Natural Gas: Fall Season Matters More Than Lower Output or Australian Strike

Against a backdrop of shrinking gas rigs, output squeezes from operational disruptions, and an Australian labor strike that just refuses to end, ​​natural gas prices have only moved 8.5% over the past week — remarkably little, considering the circumstances.

Yet something else is commanding much of the market’s attention and would be the driver of sentiment and price over the coming weeks: the approach of the fall, or autumn, season, which officially begins Sept. 23.

“As is often the case as autumn draws near, weather can trump all other factors,” trade journal naturalgasintel.com said in a post Wednesday.

NatGasWeather cautioned in the same post that cooler conditions looked set to snap the market’s climb from mid-$2 to $2.70 per million metric British thermal units, or mmBtu.

The forecaster noted that fall-like temperatures had settled in across the North, and Hurricane Lee, moving across the Atlantic and toward the East Coast Wednesday, was bound to deliver chilly conditions to the Northeast by the weekend. 

Natural Gas Weekly 

Technically, gas prices look set to stay supported at current levels and could climb beyond $2.80 per mmBtu. 

“The broad outlook is positive as potential rebound remains supported by the 50-day Exponential Moving Average of $2.62 and the weekly Middle Bollinger Band of $2.53,” said Sunil Kumar Dixit, a chartist for gas at SKCharting.com.

“Additional price action breakout is coming closer with the descending 200-day Simple Moving Average of $2.84 as first overhead resistance to be cleared. Stability above this zone opens way for the next leg higher with the monthly 100-SMA of $3.24.”

That price action will likely be decided as well by how storage of natural gas grew over the past week.

According to a Reuters poll released Wednesday, US utilities likely added a below-average 48 bcf of natural gas into storage last week as hotter-than-normal weather pushed power generators to burn more fuel to keep air conditioners humming.

That would be lower than the 74 bcf injected during the same week a year ago and the five-year (2018-2022) average increase of 76 bcf.

In the week ended Sept. 1, utilities added 33 bcf of gas into storage.

The forecast for the week ended Sept. 8 would lift stockpiles to 3.196 trillion cubic feet (tcf), 15.8% above the same week a year ago and 6.5% above the five-year average.

There were around 94 cooling degree days, or CDDs, last week, higher than the 30-year normal of 66 CDDs for the period, data from financial firm LSEG showed.

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

For the rest of this week, most of the Lower 48 US States would likely experience comfortable conditions, NatGasWeather said.

“Weak weather systems track through with showers and highs of upper 60s to 80s for light demand,” it said. “Hurricane Lee will track off the East Coast this week with rain squalls and heavy surf” that could usher in cooler air, the forecaster said.

Space City Weather meteorologist Erig Berger said Houston could also see cooling rains through the current trading week. Highs in the mid-90s were likely to follow starting next week, but humidity was forecast to ease and by the end of the month, fall weather may arrive.

“Still no sign of a strong fall cool front yet, I’m afraid,” Berger said Wednesday. “We’re still at least 10 days out from that.”

The Southwest deserts were, meanwhile, forecast to remain sultry, with highs in the upper 90s and low 100s. But Texas, the other epicenter of heat this summer, had begun to see temperatures moderate, with highs in the 80s and 90s this week. More of the same was expected next week.

On the production front, while natural gas output has this year dipped many times during pipeline repair work only to bounce back and hold near record levels above 100 Bcf/d, rig

While natural gas output has this year dipped many times during pipeline repair work, it has only bounced back and held near record levels of above 100 bcf/d, East Daley Analytics said.

This is despite rig counts having fallen in several basins, the firm said. It said it expects production declines in the key Haynesville Shale late this year, bolstering a bullish catalyst ahead of winter.

“Rig counts in Louisiana and East Texas have fallen sharply in recent months, supporting our view for a near-term decline,” East Daley analyst Oren Pilant said Wednesday.

Additionally, export levels of liquefied natural gas, or LNG, remain below the 12 billion cubic feet per day and off from 2023 highs of around 15 bcf/d as they have since the weekend.

Due to possible maintenance work at Freeport LNG in Texas, feed gas deliveries to the facility have plummeted since Saturday.

The global LNG market, on the other hand, was closely watching the situation in Australia. 

Workers at Chevron's (NYSE:CVX) two liquefied natural gas (LNG) projects in Australia plan to escalate industrial action from Thursday to anything from a total strike to hours-long work stoppages, their union said, increasing the risk of disrupted output from facilities accounting for over 5% of global supply.

Workers at the Gorgon and Wheatstone facilities have been stopping work briefly for the past six days after talks with Chevron over wages and working conditions broke down.

The unions had said they would ratchet the pressure on the company from Thursday, possibly by completely stopping work. A union official said they were now going to review what action to take every 12 hours.

Research group EnergyQuest estimated revenue at risk for Chevron and partners from the strikes at about A$76 million ($49 million) per day, though it said not all of that revenue would be lost as some cargoes may be deferred to a later date.

Still, analysts at Goldman Sachs said there were reasons to believe a drawn-out walkout could be averted.

“A lengthy outage is looking increasingly unlikely,” Goldman analyst Samantha Dart said. “This is both because of the potentially large revenue losses to Chevron, the facility operator, associated with a full LNG export outage, and because of potential regulatory intervention.”

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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.