, and 2% in Manitoba.
  • Precision Drilling holds the majority of the Canadian market share typically with 29%, Ensign Drilling with 25%, Savanna Drilling with 13%, Horizon with 6%, and Stampede Drilling with 5%.

Talking About the Weather

There are every indication that geopolitical and climate risks will only intensify going forward. How secure are global supply chains in a world hamstrung by today’s energy and climate uncertainties? What might global inflationary and economic consequences be if China’s extreme drought persists into next year?

Gulf of Mexico

Gulf of Mexico Live Weather Report
Hurricane Season

On average, there are 14 named storms in a hurricane season in the Atlantic Basin, according to data collected between 1991 and 2020, with the first hurricane typically recorded by Aug. 11, and the first major hurricane occurring by Sept. 1. With about a week of August in the books, it’s not likely the Atlantic basin will record its first hurricane of the season by Aug. 11 this year.

In the last two years the third month of hurricane season can be extremely active. Four named storms were spawned during the month of August in 2021, including the powerful Hurricane Ida that devastated communities from Louisiana to New Jersey at the tail end of the month. In 2020, the devastating Hurricane Laura made landfall along the Gulf Coast as a Category 4 storm, the 12th named tropical system of the season. And in 2019, Hurricane Dorian, one of the basin’s strongest-ever hurricanes, formed in late August before making its destructive landfall in the Bahamas on Sept. 1 of that year.

There have been four other times over the past 30 years in which the Atlantic basin has been devoid of named storm activity between July 3 and Aug. 3, 1993, 1999, 2000 and 2009, according to data analyzed by Colorado State University meteorologist Philip Klotzbach.

Paths of Recent Gulf Hurricanes

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Summer Heat

It has been a summer dominated by record heat, which has seen a barrier to building storage inventories as intense heat in June and July has used up more gas for power generation. In Texas alone, the electric grid operator for 90% of the state, the Electric Reliability Council of Texas (ERCOT) has seen its peak power loads set fresh records on 11 days this summer.

European Energy Crisis

Natural gas prices have been held hostage to the restricted flow of Nord Stream from Russia and the hot weather sweeping the USA. Prices continue to react to tightening European supplies doctored by unplanned outages and Russian planning to halt supplies. These conditions are expected to persist through to upside risk with current weather patterning.


via @ChananaCharu Asia has been vulnerable to rising energy prices, and will now face headwinds

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
via @ole_S_Hansen

Demand switching and destruction across Europe, overall gas demand down more than 15% on 5-yr avg

All that is left of Russian gas flows to Europe is one operating point in Ukraine via Sudzha. TurkStream the only other pipeline still in operation supplies gas to Russia ‘friendly’ nations

EU gas and power priced in USD per barrel crude oil equivalent.

EU gas and power priced in USD per barrel crude oil equivalent. Chart source: @business

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.

Europe’s dependence on Russia’s gas in one map via @michaeltanchum
Ole S Hansen @Ole_S_Hansen
German 1y ahead Power Price has almost halved within 2 days from €1,050 per MWh to €545 today. @Schuldensuehner
8 31 22

Daily Europe natural gas inventory by year.

Daily Europe NG inventory by year. Europe NG storage is at 78.7% of capacity. That is 0.5% vs 5yr avg.


La Nina

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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 futures are a great example of rebalancing mania. We are still correcting the manic 5, spitting the tenkan to close under it at the 61.8% all away to the target support sphere of influence. This was a 10/8 move correcting a 10/8 move, meaning equilibrium. We now look at our Adam’s theory fractal rules. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. Resistance is heavy: 6/8 and above through highs & MM +1/8 & +2/8, Kijun, 50 dma and cloud. Support is previous lows and which was also a major break up level

Important to watch how this energy was built for shape correlation. 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 year’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:  Natgas blew through all levels of support after breaking the weekly 50wma and the Kijun gave a kiss of death. A sharp reversal off the 5 over 8/8 indicative of speculative fervor like the previous impulsive spikes. Support is the 1/8 Sphere. Bulls need all the damage down to be rebuilt. Kijun is major resistance given energy higher came from a clean break of the Kijun. Support is 50wma, cloud and Murrey Grid.

Natural gas futures Weekly

The key has been rebalancing which we also can see in option vol and spec v’s hedger blending. 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

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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
US natural gas exports (pipeline and LNG) in billion cubic feet per day (EIA) @staunovo

Freeport LNG

August 3, 2022 Update

A consent agreement was reached between Freeport and the Pipeline Hazardous Materials Safety Administration (PHMSA).

Freeport said in addition to the corrective measures outlined by PHMSA in the agreement already underway, initial operations in October may consist of three liquefaction trains, two LNG storage tanks and one LNG loading dock. The management team said it believes these operations would enable delivery of about 2 Bcf/d of LNG, “enough to support its existing long-term customer agreements.”

There was an expectation of one train in October now it has moved to getting all three trains instead, per Freeport’s press release. That adds about 1.3-ish Bcf/d over what was expected for October.

Freeport LNG Explosion

LNG feed gas demand fell to a four-month low under 10.4 Bcf/d in the estimates after to the blast. 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.

Biden Promises

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.

EIA: Natural gas demand from the seven operating U.S. LNG export projects and three more that have reached FID and under construction
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LNG

Natural Gas feed to LNG facilities:

Sabine Pass, Cameron, Elba Island, Cove Point, Freeport & Corpus Christi combined

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US Gulk Coast LNG Netbacks

  ++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%.

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Mexico pipeline exports

 Natural Gas Canada Import Watch

Source via RonH Energy

Natural Gas Demand Watch

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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.

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EDF cut its nuclear output forecast as it realized that “stress corrosion” issues affecting some of its reactors will require more checks and repairs @SStapczynski

Natural Gas Options Structure – Volatility (COT)

NYMEX ON NATURAL GAS OPTIONS CommodityVol.com @CommodityImpVol

NYMEX ON = NATURAL GAS OPTIONS (Live Link)

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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 Oct 25
  • Natural Gas DCOT futures only managed money traders 
  • WoW change +1,871 longs,
  • -591 shorts,
  • +2,462 net change,
  • 36.4% net long
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COT on Commodities

Specs cut their WTI (-32.6k to 176k) and Brent (-24.3k to 176.9k) crudeoil longs in the week to Oct 18, thereby reversing the bulk of the OPEC+ led buying. Driven by longs (-42k) bailing out and some fresh short selling (+15k). Natgas shorts added as price slumped 13%

Money managers in commodities covering the wk to Oct 18 saw funds turn net sellers as the BCOM dropped 3.2%. Led by crude oil, corn, coffee and gold, the latter together with silver and copper seeing positions flip back to a net short via Ole S Hansen @Ole_S_Hansen

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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