EIA reported natural gas storage in the U.S. last week a less than expected -197Bcf in storage last week with the consensus was for a draw of -203Bcf. For perspective in the same week last year stocks were -141Bcf, with a five-year (2017-2021) average -185Bcf. The drastically cold temperatures & production freeze-offs have improved to where production is back to where i was mostly before the extreme cold. Natural Gas futures prices hover above lows with warmer temperature forecasts, US LNG licensing on hold and huge above average draws in storage largely behind.
Friday HH managed to closer higher after selling off on LNG export headwinds early, from Freeport shutdowns and the US Admin delaying consideration of new natural gas export terminals. HH futures rallied in thin volumes as mild forecasts turned a touch cooler. Front-month Nymex natural gas for February delivery rose 7.7% for the week, recovering from falling -23.9% to $2.519/MMBtu the week prior, the largest one-week percentage decline since December 2021 and well-off last week’s two-month highs. Natural gas power burn increased significantly from wind generation on Thursday just 336.4 GWh down -75% vs last year, the 9th weakest wind generating day in the last 5 years.
Weather matters, last Saturday, arctic air dominated the Lower 48 heating demand went above 73 BCF & daily natural gas storage withdrawals were -60Bcf. This Saturday, unseasonably mild temperatures cut heating demand in half & withdrawals to under -10Bcf
US delaying consideration of new natural gas export terminals.
The Biden administration on Friday confirmed it is delaying consideration of new natural gas export terminals in the United States. This comes as gas shipments to Europe and Asia have soared since Russia’s invasion of Ukraine. Biden had promised the EU that the US would not allow the EU to not be supported by U.S. gas, an interesting geopolitical move by Biden.
Seven LNG terminals currently operate in the U.S., predominately in Louisiana and Texas. Up to five more are expected to come online in the next few years. Biden’s action would not affect those projects, it could delay a dozen or more LNG projects that are pending or in various stages of planning. Included in the delays is the Calcasieu Pass 2 project, or CP2, along Louisiana’s Gulf Coast. If built, CP2 would be the largest export terminal in the United States.
The move has been seen as politically motivated by President Joe Biden with the 2024 presidential election year heats up. The move aligns with environmentalists against further exports of LNG with the fear they are planet-warming emissions and Biden has pledged to cut climate pollution in half by 2030.
What a difference a week makes:
Last Saturday, arctic air dominated the Lower 48, spiking heating demand above 73 BCF & daily natural gas storage withdrawals to -60 BCF. Today, unseasonably mild temperatures have cut heating demand in half & driven withdrawals into the single digits.
Natural gas production ahead of the winter storms was back at 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 further.
The European and British natural gas futures fell as winter brought snow to much of Europe this week. UK Gas closed at GBp/thm 68.47 down -1.99% for the week and down -23.95% monthly. Dutch TTF futures closed around €28.08 per megawatt-hour, down -1.23% for the week, and down -20.93% monthly.
The European and British natural gas futures have pulled back after they had soared over 40% to the highest in eight months with catalysts from expected cooler temperatures, concerns about supply escalated by geopolitical risks and strikes at Chevron LNG facilities in Australia. Israel shut down a Chevron gas field which could affect liquefied natural gas exports from Egypt. The Balticconnector pipeline linking Finland and Estonia leak and closure raised winter infrastructure security worries.
Europe NG storage was at 72.6% of capacity on January 26, 2024. That is +21.8% vs 5yr avg average of capacity according to data from Gas Infrastructure Europe and the highest ever for this time of year. Austria 82.95%, Belgium 61.37% France 62.72% Germany 76.48% Hungary 77.85% Italy 68.15% Netherlands 68.15% Poland 81.29% Romania 67.73% Spain 83.19% UK 59.83% Ukraine 20.68%
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
The Week Ahead
This Week in Energy
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.
EIA Weekly Storage Report
- Report Date: 1/18/2024 Via TradersCommunity.com
- Release Time: Thursday 2/1/2024 10:30 p.m. ET
- Market Expectations
- Actual -197 Bcf Prior -326 Bcf
- Consensus Forecast –203 Bcf
- Cons. Range -180 Bcf to -228 Bcf
- Last Year: -141 Bcf
- 5 Year Average: -185 Bcf
S&P Global Commodity Insights natural-gas supply-demand model projects “another hulking withdrawal” from U.S. gas storage of 228 bcf for the week ending Jan. 25. That drawdown is above five-year average by 43 bcf, or about 23%, and register “more than 60% larger” than the year-ago withdrawal estimate of just 141 bcf, citing EIA data.
EIA reported natural gas storage in the U.S. last week drew more than expected -326Bcf in storage last week with the consensus was for a draw of -320Bcf. For perspective in the same week last year stocks were -86Bcf, with a five-year (2017-2021) average -148Bcf. The drastically cold temperatures & production freeze-offs led to the third biggest natural gas storage withdrawal after -359Bcf in 2018 and -338Bcf in 2021. Natural Gas futures prices bounced off lows with lower production from winter storms, US LNG licensing on hold and a huge draw in storage due.
Broken down by region.
Current Storage Level vs. Last Year; 5-Yr
- Current Storage Level: 2659 Bcf
- Storage 2021/Same Week: 2605 Bcf
- 5Yr Avg/Same Week: 2529 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)
- ETF and derivative positioning
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
- ETF and derivative positioning
Baker Hughes active rigs total in the U.S. onshore and Gulf of Mexico (GOM)
- US Baker Hughes Rig Count Jan 26: 621 (prev 620)
- Baker Hughes Rotary Oil Rigs Jan 26: 499 (prev 497)
- Baker Hughes Rotary Gas Rigs Jan 26: 119 (prev 120)
- Baker Hughes reported the number of active U.S. natural gas drilling rigs in the week ended January 19, 2024, fell 1 rig to 119 rigs, just above the 19-month low of 113 rigs posted September 8, 2023. 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).
US Rigs w/w changes by key shale basins (prior Week)
- Permian +3 to 306
- Eagle Ford -1 to 50
- Williston unchanged at 34
- Cana Woodford +1 to 23
- DJ Niobrara +1 to 13
- Jan 26 2024
- 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 came in at 106 December 22, 2023, a decrease of 52 rigs compared to December 15. This is a large drop, but entirely expected in the lead-up to Christmas.
- Alberta’s active rig count declined from 110 to 77, Saskatchewan’s rig count decreased to 6. BC’s active rig count settled at 23 compared to 26 earlier in the week.
- Oil rigs decreased by 41 between December 15 and December 22.
- Gas rigs decreased by 10, settling at 57 rigs.
- The number of rigs classified as “Other” or “Unknown” held steady at 1 rig.
- Today’s rig utilization rate is 29.5%, a decline from 43.4% at last week’s end.
- The total number of rigs fell from 364 to 359, a 1.4% decrease. It is expected that the utilization rate will rebound strongly after the Christmas slowdown.
- BOE Report
Talking About the Weather
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 1/26/2024
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 Natural gas production hits new high 105.80 – 12/20/23.
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 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
Natural Gas Exports Watch
Natural Gas to Feed to LNG Facilities
Sabine Pass, Cameron, Calcasieu Pass, Elba Island, Cove Point, Freeport & Corpus Christi combined.
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, 2022
++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
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.
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%)
After doubling in Nov & Dec, speculative CFTC-reported natural gas short positions have fallen dramatically from a peak of 347,101 contracts on Dec 12 to 195,270 contracts on Jan 16, down -18% from last year.
- For week ending Jan 23
- Natural Gas DCOT futures only managed money traders
- WoW change.
- +17,916 longs,
- +49,330 shorts,
- -31,414 net change,
- 45.8% net long.
COT on Commodities
COT on commodities in week to Jan 9, 2024: Continued heavy selling of grains ahead of Friday’s (bearish) WASDE report lifted the Ags net short to an Oct 2016 high at 275k lots. All metals saw net selling led by gold and copper while the crude oil net long jumped the most in a year via Ole S Hansen @Ole_S_Hansen
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