Natural gas basis prices for August skyrocketed across the Southeast during the trading period ending July 27 as searing heat ratcheted up cooling demand, NGI’s Forward Look data showed.
The massive premiums occurred on top of surging fixed forward prices across North America. Henry Hub August fixed prices jumped 76.0 cents through the period to around $8.690/MMBtu on Wednesday, according to Forward Look. The U.S. benchmark’s September contract moved up similarly to around $8.555, while the balance of summer (August-October) soared to about $8.590. The winter strip (November-March) also picked up an impressive 67.0 cents to hit about $8.250.
Against that backdrop, however, basis action was mostly subdued as regional markets largely tracked in line with Henry Hub. The glaring exceptions were in the Southeast, where heat indices have been reaching 105 degrees or higher this week, extending unusually hot weather that began in June.
The National Weather Service (NWS) said the hottest temperature departures from the norm were in the Carolinas, as well as Georgia and the Florida Panhandle. The Southern Plains also may see highs make a run at the higher-than-normal triple digits before the end of the week. In addition, NWS forecasters said daytime minimum temperatures would remain warm, with records possible across the South through Saturday.
The high heat sent cash prices in the Southeast surging this week, with Cove Point climbing to $11.00, and Florida Gas Zone 3 and Transco Zone 3 topping $12.00. Further downstream, Transco Zone 4 stretched above the $13.00 mark.
Premiums Extending Into Fall
EBW Analytics Group said the spot gas price spikes throughout the Southeast were indicative of gas deliverability constraints. And, with the extreme heat likely to continue, there could be further bullish momentum ahead.
Texas and the South Central were forecast to remain particularly hot, according to EBW. If anything, the outlook for the week ending Aug. 11 is trending “significantly hotter,” EBW senior analyst Eli Rubin said.
A look at forward basis prices in the Southeast showed Florida Zone 3 August basis jumping $2.54 on the week to reach plus $6.893. That represents a fixed August price of $15.580. September basis was more in line with the rest of the country, but the fixed price was up 73.0 cents to $10.830, Forward Look data showed. Winter prices, meanwhile, were up 62.0 cents to average $9.593.
Cove Point August basis soared $1.390 higher through the period to land at plus $6.065 Wednesday. This represents a fixed price of $14.752 for August. Like Florida, the steep basis increase was limited to the front of the curve. However, September prices stood at an impressive $10.989, while the winter strip surged to $15.600.
Similar price action occurred along the Southeast portions of Transcontinental Gas Pipe Line Co., which has posted several operational notices this week amid the prolonged stretch of heat.
The most significant increases were at Transco Zone 4. August basis there shot up $1.380 to reach plus $6.049, representing a fixed price of $14.736, according to Forward Look. September fixed prices climbed 67.0 cents on the week to $10.973, while the winter strip tacked on $1.190 to average $15.543.
EBW said forecaster DTN’s 16- to 30-day outlook favors an extended “very hot pattern” into mid- to late August. Numerical models point to reloading above-normal temperatures, along with below-normal precipitation across the Southeast.
“The longer the tremendous current heat extends, and the smaller the midsummer injection, upward pressure on Nymex futures could rapidly rebuild – and potentially explode to new heights,” Rubin said.
Injections Falling Short
Traders on Thursday got further indication that supplies could be tight this winter, with the latest government data pointing to another soft stock build.
The Energy Information Administration (EIA) said inventories for the week ending July 22 increased by only 15 Bcf, on the low end of estimates ahead of the storage report. The modest build also fell far short of both last year’s 38 Bcf injection and the 32 Bcf five-year average injection.
The South Central region recorded another withdrawal during the reference period, this time an 11 Bcf pull from salts and a 2 Bcf pull from nonsalts, EIA said. This left stocks in the region at 862 Bcf, which is 15% below the five-year average.
Elsewhere, Midwest stocks rose by 17 Bcf, and East stocks increased by 11 Bcf. Both the Mountain and Pacific regions saw inventories go unchanged on the week. This resulted in Mountain stocks sliding to nearly 18% below five-year average levels.
Total working gas in storage as of July 22 stood at 2,416 Bcf, which is 345 Bcf below the five-year average, according to EIA.
With recent injections leaving much to be desired, stocks are on pace to finish the injection season at only around 3.4 Tcf or lower, according to analysts and market observers on The Desk’s online chat Enelyst.
Bespoke Weather Services chief analyst Brian Lovern said with the weather forecast maintaining the hot pattern, there’s little reason to be bearish. “Based on the last few numbers, I have us right at 3.3 Tcf. But I also don’t have the hottest August on record baked in yet, which is a possibility.”
That said, taking a look at the year/year comparisons for September and October, the weather pattern in 2021 was “pretty much maximum bearish,” which is important to keep in mind, according to Lovern. For now, though, “it’s hard to remotely feel comfortable with sub-3.4 Tcf in storage, especially if Freeport does resume Oct. 1.”
Freeport LNG has been offline since early June following an explosion. The 2 Bcf/d of gas the facility took out of the market appeared destined for storage, but Mother Nature had other plans.
A partial return of the liquefied natural gas export facility may occur in October, based on company estimates, though most market observers are banking on a later start. After all, Freeport must clear several regulatory hurdles before resuming operations. The company continues to target year’s end for a return to full production.
Published at Thu, 28 Jul 2022 12:53:09 -0700