LNG Drop-Off Behind Weakness in Natural Gas Pricing as April Called Lower

Also found in:

With analysts highlighting looser balances to start the week, including a dip in export demand, natural gas futures were trading lower early Monday. The April Nymex futures contract, set to expire Wednesday, was down 3.4 cents to $2.719/MMBtu at around 8:30 a.m. ET; the May contract was off 3.4 cents to $2.733.

Heading into the work week, analysts were tracking a recent drop-off in liquefied natural gas (LNG) export demand on the demand side, just as a rise in production has increased supply.

“Natural gas pricing is positioned to open the week on shaky footing as flow data shows LNG feed gas down about 1.5 Bcf/d, while production is up about 1.0 Bcf/d,” analysts with Tudor, Pickering, Holt & Co. (TPH) said in a note to clients Monday.

The TPH team said the drop in LNG feed gas demand appears driven by a reduction in flows to Cheniere Energy Inc.’s Sabine Pass LNG terminal, adding that some volatility is expected with ongoing commissioning activities for Sabine’s Train 5.

“Working against LNG at the moment is extremely weak global pricing, with Asian markets falling to sub-$5 pricing. If pricing remains weak there is potential for extended maintenance to occur over the summer and/or a delayed ramp up of new projects scheduled to come online,” according to TPH. “With LNG shouldering the bulk of U.S. demand growth this year, softness in the global market could prove to be a headwind for U.S. gas pricing.”

On the supply side, associated gas out of Texas, the Midcontinent and the Rockies appears to be driving gains in production heading into the week, according to TPH.

Genscape Inc. similarly pointed to weak pricing overseas to help explain the drop in deliveries to Sabine Pass. Pipeline deliveries to the terminal as of early Monday remained down 2.4 Bcf/d, according to the firm.

“Genscape’s LNG team has been alerting clients of the possibility the shutdowns might be one of the terminal’s first demonstrations of reacting to weak economics,” senior natural gas analyst Rick Margolin said. “In recent weeks, Asian and European LNG prices have plummeted below the $5 mark, which -- when factoring in transport costs -- appears to put shipments from the U.S. out of the money.

“In addition, the shutdown comes without any known planned maintenance on upstream pipelines,” although he noted that Creole Trail has a planned maintenance for Monday, “but the declines started last week when nominations fell before our proprietary observations detected physical shutdowns.”

Looking at the weather, model trends over the weekend were “incredibly mixed,” according to Bespoke Weather Services. The firm said models shifted warmer through most of the weekend before swinging back in the colder direction overnight and early Monday.

“A clear battle between balances and weather is presenting itself this morning, with the whole futures curve lagging as production made another significant leg higher this weekend and LNG exports are sizably off highs thanks to recent Sabine Pass maintenance,” Bespoke said. On the other hand, “weather forecasts turned solidly colder overnight with a clear 15-day demand addition.

“Balances have been loosening over the last couple of weeks, and with power burns unimpressive, supply higher and overall demand lagging, we struggle to see the front of the futures curve break back above $2.80 over the next couple of days.”

Recent colder trends in the forecast, combined with current storage deficits, could put upward pressure on the April contract into expiry, according to Bespoke.

May crude oil futures were down 16 cents to $58.88/bbl as of around 8:30 a.m. ET Monday, while April RBOB gasoline was off fractionally to $1.9164/gal.