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Essential Energy Insights - October 2021


November gas extends gains amid supportive fundamentals

After ending the prior session 10.0 cents higher at $2.989/MMBtu, NYMEX November natural gas futures clung to the upside overnight ahead of the Friday, Oct. 13, open, as fundamentals remained overridingly bullish. At 7:00 a.m. ET, the contract was 3.2 cents higher at $3.021/MMBtu.

Natural gas inventories continue to trail historical averages despite a large 87-Bcf build to stocks outlined by the U.S. Energy Information Administration in its latest storage data for the week ended Oct. 6. Total working gas storage currently sits at 3,595 Bcf, or 153 Bcf below the year-ago level and 8 Bcf below the five-year average of 3,603 Bcf.

The week's data bested consensus estimates coming into the day that had called for an 84-Bcf build and the year-ago injection of 79 Bcf, and matched the five-year average build. Weaker power burn is expected to have contributed to an acceleration in the pace of storage-building in the latest inventory report week, according to the EIA.

Recent and imminent weather-related demand support, however, will likely drive a renewed slowdown in the rate of weekly injections in the subsequent storage data.

The EIA's latest "Natural Gas Weekly Update" for the week ended Oct. 11, much of which will be reflected in the next inventory report for the current week to Oct. 13, shows total U.S. gas consumption rising by 7% week on week. Residential/commercial-sector demand increased by 18%, while power burn grew by 12% over the same period. Meanwhile, total supply deflated by 2% amid reduced production.

Colder weather in the western half of the country during the week in review prompted elevated levels of heating demand, while warmer conditions in the eastern half drove down heating demand but also bolstered electricity demand for home cooling, according to the EIA.

Stronger demand alongside diminished supply looks to limit the amount of natural gas available to be moved into underground storage facilities.

Further out, updated National Weather Service outlooks for both the six- to 10-day and eight- to 14-day periods show above-average temperatures stretching from the Eastern Seaboard into portions of the West to ultimately envelop the bulk of the country, suggesting continued support for power-sector demand for natural gas as utilities work to meet lingering cooling load and an ongoing lackluster pace of storage-building.

Net storage injections thus far in the refill season have totaled 1,544 Bcf, or 15% lower than the five-year average of 1,817 Bcf, according to the EIA. A continuation of the slower-than-normal pace of storage rebuilding through the balance of the refill season would bring end-of-season inventories to 3,834 Bcf, while injections at par with the five-year average should bring working gas stocks to a total of 3,842 Bcf at the close of the season, the agency estimates.

Activity in the tropics remains a factor as storms hitting the U.S. can impact demand and production, but weather disturbances in the Atlantic currently being monitored by the National Hurricane Center are not expected to impact the U.S. Hurricane Ophelia was about 615 miles southwest of the Azores, packing maximum winds of 105 mph and moving east-northeast at 8 mph, as of 5 a.m. ET on Oct. 12.

At the cash markets, the natural gas offering booked Thursday for Friday flow had a mixed showing on the back of diverging demand outlooks.

Looking at the key hubs, a 58-cent decline steered Transco Zone 6 NY day-ahead gas pricing to an index at $2.070/MMBtu, as a roughly 2-cent slump took Chicago spot gas price action to an average at $2.764/MMBtu. Conversely, a nearly 3-cent gain brought benchmark Henry Hub next-day gas price activity to an index at $2.950/MMBtu, as an almost 2-cent uptick nudged PG&E Gate hub pricing to an average at $3.157/MMBtu.

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Regionally, Northeast cash gas price action logged a near 12-cent reduction in deals averaging at $2.086/MMBtu, as Midwest and Gulf Coast next-day gas prices eased by about 1 cent on average to indexes at $2.681/MMBtu and $2.782/MMBtu, respectively. By contrast, West Coast spot gas pricing advanced 3 cents to an index at $2.424/MMBtu.

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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 and natural gas index prices, as well as forwards and futures, visit our Commodities pages.