Lofty levels of natural gas in storage and a severe Permian Basin supply glut continued to cloud the outlook for prices.

Natural gas forward prices fell in every region during the April 11-17 trading period, NGI’s Forward Look data show. Levels remained well below the $2.00/MMBtu level across the Lower 48, with exceptionally weak West Texas pricing persisting.

Front month fixed prices at benchmark Henry Hub fell 5.3 cents for the period to end at $1.714. 

[Market Moves: What is affecting the natural gas market today? From the LNG pause to climate goals, get the latest on what is top of mind for the energy industry. Tune in to NGI’s podcast now.]

In line with recent natural gas spot pricing in West Texas, Waha and El Paso Permian fixed prices for May delivery exited the period in negative territory.

Prompt month fixed prices at Waha dropped 12.8 cents week/week to end at negative 41.7 cents, Forward Look data show. El Paso Permian shed 11.3 cents to negative 36.7 cents.

Natural gas markets emerged from winter in the doldrums. Demand proved modest throughout the heating season amid seasonally mild weather, while production reached record levels of about 107 Bcf/d in the heart of winter. The combination tilted the market into a state of imbalance.

Now, with spring weather settled in and annual pipeline maintenance projects underway, including in the Permian, supply continues to outstrip demand. Supplies in storage remain far in excess of historical norms. This has weighed down prices through the shoulder season to date and dampened the outlook found in natural gas forwards.

In West Texas, the challenge is particularly acute. Repair and upgrade projects in the region interrupted takeaway capacity at a time when a near-record level of associated gas production in the Permian is in need of buyers. This left excess supply stranded in the region at a time of year when demand is modest and, at the same time, when underground stockpiles are stout. As of mid-April, South Central regional storage was 33% above the five-year average, according to Thursday’s Energy Information Administration (EIA) storage print.

Permian suppliers have paid to send away gas, resulting in negative spot prices for several weeks.

Help On The Way?

Cash prices in the region have flipped negative multiple times over the course of last year and early 2024. They have now held in the red for weeks at Waha, and forwards show expectations for more. This traces to already limited takeaway capacity in the region. 

The 2.5 MMcf/d greenfield Matterhorn Express Pipeline, under development by MPLX LP and WhiteWater Midstream LLC, is projected to come online this year and should help. More is needed, though, according to analysts.

“Takeaway capacity for gas is once again at the knife’s edge, and there really are no good alternatives to piping that incremental gas to market — for most producers, flaring at scale is no longer acceptable,” RBN Energy LLC analyst Sheela Tobben said. “While Matterhorn will help, it’s likely to fill up quickly, meaning even more gas takeaway will be needed.”

Analyst Rob Wilson of East Daley Analytics agreed. He noted that Moss Lake Partners LP “is throwing its hat in the ring to build the next big gas pipeline out of the Permian” after the Matterhorn project.

Moss Lake has started the pre-filing review process with federal regulators for the DeLa Express pipeline. The proposed 690-mile pipeline would move up to 2 Bcf/d from the Permian into Louisiana, Wilson said. Such projects are long term in nature.

“Persistent supply growth in the Permian means steady tension between producers’ need for more infrastructure and the investments required to service that growth,” Wilson said.

Demand from Gulf Coast LNG facilities also declined over the course of late March and early April because of maintenance events, amplifying the weak demand situation. Liquefied natural gas demand has become an increasingly prominent element of the U.S. market as global calls from Asia, Europe and elsewhere for American gas have increased in recent years.

More momentum lies ahead. Five LNG export projects under construction along the Gulf Coast would boost U.S. export capacity from 14 Bcf/d to nearly 25 Bcf/d by the end of the decade. 

Currently, however, LNG feed gas volumes are running well below capacity.

Production And Supply

Continued lower production would also have a lasting impact. Natural gas production held near or below 100 Bcf/d for much of early April – far from the record levels reached earlier this year. Major producers, largely outside of the Permian, eased activity in recent weeks to balance the market.

“We need an early start to summer and increased LNG export demand, with production staying down below the 100 Bcf/d level, to possibly get prices to start moving higher,” Paragon Global Markets LLC’s Steve Blair, managing director of institutional energy sales, told NGI. “If production goes up as soon as cooling demand goes up, then prices won’t have a chance to move substantially higher.”

Meanwhile, all of these factors have weighed on May Nymex futures, which have proved choppy so far this month but consistently held below the $2.00 level.

“It’s definitely a buyer’s market,” StoneX Financial Inc.’s Thomas Saal, senior vice president of energy, told NGI.

Thursday’s EIA storage print helped price bulls a bit. Coming off a 2.0-cent loss the prior session, May Nymex gas futures contract on Thursday settled at $1.757/MMBtu, up cents 4.5 day/day.

EIA reported a 50 Bcf injection into storage for the April 12 period. That proved in line with market expectations ahead of the EIA data. The median of a Bloomberg poll landed at 51 Bcf, while Reuters’ survey produced a median of 49 Bcf. NGI modeled a 55 Bcf increase.

The actual result compared bullishly with a five-year average increase of 61 Bcf.

Still, at 2,333 Bcf, total working gas in storage was 36% above the average of the past five years.

Early estimates submitted to Reuters for the week ending April 19 showed an average increase of 64 Bcf. That compares with a five-year average increase of 59 bcf.

The post Heavy Supply Overhang, Enduring West Texas Price Pressure Weigh Down Natural Gas Forwards appeared first on Natural Gas Intelligence

via Forward Look – Natural Gas Intelligence https://ift.tt/dc5QLu2