- In another display of headlines driving price action, natural gas futures soared on word of a leak impacting the Shell plc-operated Mars crude oil pipeline in the Gulf of Mexico (GOM). Of course, gas prices were already sharply higher after the latest government inventory data reflected a continuation of the tight supply/demand balances that have characterized most of the spring and summer. The September Nymex gas futures contract ultimately settled at $8.874/MMBtu, up 67.2 cents on the day. October futures soared 67.0 cents to $8.863.
At A Glance:
- Futures soar on EIA, Mars news
- Storage deficit holds steady
- Spot gas up on power burns
Spot gas prices also posted plump price increases amid lingering heat in some parts of the country. NGI’s Spot Gas National Avg. jumped 44.5 cents to $8.330.
With production holding well below recent highs because of maintenance, and LNG feed gas demand hitting a four-week high, prices were strong out of the gate Thursday. The September futures contract was up more than 20 cents day/day as trading got underway but then started to retreat leading up to the Energy Information Administration’s (EIA) weekly gas inventory report.
Against a backdrop of hotter-than-normal weather over much of the country during the reference week, the EIA reported a 44 Bcf injection into inventories for the period ending Aug. 5. The build was slightly higher than estimates that had clustered near a build of 40 Bcf, but was in line with historical injections for the similar week.
However, once traders fully digested the storage data, the injection appeared to confirm an uncomfortable trajectory toward only 3.4-3.5 Tcf by the end of October. The market pegs 3.7 Tcf as an adequate level of supply ahead of winter.
By region, the South Central delivered the biggest surprise to the market with a net 9 Bcf increase in inventories, according to EIA. This included a 10 Bcf build in nonsalt stocks and a 2 Bcf withdrawal from salts.
Storage inventories elsewhere rose by 20 Bcf in the Midwest and by 15 Bcf in the East, according to EIA. The Mountain region picked up 1 Bcf, while the Pacific lost 1 Bcf.
Participants on the online energy discussion platform Enelyst noted that wind generation was much stronger during the reference week when compared to the current week.
Enelyst managing director Het Shah said wind production averaged 44 GWh for the week ending Aug. 5. He expects wind to average 32 GWh for the current week ending Friday (Aug. 12).
Production also hit fresh highs at around 98 Bcf/d last week before succumbing to maintenance in recent days. Bloomberg data showed output down to around 96.5 Bcf/d on Thursday.
Ahead of the report, surveys by Bloomberg, Reuters and the Wall Street Journal each produced a range of injection estimates from 30 Bcf to 44 Bcf. The Bloomberg and Reuters polls each produced a median injection estimate of 40 Bcf, while the Wall Street Journal poll averaged a 39 Bcf build.
The EIA recorded a 44 Bcf injection into storage during the similar week last year, while the five-year average is a 45 Bcf build.
Total working gas in storage as of Aug. 5 stood at 2,501 Bcf, which is 268 Bcf below year-ago levels and 338 Bcf below the five-year average, EIA said.
More Low Injections To Come?
With the low wind generation this week, Enelyst participants were eyeing an injection in the teens for the next EIA report, with little improvement in the following report if current forecasts for low wind during the Aug. 15-19 week pan out.
Some questioned whether projections for production to reach 99 Bcf/d next year would solve the imbalance issues currently plaguing the market. However, others noted that such levels could easily be slashed if cold weather leads to freeze-offs.
“There is no peak 99 Bcf/d when freeze-offs happen unless we have supply management, which I am not betting on with prices at $9,” said an Enelyst participant.
Furthermore, any sequential increase in production, particularly in the Appalachian Basin, is to be expected, according to several market observers on Enelyst. Output traditionally ramps up for winter, but there’s enough local demand to consume it.
“I think it is about time we see some demand developments, starting with Europe, Asia and eventually the U.S.,” the Enelyst participant said.
NatGasWeather noted that although there are several bullish data sets that could have influenced prices on Thursday, such a strong price reaction may indicate other factors in play. “It’s difficult to know for sure, but natural gas prices are impressively strong,” it said. “When prices move higher despite cooler trending and less-impressive weather patterns, history says it’s best not to fight it.”
That said, word also started to spread about maintenance on the Mars crude oil offshore pipeline because of a reported leak. The pipeline carries oil production from the Mississippi Canyon in the north-central Gulf of Mexico, south of Louisiana, from the Olympus and Mars platforms and the Medusa and Ursa pipelines. However, the field also produces gas.
Criterion Research LLC’s James Bevan, director of research, said 300-400 MMcf/d of gas usually flows into Venice, LA.
Shell told Reuters Thursday that the Mars, Ursa, and Olympus platforms were shut in. The three are designed to produce up to 410,000 b/d combined.
Shell’s Mars and Amberjack pipelines were shut in because of a leak at the Fourchon booster station, it said. The Fourchon Booster Station helps increase the pressure and crude oil flow to onshore storage facilities in Clovelly, LA. However, the pipeline was expected to be repaired in one day, according to the Greater LaFourche Port Commission.
As such, gas prices began retreating after the market closed.
“I mean, if that’s not a ‘buy the rumor, sell the fact’ move, I don’t know what is,” an Enelyst participant said. “The market is somewhat sensitive to bullish headlines, I guess.”
Spiking California Prices
U.S. spot gas prices were higher across the board amid strong power burns in the face of sharply lower wind generation.
Continued heat out West drove monstrous gains in California, where SoCal Citygate cash jumped $1.450 day/day to average $11.660 for Friday’s gas day. Malin also picked up 46.0 cents to average $8.515.
On the pipeline front, El Paso Natural Gas posted an update related to Line 2000 indicating that it does not expect to increase operating pressure on the line before the end of the year.
Price increases were stronger in the Desert Southeast, where El Paso S. Mainline/N. Baja spot gas rallied $2.275 to $12.890.
Locations throughout the Rockies also charged higher, but gains were limited to less than 60.0 cents day/day. Opal next-day gas climbed 51.0 cents to $8.225.
Spot gas prices were up similarly in Louisiana, while gains of 30-40 cents were common throughout the country’s midsection. In Texas, Houston Ship Channel tacked on a stout 48.5 cents to average $8.000.