U.S. natgas futures fall on cooler midday forecast, big storage build

U.S. natural gas futures fell on Thursday, a day after hitting a five-week high, as midday forecasts called for less hot weather over the next two weeks than previously expected.The forecast, combined with a bigger-than-expected storage build and reduced gas flow to liquefied natural gas (LNG) export terminals, offset a big output decline caused by energy firms temporarily halting production in the Gulf of Mexico ahead of Tropical Storm Barry.

The U.S. Energy Information Administration (EIA) said utilities added 81 billion cubic feet (bcf) of gas to inventories during the week ended July 5.

That was much more than the 73 bcf build analysts forecast in a Reuters poll and compares with an increase of 76 bcf during the same week last year and a five-year (2014-18) average increase of 70 bcf for the period.

The injection during the week ended July 5 boosted stockpiles to 2.471 trillion cubic feet (tcf), 5.4% below the five-year average of 2.613 tcf for this time of year. The amount of gas in storage has remained below the five-year average since September 2017.

Front-month gas futures for August delivery on the New York Mercantile Exchange fell 2.8 cents, or 1.1%, to settle at $2.416 per million British thermal units. On Wednesday, the contract settled at its highest since May 31 for a second day in a row.

The U.S. National Hurricane Center (NHC) forecast Tropical Storm Barry, which formed on Thursday in the Gulf of Mexico, would make landfall in central Louisiana on Friday, putting it near two of the nation’s four operating LNG export terminals – Cheniere Energy Inc’s Sabine Pass in Louisiana and Sempra Energy’s Cameron in Louisiana.

Officials at Cheniere and Sempra said they were watching the storm. Cheniere said it did not expect major operational issues.

In addition, several energy producers have already shut-in numerous wells, platforms and other infrastructure in the Gulf of Mexico, cutting oil and gas production in the region.

Data provider Refinitiv said gas output in the Lower 48 U.S. states could drop to a seven-week low of 87.2 bcfd on Thursday from a record high 91.1 bcfd less than a week ago on July 5. That compares with an average of 82.5 bcfd during this week last year.

Most of the production declines were in the offshore Gulf of Mexico region where producers were expected to cut output in half to just 1.6 bcfd on Thursday from over 3.1 bcfd late last week, according to Refinitiv.

The amount of gas flowing to U.S. LNG export terminals was expected to drop to 5.5 bcfd on Thursday from a record high 6.3 bcfd over the past week due to a decline in flows to Cheniere’s Sabine Pass, according to Refinitiv.

The amount of gas expected to flow to Sabine Pass was expected to fall to a 13-week low of 2.9 bcfd on Thursday from an average of 3.7 bcfd over the past week. Cheniere said it does not comment on operations.

Six LNG tankers are in the northern Gulf of Mexico – most of them waiting to enter Sabine Pass, according to Refinitiv’s ship tracking data.

With the weather forecast to be less hot than previously expected, Refinitiv reduced its projection for demand next week to 89.9 bcfd from its earlier forecast of 90.2 bcfd. That is still a little higher than its projection for this week of 89.6 bcfd as power generators burn a little more gas to keep air conditioners humming.

That weather forecast was based on the latest Global Forecast System (GFS) model at 12 p.m. EDT, which showed a decline in cooling degree days (CDDs) in the lower 48 states to 230 from 237 CDDs in the earlier 6 a.m. model.

CDDs measure the number of degrees a day’s average temperature is above 65 Fahrenheit (18 Celsius), and are used to estimate demand to cool homes and businesses.

Week ended Week ended Year ago Five-year

July 5 June 28 July 5 average

(Actual) (Actual) July 5 U.S. natgas storage (bcf): +81 +89 +55 +71

Refinitiv Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days Two-Week Total Forecast Current Prior Day Prior 10-Year 30-Year

Day Year Norm Norm U.S. GFS HDDs 1 0 1 4 3 U.S. GFS CDDs 237 240 237 198 200 U.S. GFS TDDs 238 240 238 202 203

Refinitiv U.S. Weekly GFS Supply and Demand Forecasts

Prior Week Current Next Week This week Five-Yea

Week last year r

Average

For

Month U.S. Supply (bcfd)

U.S. Lower 48 Dry Production 90.2 89.8 90.1 82.5 73.9 U.S. Imports from Canada 7.6 7.5 7.6 8.9 8.0 U.S. LNG Imports 0.0 0.0 0.0 0.2 0.2 Total U.S. Supply 97.8 97.4 97.6 91.6 82.1

U.S. Demand (bcfd) U.S. Exports to Canada 2.4 2.5 2.5 2.6 1.8 U.S. Exports to Mexico 4.8 4.9 4.9 4.7 3.6 U.S. LNG Exports 6.0 6.0 5.7 3.1 1.1 U.S. Commercial 4.3 4.4 4.4 4.4 4.4 U.S. Residential 3.6 3.7 3.6 3.6 3.5 U.S. Power Plant 38.3 40.1 40.9 38.4 34.5 U.S. Industrial 21.3 21.4 21.5 21.3 20.0 U.S. Plant Fuel 4.5 4.4 4.4 4.5 4.4 U.S. Pipe Distribution 2.0 2.0 2.1 2.0 2.0 U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1 Total U.S. Consumption 74.1 76.2 77.1 74.3 68.9 Total U.S. Demand 87.4 89.6 90.2 84.7 75.4

SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu) Hub Current Prior Day

Day Henry Hub 2.49 2.41 Transco Z6 New York 2.38 2.31 Dominion South 2.20 2.12 Chicago Citygate 2.33 2.16 Algonquin Citygate 2.44 2.35 SoCal Citygate 2.54 2.13 Waha Hub 0.70 0.54

SNL U.S. Power Next-Day Prices ($ per megawatt-hour) Hub Current Prior Day

Day New England 38.75 36.75 PJM West 35.50 38.50 Ercot North 46.75 90.75 Mid C 28.63 36.60 Palo Verde 42.66 43.25 SP-15 44.50 46.25

(Reporting by Scott DiSavino Editing by Chizu Nomiyama, Marguerita Choy and Richard Chang)