EIA reported a lower-than-expected build of 84 Bcf in storage. In the same week last year stocks were +125Bcf, with a five-year (2017-2021) average +93Bcf. Salt Dome Cavern stocks Rose 8Bcf after rising 9Bcf last week.
Henry Hub natural gas futures pull back from their rally in line with cash prices. They had been rallying into a third week, catalysts included lower production, Hamas/Israel war, the Chevron LNG workers in Australia back on strike and weather forecasts. Additionally, we saw delta covering as prices moved above seven-week highs. In Australia workers at Chevron have gone back on strike at key LNG plants. Last week prices finished top of the commodity leader board 13.50% higher, in a week where the oil complex was wrecked between 8 and 11.5%.
Back in the U.S. we saw the temporary shutdown of the Cove Point LNG plant. The promotion of ambitious climate goals set by the U.S. Climate Alliance garnered bearish chatter. Natural gas prices have plunged about 42% so far this year after rising about 20% last year.
Natural gas production is back near record levels. That rise in gas output is due primarily to increased interest in oil drilling in shale basins that also produce a lot of associated gas like the Permian in West Texas and eastern New Mexico. The No. 2 U.S. oil producer Chevron has said that it plans to raise capital expenditures in the Permian by 25% in 2024 from its annual guidance and aims for record output despite a more modest rig count plan for the largest U.S. oilfield. CVX expects to average 13 to 14 company-operated rigs in 2024 in the basin, up from 2022 but fewer than previously anticipated.
European and British natural gas pulled back.
The European and British natural gas futures rose Friday with news of the Chevron workers in Australia going back on strike but pulled back this week after rising for three straight weeks in a row. UK Gas closed at GBp/thm 94.0000 rising 4.60% Friday but down -10.82% for the week. Dutch TTF futures closed around €38.23 per megawatt-hour, rising 5.59% Friday but down -8.67% for the week. Europe NG storage is at 96.5% of capacity. That is +11.3% vs 5yr average according to data from Gas Infrastructure Europe and the highest ever for this time of year and well ahead of the European Union’s Nov. 1 goal. Germany, Italy, Spain and the Netherlands all exceeded the target. France, afflicted by strikes earlier this year is at 84%.
LNG demand is a big driver of natural gas demand. Average gas flows to the seven big U.S. LNG export plants. Production has not let up, Permian and Haynesville production at all-time highs of late. Eagle Ford output very close to all-time highs.
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
Energy Price Matrice Performance
Moving forward weather, ETF speculation and the strength of LNG demand will determine natural-gas prices. Remember natural gas prices are majority affected by domestic actions, for the US the variance is exports, that is Mexican pipelines, Canadian imports and LNG exports.
Natural-gas prices on the New York Mercantile Exchange rose 31.89% in the second three months of the year. For the first six months of the year, it is still the worse performing future for 2023, down 37.99%. Henry Hub was the worst performing future in the first quarter of 2023. Natural-gas prices on the New York Mercantile Exchange lost 53% in the first three months of the year and fell to their lowest finish in about two-and-a-half years earlier in March.
EIA Weekly Storage Report
- Report Date: 10/4/2023 Via TradersCommunity.com
- Release Time: Thursday 10/11/2023 10:30 p.m. ET
- Market Expectations
- Actual +84 Bcf Prior +86 Bcf
- Consensus Forecast +88 Bcf
- Cons. Range +76 Bcf to +99 Bcf
- Last Year: +125 Bcf
- 5 Year Average: +93 Bcf
Broken down by region.
Current Storage Level vs. Last Year; 5-Yr
- Current Storage Level: 3,529 Bcf
- Storage 2021/Same Week: 3,213 Bcf
- 5Yr Avg/Same Week: 3,366 Bcf
Global Natural Gas Quick Overview
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
Baker Hughes active rigs total in the U.S. onshore and Gulf of Mexico (GOM)
- US Baker Hughes Rig Count Oct-6: 619 (prev 623)
- Oil Rigs Oct-6: 497 (prev 502)
- Gas Rigs Oct-6: 118 (prev 116)
US Rigs w/w changes by key shale basins
- Permian -6 to 302
- Eagle Ford +2 to 46
- Williston -1 to 32
- Cana Woodford unchanged at 16
- DJ Niobrara unchanged at 14
- Permian Basin rigs pulled off at the fastest pace in three years amid consolidation and slow return in oil demand.
- Rigs targeting both crude and natural gas in the West Texas and southeast New Mexico region declined by 7 to 320 this week, according to data released Friday by Baker Hughes Co.
- It’s the biggest weekly drop in the Permian since June 2020. – Bloomberg
- Canada’s active rig count settled at 190 on September 22, an increase of 6 rigs compared to last Friday. September 22, 2023
- This marks another consecutive week of rig count growth, prolonging a strong run of activity that has seen the number of active rigs hold above 160 since late June.
- Alberta’s active rig count increased to 136 from 131 last Friday, while Saskatchewan’s rig count stabilized at 30 rigs.
- BC’s active rig count increased by 1, settling at 22 as of this morning.
- Oil rigs increased by 6 between September 15 and September 22, settling at 114 active oil rigs.
- The number of gas rigs remained unchanged, settling at 69.
- The number of rigs classified as “Other” or “Unknown” was also unchanged from last Friday, holding at 7 rigs.
- Today’s rig utilization rate is 44.0%, a slight decline from 44.9% at last week’s end. The total number of rigs increased from 410 to 431, a significant 5.1% boost. This suggests that, compared to last week, a larger pool of rigs is being deployed slightly less efficiently.
- 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
This summer has again been 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.
La Nina conditions through the summer and into next fall raise 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 phenomenon begins when the atmosphere reacts to a cooler patch of water over the Pacific Ocean.
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.
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.
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.
Paths of Recent Gulf Hurricanes
Technical Analysis via KnovaWave
Henry Hub Natural Gas Futures Weekly Chart Outlook via @knovawave
Daily Shape: US Natural Gas futures are a great example of rebalancing mania. We have for the first time since last December got over the 50dma as we corrected the manic 5, and here we are back at it. Big levels in the week ahead. Under there support is the cloud and above confluence with the Kijun, Tenkan stalling the move higher. Much work to do as we sailed lower under the 61.8%.
Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. Resistance is heavy: 0/8 and above the March gap. Should it get going VPOC will fuel a move. If not 50dma and cloud support above previous lows, and which was also a major break up level. (The spheres of influence)
Weekly Shape: Natural gas saw it’s first sign of life since breaking the weekly 50wma and the Kijun gave a kiss of death. This week we closed right back at the Tenkan after a 1-2 out of the sphere of influence. Support under previous lows. Above MML, Kijun, 50wma and fibs. Energy from flat Kijun and cloud twist has stalled for now, needing impulse to move and confirm1 higher. Recall the instability stems from the sharp reversal off the 5 over 8/8 indicative of speculative fervor like the previous impulsive spikes. Heavy resistance is the 1/8 Sphere (4 or IV). Bulls need all the damage down to be rebuilt. Kijun is major resistance given energy higher came from a clean break of the Kijun.
Natural Gas Technical Notes
- 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.
- 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 Futures Performance
Natural Gas Futures Weekly Performance w/e 10/6/2023
Natural Gas Futures Quarterly and YTD Performance
The volatility of natural gas prices is legendary in the future’s world. Henry Hub was the worst performing future in the first quarter of 2023. In the second quarter of 2023 it was the best performing future.
- Natural-gas prices on the New York Mercantile Exchange in the third quarter fell 4.34%
- For the first six months of the year, it is still the worse performing commodity future for 2023, down 45.14%. (VIX was down 56.24%)
- Natural-gas prices on the New York Mercantile Exchange lost 53% in the first three months of the year and fell to their lowest finish in about two-and-a-half years earlier in March.
- Natural-gas prices on the New York Mercantile Exchange rose 31.89% in the second three months of the year.
Moving forward weather, ETF speculation and the strength of LNG demand will determine U.S. natural-gas prices. Remember natural gas prices are majority affected by domestic actions, for the US the variance is exports, that is Mexican pipelines, Canadian imports and LNG exports.
European Energy Watch
Natural gas prices saw some violent few years in Europe. After being held hostage to the restricted flow of Nord Stream from Russia the energy crisis pounding the world with unheard of prices was impacting the domestic pricing. In Europe we saw record highs again but since then prices collapsed from newly sourced supply and less severe weather coupled with collapsing industrial demand.
Catalysts to watch:
- Hotter or colder weather hitting demand.
- Russia transfer, sanctions, cheating
- German Industry
- French Nukes
- Norway supply
- Putin constant threats
Into the Maelstrom – LNG and European Natural Gas Outlook for the Week Ahead:
Natural Gas Production
US NG dry production avg/day for the time frame was the highest in history at 102.6 Bcf/day late August according to EIA. That rise in gas output is due primarily to increased interest in oil drilling in shale basins that also produce a lot of associated gas like the Permian in West Texas and eastern New Mexico. Chevron said this week it plans to raise capital expenditures in the Permian by 25% in 2024 from its annual guidance, and aims for record output despite a more modest rig count plan for the oilfield. The No. 2 U.S. oil producer after ExxonMobil expects to average 13 to 14 company-operated rigs in 2024 in the basin, up from 2022 but fewer than previously anticipated.
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 Demand Watch
Financial firm LSEG said average gas output in the lower 48 U.S. states rose to 102.2 billion cubic feet per day (bcfd) in August, up from 102.1 bcfd in July. That compares with a monthly record of 102.3 bcfd in May.
LSEG forecast U.S. gas demand, including exports, will slide from 104.4 bcfd this week to 101.7 bcfd next week due in part to the long holiday weekend before rising to 103.2 bcfd in two weeks, due in part to a forecast increase in LNG exports. The forecasts for this week and next were similar to LSEG’s outlook on Thursday.
Natural Gas Exports Watch
Natural Gas to Feed to LNG Facilities
Sabine Pass, Cameron, Elba Island, Cove Point, Freeport & Corpus Christi combined.
Gas flows to the seven big U.S. LNG export plants fell from an average of 12.7 bcfd in July to 12.3 bcfd in August due mostly to reductions at Cheniere Energy’s Sabine Pass in Louisiana and Corpus Christi in Texas. That compares with a monthly record of 14.0 bcfd in April.
Note: On Wednesday March 8, 2023, Freeport got final approval to restart its final train “The U.S. energy regulator on Wednesday granted Freeport LNG’s request to return to service the last of its three gas liquefaction units and phase 1 facilities.” The Freeport terminal accounted for around 20% of all U.S. natural gas exports before the explosion on June 8
++Charts via RonH @RonH999 – Visit Ron for daily updates
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 BBG Stephen Stapczynski @SStapczynski
Natural Gas Mexican Exports Watch
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 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
Natural Gas Nuclear Power Watch
Source: via RonH Data @ronh999
ALERT Three Mile Island nuclear shut down permanently on Friday afternoon 9/29/2019.
Natural Gas Options Structure – Volatility
NYMEX ON NATURAL GAS OPTIONS CommodityVol.com @CommodityImpVol
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 Oct 03
- Natural Gas DCOT futures only managed money traders
- WoW change
- -746 longs,
- -15,915 shorts,
- +15,169 net change,
- 44.9% net long.
COT on Commodities
COT on commodities in wk to Sep 26 covered leverage funds reaction to the hawkish FOMC outcome which triggered a 2% drop in the BCOM Index with net selling across all sectors, led by Brent, natgas, gold, copper, soybeans, corn, sugar and livestock. The very few exceptions being WTI, silver and soymeal. 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, CommodityVol, Argus, KnovaWave
From The TradersCommunity US Research Desk