- US natural gas futures fell for four consecutive sessions, with July futures falling 2.15% to $2.819.
- The decline driven by high production reduced LNG feed gas demand and MVP pipeline operations.
- Despite record heat forecasts, natural gas futures remain bearish due to oversupply.
US natural gas futures saw a decline, with July Nymex natural gas futures falling 2.15% to $2.819. This decline marked the fourth consecutive session of losses, continuing the downtrend of the previous week. The decline in futures prices was due to increased production and decreased demand for liquefied natural gas (LNG). Thus overshadowing the potential impact of extremely hot weather conditions.
Natural gas prices fell despite predictions of the hottest weather pattern in 45 years. The main factors contributing to this decline included strong production levels and lower demand for LNG feedgas. The announcement of the Mountain Valley Pipeline (MVP) coming online further exacerbated supply concerns, putting strong selling pressure on the market.
The EIA reports natural gas production of 100 Bcf/d
Despite forecasts for extremely hot weather, NatGasWeather reported a continued downward trend in natural gas futures. The 15-day forecast indicated the hottest conditions in 45 years based on cumulative cooling degree days (CDD). Between June 17 and June 23, strong high pressure will most likely dominate much of the southern and eastern United States. Especially considering the temperature changes between 80 and 100 degrees. Cities like Chicago will reach 90 degrees, while most East Coast cities will experience 90 degrees Tuesday through Thursday. Conversely, the northwest to the northern plains will see cooler temperatures, with highs in the upper 50s to low 70s as weather systems bring rain.
The United States further supported the bearish sentiment in the futures market. Energy Information Administration (EIA) storage report. The report revealed comfortable storage levels that exceed last year's figures and the five-year average. Production in the lower 48 states recovered to 100 billion cubic feet per day (Bcf/d), raising concerns about oversupply. This discrepancy highlighted the complex dynamics affecting the natural gas market.
Shell to buy Pavilion Energy and add 6.5 Mtpa natural gas supply
Despite extremely warm weather forecasts and high demand, the near-term outlook for natural gas futures remains bearish. The extensive storage, increased production and operational status of the MVP influenced this outlook. However, the impending heat wave could provide some support to spot prices. From a technical analysis perspective, the short-term trading range will be between $2,518 and $3,159. The current pivot will be around $2,840. If bearish momentum increases, a pullback towards a longer-term pivot at $2.652 will occur, just before the 50-day moving average at $2.578. Resistance is identified at the 200-day moving average of $2,937.
On June 19, 2023, Shell announced its agreement to buy Singapore LNG company Pavilion Energy from global investment firm Temasek. Although no financial details were disclosed, the deal is valued at hundreds of millions of US dollars. This acquisition aims to strengthen Shell's leadership position in the LNG sector, providing the company with strategic access to the gas markets in Europe and Singapore.
Shell's LNG growth ambition: 20-30% increase by 2030
Pavilion Energy contributes 6.5 million metric tons per year (mtpa) of LNG supply contracts from Chevron, BP and QatarEnergy to Shell. These contracts source LNG from US liquefaction facilities such as Corpus Christi Liquefaction, Freeport LNG and Cameron LNG. Pavilion Energy also has long-term regasification capacity of approximately 2 mtpa at the UK's Isle Grain LNG terminal. It has access to Singapore and Spain and an LNG bunkering business in Singapore.
Shell anticipates that this acquisition will bring significant volumes and greater flexibility to its global portfolio. The purchase will be absorbed into Shell's current cash capital expenditure guidance, which remains unchanged. The deal exceeds Shell's internal rate of return for its integrated gas business and supports its 15-25% growth ambition for purchased volumes relative to 2022. Shell plans to expand its LNG business by 20-30%. % by 2030 compared to 2022. Global LNG demand is projected to increase by more than 50% by 2040.
Shell-Pavilion energy deal expected to be completed in the first quarter of next year
Temasek believes Shell is well positioned to grow Pavilion Energy's business and strengthen its global LNG hub in Singapore. Temasek will retain its wholly owned unit, Gas Supply Pte Ltd (GSPL), which imports natural gas by pipeline from South Sumatra in Indonesia. Pavilion Energy will renew its pipeline contracts with power sector customers to GSPL before completing the transaction. The deal excludes Pavilion Energy's 20% stake in Blocks 1 and 4 in Tanzania.
They expect to complete the acquisition in the first quarter of next year, subject to regulatory approvals. Until the transaction is completed, Pavilion Energy will continue to operate as a separate and independent company. This acquisition represents a strategic move for Shell, strengthening its position as a global leader in the LNG market while navigating the complex supply and demand dynamics in the natural gas sector.
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