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Northeast Natural Gas Decline Leads Broad Retreat; September Drops A Nickel

Physical natural gas for weekend and Monday delivery slumped in Friday's trading as traders were reluctant to commit to 3-day deals in spite of weather forecasts calling for above normal temperatures in populous eastern markets.

The softer physical market is also not surprising ahead of the uncertainty surrounding Aug. 1 initiation of east-to-west flows of gas on the REX Zone 3 expansion out of the Marcellus (see Daily GPI, July 26). The overall physical market fell 11 cents to $2.54, and losses were widespread, with nary a point making it to the positive side of the trading ledger. The Northeast led the charge lower, but many points posted losses of a dime or more.

Futures trading was equally uninspired with the September contract falling 5.2 cents to $2.716 and October giving up 4.8 cents to $2.749. September crude oil shed $1.40 to $47.12/bbl.

Midwest points squarely in the cross-hairs of the nascent east-to-west migration of gas, skidded more than a nickel in spite of temperature forecasts calling for above-normal temperatures. AccuWeather.com predicted that the high Friday in Chicago of 86 degrees would ease to 84 Saturday before falling to 83 Monday. The seasonal high in the Windy City is 83. Milwaukee's 85 high on Friday was seen easing to 83 Saturday before falling further to 81 Monday. The normal high in Milwaukee in late July is 80.

Gas on Alliance for the weekend and Monday shed 8 cents to $2.81, and deliveries to the Chicago Citygate also fell 7 cents to $2.82. Gas on Northern Natural Ventura skidded 7 cents to $2.75, and packages at Northern Natural Demarc changed hands 8 cents lower at $2.74.

A flood of natural gas that will exit Appalachia for the Midwest when Rockies Express Pipeline (REX) brings online new reverse capacity in its easternmost segment (Zone 3) is expected to rearrange markets around much of the continental pipeline network. That shakeup will begin Aug. 1 when REX starts up its East-to-West expansion to add 1.2 Bcf/d of incremental westbound capacity from its easternmost point in Clarington (non-Tenn), OH, to Moultrie, IL.

New England points exhibited similar market behavior to Midwest points as stout weekend declines were observed in spite of forecasts of above-normal temperatures. AccuWeather.com predicted that the Friday high in New York City of 89 degrees would rise to 90 on Saturday and Sunday, 6 degrees above normal. Washington, DC's Friday high of 93 was seen falling to 91 by Saturday before advancing to 96 Monday. The normal high in the Nation's Capitol is 88.

Deliveries to Tetco M-3 fell 6 cents to $1.44, and gas bound for New York City on Transco Zone 6 skidded 68 cents to $2.17.

New England locations put in some of the day's largest declines. Gas at the Algonquin Citygate fell 23 cents to $1.96, and deliveries to Iroquois, Waddington were seen 9 cents lower at $2.93. Gas on Tenn Zone 6 200L fell 28 cents to $1.86.

Analysts see the market digesting "another downsized storage injection in next week's EIA (Energy Information Administration) release that should emanate from this week's broad-based hot temperature trends," said Jim Ritterbusch in a note to clients Friday. "The recent expansion in supply surplus against five-year average levels that has stretched to 85 Bcf should stall prior to a renewed stretch beyond next week's data. Meanwhile, production is failing to show the strong year over year growth that we had expected earlier this summer. At the same time, further weakening in nearby gas futures toward the $2.65 level could trigger additional switching to gas and away from alternatives. Overall, we continue to see a reasonably close balance between supply and usage as the current supply surplus is far from oppressive at and could easily be reduced significantly with the first significant storm event into the GOM [Gulf of Mexico]."

Ritterbusch said he is standing aside the market at present but senses a "test of low side parameter of $2.65 increasingly likely if cool temperature outlooks stretch beyond mid-August"

Weather forecasts continue to call for oppressive heat and humidity over the Southeast and southern plains.

"Fresh weather data continues streaming in and it maintains a very warm to hot pattern over much of the U.S. through the middle of next week over the western, southern, and eastern U.S.," said Natgasweather.com in an update at noon Friday. "This will continue to drive fairly strong short term cooling demand, including over Texas and the South where highs in the upper 90s to 100s will again combine with high humidities to push the Heat Index into uncomfortable levels. The hot ridge will remain relatively stationary through much of next week apart from weather systems tracking across the Great Lakes and northeastern U.S. with showers and cooling, which will result in less national cooling demand compared to this week."

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