NYMEX gas futures sell-off, rumors spread that EPA denied Cheniere exemption from turbine mandates

NYMEX front-month gas futures got off to a bearish start for the second trading week of September as sellers were finally able to gain some traction at sending prices notably lower.

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After falling to an intraday low of $7.823/MMBtu, at the end of trading on September 6, NYMEX October gas futures shed 64.1 cents to settle at $8.145/MMBtu. Sellers came out of the woodwork as rumors spread through the market that the Environmental Protection Agency (EPA) denied Cheniere LNG export terminals exemption from turbine mandates, which threatens to push gas supply back into the US market.

The downside action in NYMEX gas futures prices stemmed from multiple drivers. Not only did dry gas production hit new record highs of slightly over 99 Bcf/d over the long holiday weekend, but the longer-range weather models are predicting mild Fall temperatures that will reduce gas demand.

In addition to this, nuclear maintenance for the Fall season is expected to be particularly light, which will further help bolster weekly gas storage builds.

As if this were not bearish enough news, European government leaders are talking about suspending futures markets and instituting price caps as a way to combat out-of-control natural gas and power prices.

But the biggest news emerged near the completion of trading today when rumors began to spread that the EPA denied Cheniere a bid for exemption from emissions mandates that were put in place in early March 2022 with a deadline for compliance by September 5.

In a nutshell, for many years Cheniere has utilized a few dozen turbines to cool natural gas into a liquid form that can then be transported via LNG cargos to destinations outside of the US. However, the turbines used in this process have been emitting poisonous formaldehyde emissions. The EPA has been attempting to put a stop to the usage of these turbines until they have been brought into compliance with clean air standards.

If Cheniere did not comply with the mandates over the last 6 months, the EPA had the option to stop the operation of these turbines until they have been made compliant. So far, it does not appear that Cheniere made the required upgrades and now faces having to reduce the output of LNG.

The exact details of how the EPA will be enforcing this mandate have not yet been made clear, but apparently will be forthcoming as to how it will impact the production of LNG from the Corpus Christi and Sabine Pass LNG export facilities.

Source: Gelber and Associates