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November natural gas crumbles as fall weather saps demand

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


November natural gas crumbles as fall weather saps demand

NYMEX November natural gas futures crumbled at midweek following a whipsaw Tuesday session that saw the contract shrink from a $3.026/MMBtu high to settle just 1.6 cents higher at $2.962/MMBtu. Unable to maintain the upside amid fundamental weakness spearheaded by weather, the contract tumbled 10.8 cents to a Wednesday, Oct. 18, settlement at $2.854/MMBtu.

Demand for natural gas for power generation should be shrinking in the coming weeks as the above-average temperatures that refused to release their grip from the eastern half of the country since the start of fall will finally vacate most of the region, according to the latest weather forecasts.

The National Weather Service's six- to 10-day map shows that the Northeast and a portion of the mid-Atlantic will join the western half of the country under above-average temperatures, while the remaining portions of the eastern half of the U.S. should see below-average temperatures.

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Above-average temperatures expand to encompass a larger portion of the central U.S. in the eight- to 14-day period, while the majority of the mid-Atlantic, along with the Southeast and Gulf Coast states should continue to see below-average weather conditions.

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As demand for power generation ebbs, residential- and commercial-sector demand for heating should remain limited, leaving ample amounts of natural gas available to move into underground storage facilities as the titular injection season comes to an end Oct. 31.

Additionally, as demand remains lackluster into November, injections are expected to continue with production slated to set a new record for the month. The U.S. Energy Information Administration said it expects shale gas output to climb for the eighth consecutive month to 13.4% above the same month a year earlier.

The latest installment of the "Drilling Productivity Report" published by the EIA on Oct. 16 showed that total output of natural gas across seven key shale plays is likely to climb 1.4% in November versus the previous month, to 60.94 Bcf/d.

That follows a 1.4% increase in October from the September level of 59.25 Bcf/d.

Steady gains in natural gas production and shrinking natural gas demand should allow for additional storage injections into November and set up the market with an ample supply for the winter heating season.

The rate of storage building is expected to have slowed for the week to Oct. 13 from the previous week, as weather supported strong demand.

Following an 87-Bcf injection into inventories for the week to Oct. 6, the EIA is expected to release a report outlining an injection from 44 Bcf to 69 Bcf, with the consensus expectation being a storage build of 57 Bcf. That compares to the respective year-ago and five-year average injections of 77 Bcf and 78 Bcf.

Degree day data from the National Oceanic and Atmospheric Administration for the review week to Oct. 14 reflects weather supportive of demand, outlining cooling degree days that were 114.3% more than normal for the week, while heating degree days were 45.8% fewer than normal for the week.

The injection anticipated in this week's data would result in a total working gas supply of 3,652 Bcf. The year-on-five-year average deficit would grow to 29 Bcf, while the deficit to the year-ago level would increase to 173 Bcf.

Day-ahead pricing was predominantly lower in deals done for natural gas delivered to key hubs across the country as demand levels are expected to shrink.

Transco Zone 6 NY traded about 1 cent lower to an index below $2.80, while Tetco-M3 bucked the wider downtrend for a gain of more than 40 cents to an index near $1.90. Henry Hub traded about 10 cents lower, Waha gave back nearly 15 cents, and Chicago eased about 5 cents to indexes near $2.80, below $2.50 and below $2.75, respectively. A drop of more than 15 cents at the SoCal Border brought the index there to near $2.75, while PG&E Gate slipped more than 10 cents to an index below $3.20.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities Pages.