Into The Vortex – Natural Gas Production and Weather Outlook for Summer

Natural gas prices have had another volatile week after hitting 4-3/4-month prompt futures high on hotter-than-normal US temperatures forecasts from June 18-25. However, July Nymex natural gas on Wednesday closed down -2.68% on supply concerns. As of May 31, US natural gas inventories were up +13.5% y/y and were +25.1% above their 5-year seasonal average, signaling ample gas supplies. EQT Corp., the leading producer of natural gas in North America announced it is now reinstating the 1 billion cubic feet per day (Bcf/d) that was previously curtailed since late February on Wednesday. In addition to EQT, Chesapeake and other producers also said they reduced production in February.

The last week EIA reported the natural gas storage build in the U.S. last week came in larger than expected with +98 Bcf in storage with consensus a build of +84 Bcf. For perspective in the same week last year stocks were +105Bcf, with a five-year average +103Bcf. The withdrawal season ended with stocks at the highest level in years. In Europe, gas storage on May 29 is at 69.5% of capacity. That is +23.6% above the 5-year seasonal average of 68% full for this time of year.

Natural gas Storage

Last week U.S. Natural Gas futures got back on the sell program with cooler weather and higher production. They have pulled back from last week’s 4-1/4-month prompt futures high since falling closed sharply lower since last week’s EIA storage report showed inventories rose less than expected. The selling appeared from a long spec and ETF market overbought from the prior week’s sharp rally. Prices had consolidated the recent bounce after snapping a three-week losing streak. We have now bounced almost 50% above the April 25 swing low around 1.58. Still, Henry Hub futures are still down about 10% so far in 2024 after plunging by 44% in 2023.

This week was spurred by a smaller-than-expected build in weekly natural gas supplies. Factors helping raise prices included ETF rollovers, hotter weather in Texas and improving LNG feed gas demand. Freeport LNG saw the highest flow at Freeport since before the winter storm damaged the terminal in January.

For perspective benchmark front month US natural gas futures have bounced off near 3-3/4-year futures low, nearing a 29-year low last month as demand continues to weigh on prices with a glut of supply amidst mild weather.

Freeport LNG

Pressure on prices continues from the Freeport LNG export terminal March 1 shut down which has only reopened on a partial basis. We have seen the highest flow at Freeport since before the winter storm damaged the terminal in January. However, Freeport said that once the production unit is fully reopened, the other two units will be taken down for maintenance, and all three units will not return online until May.

Europe

In Europe, gas storage on June 13 Europe NG storage is at 72.7% of capacity. That is +18.5% vs 5yr avg. The panic over a global energy crunch triggered by Russia’s invasion of Ukraine fed panic production ramping up, leading to natural gas output hitting record-highs. This in a softer demand picture from weather and weakening economies. The glut in supply comes after the panic two years ago over a global energy crunch triggered by Russia’s invasion of Ukraine has eased.

With that panic production ramped up, US natural gas output has been running at record highs until recent production cuts but still is over 96bn cubic feet per day the EIA estimates. This in a demand picture where the prolonged shutdown of the Freeport LNG plant normally exports about 2% of total US gas production.

The caveats this past year have 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.

Key Demand Supply Numbers

  • Lower-48 state dry gas production Wednesday was 98.5 bcf/day (-3.4% y/y)
  • Lower-48 state gas demand Wednesday was 67.9 bcf/day (-0.1% y/y)
  • LNG net flows to US LNG export terminals Wednesday were 13.2 bcf/day (+0.1% w/w)
  • – according to BNEF.

  • The Edison Electric Institute reported Wednesday that total US electricity output in the week ended June 8 rose +10.89% y/y to 84,405 GWh (gigawatt hours), and US electricity output in the 52-week period ending June 8 rose +1.02% y/y to 4,121,928 GWh.
  • Baker Hughes reported last Friday that the number of active US nat-gas drilling rigs in the week ending June 7 fell by -2 rigs to a 2-3/4 year low of 98 rigs.
  • In Texas, drillers cut the number of rigs operating this week by three, leaving 289 active rigs, which was still the most in any state but the lowest in Texas since February 2022. The state with the second most rigs operating is New Mexico at 109.
  • Active rigs have fallen since climbing to a 4-3/4 year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987). The oil and gas rig count dropped about 20% in 2023 after rising by 33% in 2022 and 67% in 2021.

Freeport

The Freeport LNG export terminal in Texas recently reopened on a partial basis. However, Freeport said once the production unit is fully reopened, the other two units will be taken down for maintenance and all three units will not return online until May. This would further add to the supply glut.

Texas Waha Natural Gas Prices Plummet After Pipeline Fire

The previous week intraday cash prices at Waha fell to about -$3 per million Btu from around -50 cents earlier in the day after Kinder Morgan Inc. shut a part of its Natural Gas Pipeline of America system due to a natural gas release and fire. Prices in West Texas have been negative as low demand for the heating fuel has combined with strong production.

The futures selloff caught some speculators by surprise given the stop runs, as we have cautioned multiple times, natural gas futures are notorious for being crowded one way and again we have a case of buy the rumor, sell the fact.

Associated Gas and Oil Prices

U.S. natural gas futures are down about 33% so far in 2024 after plunging by 44% in 2023. Natural gas has been hit by less weather-related demand and a supply glut impacted by associated liquids with oil prices remaining elevated keeping oil production high. With oil prices high associated continues to flood the market as oil producers pump near all-time highs.

In a month that saw Iran bombing Israel, and Israel bombing Iran, the price moving lower has caught many “blood speculators” on the wrong side. The high price for April (and for 2024) was $87.67 on April 12. That was the highest level going back to October 23, 2023. Front-month WTI prices rose 6.3% in March and gained 16.1% for the quarter.

Natural gas prices in Europe reached their highest level in over three months spurred by conflicts in the Middle East before falling back. The prompt benchmark TTF futures contract fell -4.44% this week to €29.38 per megawatt hour after hitting €33.95 ($36.12) per megawatt hour on the Amsterdam stock exchange on Wednesday after the attack, the highest since the beginning of January.

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

Europe moved aggressively to wean itself off Russian natural gas supplies with U.S. exports of liquefied natural gas expected to remain strong for some time.

EIA Weekly Storage Report

  • Report Date: 6/7/2024 Via TradersCommunity.com
  • Release Time: Thursday 6/6/2024 10:30 p.m. ET
  • Market Expectations
  • Actual + Bcf Prior +98 Bcf
  • Consensus Forecast +76 Bcf
  • Cons. Range +66 Bcf to +88 Bcf
  • Last Year:  +90 Bcf
  • 5 Year Average: +89 Bcf
US Natural Gas Storage

Summary

Working gas in storage was 2,893 Bcf as of Friday, May 31, 2024, according to EIA estimates. This represents a net increase of 98 Bcf from the previous week. Stocks were 373 Bcf higher than last year at this time and 581 Bcf above the five-year average of 2,312 Bcf. At 2,893 Bcf, total working gas is above the five-year historical range.

Broken down by region.

us natgasl locations

Current Storage Level vs. Last Year; 5-Yr

  • Current Storage Level: 2,893 Bcf
  • Storage 2023/Same Week: 2,520 Bcf
  • 5Yr Avg/Same Week: 2,312 Bcf
EIA Storage Report

Global Natural Gas Quick Overview

US natural gas futures trades back below $3 after a traders took a raincheck on the recent +20% rally. Stockpiles rose 74 bcf last week vs 72 bcf expected with the total reaching 2974 bcf, 24% above the five-year average. Forecast for near record heat in the eastern half next week may limit the decline @Ole_S_Hansen

Natural Gas Futures Performance

I Month at 5/31/24
March Quarter

Natural Gas Market Price Influence Factors

Bearish Factors Include

  • Economic damage and reduced natural gas demand caused by events such as the Covid pandemic,
  • Warm U.S. winter that results in weak demand for natural gas for heating.
  • Over long spec positions
  • Freeport LNG Outages
  • 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 was quite inactive. The North Atlantic Ocean has experienced the quietest months of July and August since 1941in 2023. Named storms 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. natural 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
  • High power burns
  • Perception that gas supply and demand are more inelastic than ever before.
  • Over short spec positions
  • 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 10-May: 603 (prev 605)
  • Rotary Gas Rigs: 103 (prev 102)
  • Rotary Oil Rigs: 496 (prev 499)
  • Off Recent Highest level since Sept. 15, 2023, when it reached 515.
  • Baker Hughes reported the number of active U.S. natural gas drilling rigs in the week ended May 10, 2024, rose by 1 rig to 103 off a 2-1/2 year low of 102 rigs their lowest since January 14, 202. The Rig Count is down -56 rigs or -35% vs this time last year.
  • Active rigs last year fell back after climbing to a 4-year high of 166 rigs in Sep 2022 from the pandemic-era record low of 68 rigs posted in July 2020 (data since 1987).
The Baker Hughes Natgas Rig Count continues to slowly grind lower, losing 1 rig this week to 105 rigs. It was the fourth straight weekly decline & eighth in the last 10 weeks. The Rig Count is at its lowest since Jan 14, 2022 & is down -56 rigs or -35% vs this time last year. @CelsiusEnergyFM Apr 26, 2024
  • Last month the total rig count fell by five, with the oil count rising by three, and gas down by eight, the biggest monthly decline since August.
  • In the first quarter, the total rig count fell by one in its fifth quarterly loss in a row. The oil rig count rose by six, the first quarterly increase since the fourth quarter of 2022, while gas was down by eight.
  • The oil and gas rig count dropped about 20% in 2023 after rising by 33% in 2022 and 67% in 2021, due to a decline in oil and gas prices, higher labor and equipment costs from soaring inflation and as companies focused on paying down debt and boosting shareholder returns instead of raising utput.

US Rigs w/w changes by key shale basins (prior Week)


The Baker Hughes #Natgas Rig Count resumed its downtrend this week, falling by -4 rigs to 112 rigs, down -50 rigs or -31% vs 2023 & the lowest since January 14, 2022. The cure for cheap prices is cheap prices. @CelsiusEnergyFM Mar 22

Canada Rigs

  • Canada’s active rig count 123 for April 26, 2024, 12 rigs more than last Friday.
  • Albertan rig activity grew to 97, an increase of 10 rigs compared to last week.
  • Saskatchewan’s rig count was unchanged through the week, remaining at 3,
  • BC’s active rig count grew from 21 to 22.
  • This week’s modest rig count increase may suggest that an end to the spring breakup could be on the horizon.
  • Number of oil rigs increased from 54 to 58 between April 19 and April 26.
  • Number of gas rigs increased by 8. The number of rigs classified as “Other” or “Unknown” held steady at 3.
  • Today’s rig utilization rate is 32.9%, a slight increase from 31.8% at last week’s end. The total number of rigs increased by 25, settling at 374.
  • BOE Report

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

Last summer was 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 that summer.


La Nina

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The La Nina phenomenon begins when the atmosphere reacts to a cooler patch of water over the Pacific Ocean. 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. 

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. The market is still correcting the manic 5 post the Ukraine invasion. Since the breakdown of the correction channel with failed breakups we have continued to multi year lows in a pennant formation after holding the daily 1/8. We now look at our Adam’s theory fractal rules with fractal spits powering these moves lower. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. Resistance is heavy: 2/8 and cloud above. Kijun, 50 dma and cloud. Support is previous lows. Important to watch how this energy was built for shape correlation.

Natural gas futures Daily

Weekly:  Natural gas still correcting the past month when blew through all levels of support after breaking the weekly 50wma and the Kijun gave a kiss of death. From there we Broke down out of the corrective channel (Wave 4 or IV) to new multi-year lows. This week we closed right at the weekly Kijun and 1/8. around the 50wma and tenkan in the cloud. The instability stems from the sharp reversals that have failed 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.

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.

  Natural Gas Production

Around 97% of production comes 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.

In February 2024, US dry natural gas production was 3,064 billion cubic feet (Bcf), or 105.7 billion cubic feet per day (Bcf/d). Production was 3.6% (3.7 Bcf/d) higher in February 2024 than in February 2023 (102.0 Bcf/d) and the highest for the month since 1973. – EIA · Apr 30, 2024
Per today’s early-cycle pipeline data, #natgas production will fall to a 100.7 BCF/d, down -0.7 BCF/d vs last year & a 2-month low. If output can hold at this level or lower, expect supply/demand imbalances to be quite tight heading into the Shoulder & Cooling Seasons. @CelsiusEnergyFM Mar 26, 24

Natural Gas Exports Watch

Total US natural gas exports in February 2024 – 22.2 Bcf/d, highest natural gas exports for the month since we began tracking them in 1973 EIA Apr 30, 2024

LNG

Natural gas feed to LNG facilities Sabine Pass, Cameron, Calcasieu Pass, Elba Island, Cove Point, Freeport & Corpus Christi combined for May 18 was 12.61 Bcf.

@CelsiusEnergyFM
LNG feed gas demand continues to slump, dropping to 11.5 BCF/d yesterday & 11.4 BCF/d today. Coupled with volumes hitting record highs this time last year, LNG exports are now down a steep -3.4 BCF/d vs 2023, the largest year-over-year decline December 22, 2022. @CelsiusEnergyFM Apr 13, 2024

  ++Charts via RonH @RonH999 – Visit Ron for daily updates 

Japan’s LNG inventories drop to the lowest level in years
💰 This will likely push utilities to procure more spot cargoes (or at least stop reselling long-term supply)
👍 Timing is good. Prices are relatively lower and European inventories are high, so little competition Stephen Stapczynski @SStapczynski Mar 26, 2024
“Global LNG outlook 2024-28”. @Global_LNG May 1 2024. According to this analysis, lower than expected demand growth combined with a massive wave of new export capacity is poised to send global LNG markets into oversupply within two years. IEEFA expects global LNG supply capacity to rise to 666.5 MTPA by the end of 2028, which exceeds International Energy Agency (IEA) demand scenarios through 2050. Source: IEEFA

Natural Gas Mexican Exports Watch

 Natural Gas Canada Import Watch 

Natural Gas Demand Watch

Estimated US natural gas consumption in January 2024 was 3,696 Bcf, or 119.2 Bcf/d, an 11.8% y/y increase. Highest daily rate of natural gas consumption for any month since we began using the current methodology for consumption in 2001 EIA @staunovo

Natural Gas Nuclear Power Watch

US nuclear output for June 14 is 94,973.5 MW. This is +3,916.1 MW vs 5yr avg via @ronh999

ALERT Three Mile Island nuclear shut down permanently on Friday afternoon 9/29/2019.

US nuclear electricity net generation by month. Apr was +18.8% YoY.

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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ETF Roll Schedule

ETFs have a huge effect on natural gas price action, through option and futures expiration and pure speculation. There is HNU, HND, UNG, BOIL and KOLD that dominate.

Roll schedule for 2024 via @firstenercast

Natural Gas Futures Commitment of Traders (COT)

 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 28. 2024
  • WoW change
  • -3,514 longs,
  • -30,151 shorts,
  • +26,637 net change,
  • 55.6% net long.

COT on Commodities

COT on commodities in week to March 19: Strong buying of crude oil (+105k to 509k), silver (+11.1k to 37.8k) and copper (+31k to 39.3k), helps to explain why these three suffered a setback as the dollar rally continued ahead of the weekend. Elsewhere, gold saw small profit taking, the #grains sector was bought for a second week led by soy and corn, cocoa longs in NY and Ldn both fell to +12 months lows despite another big price jump. More in my Monday update 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 Energy Desk