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Constraints, Cold Outlook Lift Northeast NatGas Forwards Prices; Dominion Tumbles

Natural gas forwards markets were a mixed bag for the second week of December as colder forecasts for the end of the month bolstered some key Northeast points, while generally mild conditions throughout the rest of the U.S. pressured other regions.

The constrained New England market once again posted the sharpest increases, despite a sharp downturn in Thursday trading that saw the prompt-month tumble some 39 cents. Thursday’s drop came on the heels of plunging cash prices due to warmer weather on tap beginning this weekend.

The late-week, double-digit declines were not enough to temper the surge at the Algonquin Gas Transmission citygates. January basis jumped 52.7 cents between Monday and Thursday to reach plus $12.077/MMBtu, while the February-March package picked up about 18 cents at plus $9.38/MMBtu. The rest of the curve moved lower, with the next two winter strips shedding between 10 and 20 cents.

Lending some support to Algonquin are repairs that are under way at Algonquin Gas Transmission system’s Cromwell compressor station following an outage that occurred Monday. The maintenance at the Algonquin’s major chokepoint is currently limiting flows by 80,000 Mcf/d, and the pipeline has other restrictions in place as it has been running near capacity, according to a posting on the pipeline’s website.

Meanwhile, more cold weather is possible near the end of the month, although forecasters say it is still too early to know with certainty how quickly the drop in temperatures will come and how far into the U.S. the weather system will reach.

“But even if the first system fails to grab a significant amount, the next several that line up to follow will have better chances,” forecasters with NatGasWeather said Friday. “Holding into the weekend will likely be dangerous as we do like colder weather patterns returning to the Midwest and Northeast going into the Christmas holiday and after, which could trend colder or more convincing over the weekend. However, the consequences of them not doing so or if the cold air only marginally pushes into the northern U.S. would be quite bearish.”

Futures traders appeared to be buying into the colder outlooks, with the Nymex up around 10 cents mid-Friday, trading in the mid-$3.70s/MMBtu.

“Indeed, we suspect that today's price rally is probably fueled by the general expectation that next Monday's short-dated forecasts will feature below-normal temperatures in the 11-15 day period,” said Teri Viswanath, director of commodities at BNP Paribas. “Having tested the seasonal lows earlier in the week, more supportive weather forecasts will likely enable prices to rise to the higher end of the recent range next week or closer to the $4 price ceiling. The willingness to test above this level, in our opinion, will depend on verification of this potential cold weather in January.”

Basis trading at another Northeast point also resulted in stout increases at the front of the forward curve.

Transco zone 6-New York January basis jumped 23 cents between Monday and Thursday to reach plus $7.85/MMBtu, while the balance of winter tacked on about 16 cents to hit plus $3.629/MMBtu. Like Algonquin, the rest of the curve took a turn to the downside, although declines were limited to less than 10 cents.

In Appalachia, the Dominion South point reversed the gains it put up last week as the front of the curve tumbled some 20 cents or more. January basis fell 25 cents to minus $1.092/MMBtu, while the balance of winter dropped about 23 cents to minus $1.118/MMBtu.

A Northeast trader said last week’s run-up, and this week’s reversal, was likely attributed to a market player trading cash, and the prices weakness versus Nymex futures. The trader said because Dominion can connect to so many pipelines, “it gets played off cash more than any pipe out there.”

Generally speaking, when cash is strong, the spreads get tight and people try and play that into the forwards all the time, the trader said.

“Quite frankly, they were trying to be a bully and got smoked,” the trader said. “Whoever was buying Dominion into 84 last week or Monday did not do very well.”

Meanwhile, over in the Midwest, prices softened amid the mostly seasonable weather hovering in the region.

Michigan Consolidated Gas posted a region-leading decline of about 7 cents for January, which ended Thursday at plus 32.5 cents/MMBtu. The balance of winter was also down about 7 cents to plus 30.5 cents/MMBtu.

Points along the Northern Natural Gas Pipeline fell about 5 cents at the front of the curve, while Chicago citygates slipped about 1 cent.

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