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New England Weakness Tugs Market Lower; Futures Rise

Next-day gas for Wednesday delivery was a mixed bag Tuesday, with Northeast points posting multi-dollar drops but most of the country adding about 7 to 8 cents as Old Man Winter refuses to go away quietly.

Overall, the market was down 7 cents to $2.58. Regionally, the Northeast dropped more than 50 cents as New England weather forecasts called for surging temperatures, and next-day power prices plummeted. Midwest, Midcontinent and Rockies prices added about 8 cents. Futures prices managed an uninspired gain, with April rising 5.3 cents to $2.786 and May climbing 5.0 cents to $2.810. May crude oil rose 6 cents to $4.751.

The large losses in New England were able to counter broader gains throughout the rest of the country. Forecaster AccuWeather.com predicted surging high temperatures in Boston and Rhode Island. Boston's high Tuesday of 38 was expected to rise to 46 Wednesday and stretch to 55 Thursday. Boston's seasonal high is 48. In Providence, RI, Tuesday's high of 39 was seen advancing to 46 and also reaching to 55 Thursday. The normal late-March high in Providence is 51.

Prices at the Algonquin Citygates plunged $3.84 to $3.86, and deliveries to Iroquois Waddington dropped 22 cents to $3.20. Gas on Tennessee Zone 6 200 L dropped $3.23 to $3.78.

Peak power prices in the Northeast also made incremental purchases of gas for power generation unattractive. Intercontinental Exchange reported peak power Wednesday at the ISO New England's Massachusetts Hub fell $26.36 to $41.84/MWh and peak Wednesday power at the PJM West Terminal skidded $8.94 to $39.54/MWh.

Next-day prices across the Midwest advanced as a wintry blast was forecast at the outset of the day's trading. On Alliance, Wednesday gas changed hands at $2.86, up 8 cents, and deliveries to the Chicago Citygates rose by 6 cents to $2.78. Gas on Michcon gained 7 cents as well to $2.92, and packages on Consumers were quoted 7 cents higher at $2.94.

Wunderground.com forecast that "active weather across the Northwest [would] make its way into the upper Midwest on Tuesday, creating a strong winter storm for the Dakotas, Minnesota and Wisconsin. A trough of low pressure advances off the northern Rockies and into the northern Plains, producing a wintry mix of rain, freezing rain, and snow for North and South Dakotas."

Stronger pricing in the Midwest appears to be gaining traction as coal plant retirements in spots such as Ohio require more gas. In a report Genscape said nominations for gas deliveries in southeast Ohio continue to set records. The company said its "Notable Locations report detected record high deliveries from TETCO to Duke Energy's Washington power plant in southeastern Ohio. Nominations to the plant [Monday] reached an all-time high of 121 MMcf/d. That beats the previous record of 120 MMcf/d set back in September 2012.

"March-to-date nominations to the plant have also established a new high, representative of a broader trend in the area. Total nominations to Ohio power plants this March have averaged a record 595 MMcf/d. March nominations have set new annual records in each of the last four years. With temperatures this March running fairly normal, the trend appears to be driven more by the retirement of coal and fuel oil plants. From 2010-2014, over 3,200 MW of nameplate capacity was retired. During that same time, the state has seen increased utilization of existing gas plant capacity and the addition of nearly 2,000 MW of gas and renewable generation capacity.

Ultimately, though, as a soft pricing environment continues, increased demand will collide with weaker supply. In a press release Chesapeake Energy said it plans to drill fewer wells and trimmed its production forecast accordingly. It said it anticipates "operat[ing] 25-35 rigs in 2015, which represents a decrease of approximately 55% from an average of 64 rigs in 2014." It also said it plans to drill and connect to sales 520 and 650 gross operated wells, respectively, down sharply from the 1,175 and 1,150 of 2014.

Coal plant retirements look to be an ultimate game-changer. "There might be one plant in Montana that's getting retired for about 160 MW. There are some in Texas, but most are in the Midwest," said a Rockies producer. "TVA is shutting some 3,000 MW, and reports are that 4,000 was shut down in the fourth quarter last year.

"People are saying that these are getting closed down because they are old 60 to 100 MW plants, but that's not the case. All those old dogs got shut down first. There are some big ones, 500 MW and such, and the big question is how much of that will gas get? There are renewables, but gas will get a lot of it," the producer said.

In an unusual development, SoCal Citygate gas prices for Wednesday delivery fell 3 cents to average $2.62, yet SoCal Border points managed to advance 8 cents to average $2.56. A gas buyer for a Southern California independent power producer said, "sometimes Citygate will get outbid by Border if the gas is needed east of California. What is important is the spread from Citygate to some eastern pipe, such as El Paso Permian."

Futures traders honed in on overnight weather forecasts, which proved to be a challenge to meteorologists as "springtime volatility brings some additional chaos into the typical forecast and causes difficulties as plenty of weather systems and oscillations in the jet stream reduce our confidence from what we would find a more stable pattern signature," said Matt Rogers, president of Commodity Weather Group, in the firm's Tuesday morning six- to 10-day outlook.

[Tuesday's] forecast brings some marginally warmer changes to the Midwest and East in the six-10 day and then some cooler to colder changes for the 11-15 day range. In the six-10, the western warm ridging extends a bit more into the Plains and Texas to offer warmer risks and limit eastern cooling abilities, but by the 11-15 day, the western warm ridge flattens and the Hudson Bay low-pressure area sinks a bit farther south to send more cooling back into the Midwest and East again. It is definitely a complicated dance as the Alaskan ridge pattern starts to weaken at this time, too."

Analysts are looking for a place to sell, but they strike a cautionary stance as both cooler weather forecasts and a stronger crude oil market failed to elicit much market response in Monday's trading.

"Within such an environment, we advise selectivity in approaching the short side as we will await rallies in May futures to above the $2.82 level before establishing new shorts," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients. "The market also appears to be moving into a time frame when the longstanding cold weather factor will be removed as a price prop in forcing a greater focus on production that is apt to remain on the increase for a few more months.

"We also believe that the weekly storage data will be packing less pricing punch going forward as deviations from average industry ideas will likely become smaller with the weather factor wrung out of the forecasts for a while. A slight injection [report] is possible on Thursday and could possibly signal an earlier than usual supply bottom that could receive a bearish interpretation. In any event, we still see values ratcheting lower in erratic fashion down to the $2.50 area."

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