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June natural gas adds to gains as production worries persist

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


June natural gas adds to gains as production worries persist

June natural gas futures traded higher for a secondconsecutive session Wednesday, May 4, on the back of mounting concernssurrounding production decline with a severely diminished drilling rig countand spring warming adding to worries. The contract settled at $2.141/MMBtu,higher by 5.5 cents.

Natural gas prices will need to rise to incentivize naturalgas production amid indications of decline. The most recent U.S. Energy InformationAdministration production data shows a drop in monthly natural gas productionfrom January to February from 2.30 Tcf to 2.18 Tcf, and with oil and naturalgas rig counts at record lows, the market is building in support for prices onthe anticipation of rising demand as temperatures warm through the summercooling season.

Near-term weather outlooks suggest a still relatively mildfew weeks that should spell limited demand for either cooling or heating andallow natural gas inventories to build onto an already healthy supply.

The six- to 10-day projection from the National Oceanic andAtmospheric Administration shows above-average temperatures spanning down theEastern Seaboard and expanding further inland in Mid-Atlantic and Southeast.Above-average temperatures will also engulf the Western U.S. The central U.S.will find a mix of average and below-average temperatures, with thebelow-average readings confined mostly to portions of the north and southcentral regions.

SNL Image

The outlook is similar in the eight- to 14-day projection,although the area of above-average temperatures in the West expands into aportion of the west-central U.S., while the areas of below-average temperaturesin the central U.S. shrink to expose more of the country's midsection toaverage temperatures. Above-average temperatures in the East also recede andgrip closer to the shore.

SNL Image

Limited demand generated by the relatively mild weatheracross the bulk of the country should allow natural gas inventories to build ata healthy pace after a slow start to the injection season, as bouts of coolerair continued to drive support into the week to April 29.

Projectionsleading up to the 10:30 a.m. ET release of the EIA's latest storage data callfor builds ranged from 56 Bcf to as much as 75 Bcf, with a consensusexpectation for a storage improvement of 66 Bcf. The injection would compareslightly above the five-year average injection of 64 Bcf and would be below the77-Bcf injection reported for the same week in 2015.

The injection anticipated in this week's data would resultin a total working gas supply at 2,623 Bcf. The year-on-five-year-averagesurplus would climb to 834 Bcf, while the surplus to the year-ago level wouldbe trimmed to 859 Bcf.

In day-ahead trading although weather varied regionallyprice momentum was to the upside with support from the mix of cold in the Eastand heat in the West.

In the Northeast Transco Zone 6 NY deals were higher by morethan 10 cents to an index just below $2.00, Tetco-M3 traded similarly higher toan index atop $1.85 and Iroquois-Waddington deals were higher by nearly 10cents to an average around $2.35.

A gain of nearly 10 cents at the benchmark Henry Hub drovethe average there to near $2.00, Waha trades were higher by about 10 cents toatop $1.95 and Chicago gained more than 1 cent to an average below $2.10.Across the West, SoCal Border deals averaged around $2.00, higher by about 5cents, PG&E Gate jumped about 10 cents to around $2.15, and Malin gainedabout 5 cents to around $1.95.

Market prices andincluded industry data are current as of the time of publication and aresubject to change. For more detailed market data, including our power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. To view detailed EIA Weekly Natural Gas Storagedata, go to our Natural GasStorage Page.