EIA reported a below consensus net build of +99 Bcf from storage last week which sent the Benchmark Henry Hub futures sharply higher to the highest in two months. U.S. benchmark natural gas futures have continued to hold their bid after rising last week recovering some of the prior week’s constant selling to close up over 6% for the week as U.S. production fell and rigs counts were sharply lower. Further prices were driven by reduced gas exports from Canada due to wildfires, expectation of increased demand due to warmer weather. In the same week last year stocks were +87Bcf, with a five-year (2017-2021) average +91Bcf. Salt Dome Cavern stocks rose +3 Bcf after rising +9 Bcf last week.
Last week US benchmark Henry hub rose 6.39%, now down -70.33% year on year. In Europe TTF gas was down -10.41% for the week, now down -66.18% year on year and in the UK down -8.90%, now down -48.85% year on year.
LNG demand is driving natural gas demand. Average gas flows to the seven big U.S. LNG export plants rose to 14.1 billion cubic feet per day (bcfd) so far in April, up from a record 13.2 bcfd in March Data provider Refinitiv said. In the background however European natural gas futures sold off hard. The impact relative to the US pricing is lower LNG export demand.
Production has not let up, Permian and Haynesville production at all-time highs of late. Eagle Ford output very close to all-time highs. Gas stockpiles in northwestern Europe (Belgium, France, Germany and the Netherlands) were currently about 56% of capacity, about 63% above its five-year (2018-2022) average for this time of year, Refinitiv said. The European Union wants utilities to refill stockpiles during the summer injection season to 90% of capacity by Nov. 1. U.S. gas inventories are currently about 21% above their five-year average.
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.
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: 5/11/2023 Via TradersCommunity.com
- Release Time: Thursday 5/18/2023 10:30 p.m. ET
- Market Expectations
- Actual +99 Bcf Prior +78 Bcf
- Consensus Forecast +108 Bcf
- Cons. Range +98 Bcf to +114 Bcf
- Last Year: +87 Bcf to 1719
- 5 Year Average: +91 Bcf to 1900
- Reuters survey of 10 analyst’s median + Bcf
- Bloomberg survey of 9 analysts median + Bcf
- The Wall Street Journal’s survey showed a median + Bcf
Working gas in storage was 2,240 Bcf as of Friday, May 12, 2023, according to EIA estimates. This represents a net increase of 99 Bcf from the previous week. Stocks were 521 Bcf higher than last year at this time and 340 Bcf above the five-year average of 1,900 Bcf. At 2,240 Bcf, total working gas is within the five-year historical range.
Broken down by region
Current Storage Level vs. Last Year; 5-Yr
- Current Storage Level: 2,240 Bcf
- Storage 2021/Same Week: 1,719 Bcf
- 5Yr Avg/Same Week: 1,900 Bcf
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 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 12-May: 731 (prev 748)
- Rotary Gas Rigs: 141 (prev 157)
- Rotary Oil Rigs: 586 (est 589; prev 588)
US Oil Rigs w/w changes by key shale basins
- Permian -2 to 350
- Eagle ford +2 to 60
- Williston -1 to 38
- Cana Woodford -2 to 24
- DJ Niobrara -1 to 16
- Canada’s weekly rig count at 140 April 14, 2023
- Canada averaged 140 active drilling rigs this week according to data from the Canadian Association of Energy Contractors. Of those rigs, 45% are drilling for natural gas, 41% are drilling for oil, 3% for other (helium, hydrogen, geothermal, lithium, or potash), and 11% are moving.
- Drilling activity by province is 81% in Alberta, 17% in BC, 1% in Saskatchewan, and 1% elsewhere.
- Precision Drilling holds the majority of the Canadian market share with 35%, Ensign Drilling with 22%, Savanna Drilling with 10%, Horizon Drilling with 7%, and Akita Drilling with 5%. View a full breakdown of Western Canada’s rig activity .
- 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
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
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 had been held hostage to the restricted flow of Nord Stream from Russia and the hot weather sweeping the USA. 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 halting transfer
- German rationing
- Freeport LNG return
- Norway supply
- Putin constant threats
Since the turmoil after the Russian invasion prices have come down with storage build, warmer weather, wrecked economy meaning less energy demand.
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
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 2023.
Threats to Europe “include potential outages in gas-exporting Norway, an economic rebound in China, and renewed competition for cargoes from southeast Asia if LNG prices keep falling could deplete Europe’s inventories, said Eugene Kim, a research director at energy-consulting firm Wood Mackenzie. In that scenario, “the onus to refill will be even higher,” he said.
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.
Russia stopped publishing total gas production numbers in August. At that point, YTD output was down 171 Mcm/d. However, in Q3 it was down a whopping 380 Mcm/d. By comparison, Gazprom alone is down 214 Mcm/d YTD, which hints at smaller producers having more trouble @ira_joseph
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. We again tested and spat the 50dma tenkan to close under it but above the 61.8% after the bounce of 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: 3/8 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. (The spheres of influence)
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: 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. This week we closed right above 2/8 under previous lows, 50wma and tenkan under the cloud. Recall the instability stems from the sharp reversal off the 5 over 8/8 indicative of speculative fervor like the previous impulsive spikes. Support 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. Resistance is 50wma, cloud and Murrey Grid.
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
“A 46% drop in natural gas prices this year is rippling across the U.S. shale patch, threatening to slow drilling and chill deal-making in a move unthinkable six months ago as global demand soared. Analysts are chopping their outlook for gas prices this year, and for production and earnings. The drop has also put a cloud over merger and acquisition activity, analysts said.”February 9 – Reuters (Liz Hampton)
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
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.
Feb 9 Update –
From FERC Feb 9. “I grant your request for Freeport LNG Development, L.P. (Freeport LNG) to return to service LNG Loop 1 circulation and Dock 1 for Ship Loading.” “This does not grant authorization to place the liquefaction trains including rundown piping to tanks, or other remaining facilities back into service.”
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.
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 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
NYMEX ON = NATURAL GAS OPTIONS (Live Link)
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 Apr 25
- Natural Gas DCOT futures only managed money traders
- WoW change
- +1,842 longs,
- +14,786 shorts,
- -12,944 net change,
- 44.5% net long.
COT on Commodities
In energy week to May 9 saw mixed flows despite crude oil’s 3% rally with fund selling of Brent (-25k to 113k) being partly offset by buying of WTI (+15 to 172k). The gasoil short was reduced by 4k from a 7-yr hi to -28.5k while the RBOB long was cut by 8.6k to 39k
Natural gas attempt to rally from the current $2 floor helped support a reversal of the positions held across four Henry Hub deliverable swaps and futures contract to the first net-long in ten months in late April. via Ole S Hansen @Ole_S_Hansen
Money managers in commodities covering the week to May 9: Net exposure across 24 futures contracts held near a June 2020 low at 702k lots. Selling of energy (Brent and RBOB) being offset by fresh demand for ags led by corn, wheat, sugar and cotton. Small changes seen in metals ahead of correction 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