The stagnation of the production of natural gas, a boon for the futures prices of the Northeast; Structural factors behind the global rally

Natural gas futures markets rebounded strongly for the trading period ending August 4 as widespread sweltering heat about to return sounded the alarm once again that U.S. storage stocks are on the cusp. to fall uncomfortably before winter.

September futures prices rose an average of 20.0 cents for July 29-August. 4 period, according to NGI’s future outlook. Gains have been strong throughout the curve, with futures prices for the coming winter (November 2021-March 2022) averaging 14.0 cents higher for the period and those for summer 2022 (April -October) higher on average by 10.0 cents.

The East Coast markets saw much larger gains, as the typical response of exploration and production (E&P) companies to higher prices does not appear to be in the cards this time around. Over half of Q2 2021 results, most public E&P remain disciplined, avoiding higher production and instead strengthening balance sheets.

For example, BP plc’s Lower 48 BPX unit reported a year-over-year decline in production in 2Q2021. Total production fell to 273,000 boe / d against 262,000 boe / d in 2Q2029. Natural gas production declined to 971 MMcf / d from 1.38 Bcf / d.

That said, BP executives have offered a strong outlook for natural gas, in large part due to strong export demand. CEO Bernard Looney said the rise in gas prices followed a cold winter in Europe and the United States, as well as “unusually low storage levels.” Additionally, US exports of liquefied natural gas (LNG), particularly to Asia, are now “at peak” as warm weather continues to hit the country.

“A number of factors… have come together to drive up gas prices,” Looney said. “It remains to be seen whether they stay strong or not. “

Meanwhile, EQT Corp., the largest producer of natural gas in the United States, plans to run a maintenance program on the assets of Marcellus Shale that it recently acquired from Alta Resources Development LLC. Production is increasing due to the tie-up, but management has indicated that it will not pursue short-term gains due to recent and stronger price signals.

As such, much higher prices are reflected for production which should be on line as winter approaches. Eastern Gas South prices in September were up 69.0 cents from July 29 and August. 4, averaging $ 3,160, according to Looking forward. Likewise, big gains were seen for the remainder of the summer (September-October), as the winter band jumped 23.0 cents to $ 3.640. Prices for the summer of 2022 rose 14.0 cents to $ 2.460.

Downstream in the northeast, September prices for Transco Zone 6 excluding NY climbed 58.0 cents from July 29 to August 31. 4, on average $ 3,192, Looking forward the data showed. The summer balance climbed 56.0 cents to $ 3.140, and the winter 16.0 cents to $ 5.260. The summer of 2022 cost an average of $ 2,610, up 12.0 cents.

EBW Analytics Group LLC said natural gas production has remained subdued, with the Energy Information Administration (EIA’s) latest monthly production report showing few noticeable surprises as producers enter maintenance mode. While production increased by less than a tenth of 1 Bcf / d in May, dry gas production remained at less than 0.75 Bcf / d from last December and above 2.2 Bcf / d in below pre-pandemic levels.

“The market seems increasingly to recognize that new production to bail out very tight core fundamentals seems unlikely, leading to continued bullish momentum for natural gas,” EBW analysts said.

Meanwhile, the EBW team stressed that any hope of increasing production once the Whistler pipeline began operating have been dashed. Project sponsor MPLX LP announced on Monday August 2 that the Permian Basin’s 2.0 Bcf / d pipeline had been in service since July 1, suggesting concerns about a significant production boost with the Whistler start-up were displaced. Instead, with pipeline appointments at the start of the month often declining, supply in early August looks particularly low.

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“If production declines during August – as is eminently plausible – apparent shortcomings in the forward storage trajectory may become glaring and drive natural gas to new heights,” EBW analysts said. .

Drilling analyst firm Enverus gave an overview on current levels of drilling activity on Thursday. The company said the Appalachians and the Permian were both tied for the largest weekly drop in platform counts, losing four platforms each in the week ending August 4. In Appalachia, five companies each abandoned their only platform in the region, while only one added a platform. Ascent Resources Utica Holdings LLC and Southwestern Energy Co. continue to dominate the region with four platforms each.

In the Permian, Pioneer Natural Resources Co. grew from 27 platforms to 23 and Diamondback Energy Inc. from nine to seven. Matador Resources Co. was the only company to add more than one platform during the period. week, doubling its number to four.

As for Permian gas prices, the gains were generally in line with Henry Hub. Waha futures prices in September climbed 12.0 cents from July 30 to August 30. 4 to reach $ 3.934, as did the summer balance, which averaged $ 3,910. The Waha Winter Band increased an average of 13 cents to $ 4,180, while the Summer 2022 package increased 13.0 cents to $ 3,280.

LNG exports on the table?

Meanwhile, EBW said there are additional risks ahead as demand for LNG feed gas is expected to increase over the coming months. The sixth production unit at Venture Global Inc.’s Sabine Pass LNG facility and Calcasieu LNG facility are expected to come on stream next year. Cheniere Inc. said Thursday that construction of Sabine Pass Train 6 is 90% complete and the first commissioning activities have started with the first fuel gas introduced in July. Bloomberg reported in the spring that Calcasieu Pass offered cargo to be loaded between October and December 2022.

The impact of this additional structural demand on supply is already raising concerns in the market. On Thursday, after the EIA released its weekly storage data, participants in The Desk Enelyst’s online energy chat said the seasonal records gas prices set overseas would mean U.S. prices should go one step further if storage levels don’t improve.

The EIA said inventories for the week ending July 30 increased by only 13 billion cubic feet, down 1 billion cubic feet from the lowest estimate before the report. The EIA recorded an injection of 32 Bcf during the same period last year, and the five-year average is 30 Bcf.

Bespoke Weather Services said the EIA’s 13 billion cubic foot injection continued to reflect an “uncomfortably tight supply / demand balance” and kept the market on pace with end-of-season stocks below 3.4 trillion dollars. cubic feet.

An Enelyst participant said he does not think 3.4 Tcf is “the new normal” and expects the market to take “another leg higher” if storage ends up at that fine level. October. However, he wasn’t sure what the price might be. “Considering European prices, it’s a random number at this point. It could be $ 5.00 or $ 6.00. What is the difference?”

Analysts at BofA Global Research said it was still too early to predict an E&P response to the higher price environment. However, if the current fundamental trends persist this fall, with minimal coal shifting and stagnant production, the gas market may need to look for other levers to help balance.

“Pricing for LNG exports is a possible next step, but the United States is expected to compete with global gas markets, requiring a significantly higher domestic price,” said analysts at BofA, led by the commodities strategist. Warren Russell.

With soaring export demand and near triple-digit temperatures in the south-central region, local stocks have declined at both salt and non-salt facilities. The EIA said stocks of salt fell 19 billion cubic feet and non-salt fell 3 billion cubic feet.

Another Enelyst participant noted that the 19 billion cubic foot withdrawal from south-central salt stocks was the largest third-quarter salt draw of all time.

The salt-free draw also surprised. “I didn’t see this allure of non-salt coming,” said Enelyst chief executive Het Shah.

Elsewhere in the country, stocks in the Pacific also fell by 2 Bcf due to continuous heating and low hydropower capacity in the region. Inventories in the East climbed 21 Bcf and the Midwest by 17 Bcf.

As of July 30, total in-service stored gas was 2,727 Bcf, 542 Bcf less than a year ago and 185 Bcf less than the five-year average, according to the EIA.

“Overall, the backdrop remains quite favorable, given current supply levels,” Bespoke said.

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