Physical natural gas for delivery Tuesday posted strong advances at most market points on Monday as traders had to deal with near-record power loads in Texas and an ongoing pipeline outage in the upper Midwest.
Only a few points traded in the loss column and gains of a quarter or more were common at Northeast points, but increases in the Gulf and Midwest were closer to a nickel or a dime. California and desert Southwest locations were seen higher by double digits.
Overall the NGI National Spot Gas Average increased by 12 cents to $2.66. Futures traders saw little price action as the market basically held on to gains established in Sunday evening trading. Near term weather models called for warmer temperatures, and at the close September had added 4.4 cents to $2.842, and October was up 4.6 cents to $2.868. September crude oil bounced back $1.09 to $44.96/bbl.
The force majeure declared by Alliance Pipeline last week after a processing plant mistakenly let a poison impurity briefly flow into the export conduit, continues to be in effect (see Daily GPI, Aug. 7). According to industry consultant Genscape Inc., the pipeline "remains in a zero flow state." Alliance runs from Alberta and British Columbia to northern Illinois with no pooling points in between. Genscape indicated that gas deliveries from Canada had been curtailed or diverted and "on the U.S. side, deliveries to key pipeline systems have dropped to zero, namely Vector and ANR. Flows onto Vector and ANR have dropped 858 and 645 MMcf/d respectively since Thursday.
While there has been no indication of when the pipeline might return to service, Alliance on late Monday afternoon announced that it has commenced flaring operations to remove natural gas containing hydrogen sulphide. Flaring operations began at a mainline block valve site near Arcola on the evening of Aug. 9, and will be operating a number of flares at its Alameda compressor station and at the Arcola block valve, both located in southeastern Saskatchewan.
"Flaring operations are progressing and we are clearing the hydrogen sulphide contained in a small segment of our pipeline in a safe, effective manner," said Daniel Sutherland, vice president of commercial operations for Alliance. "Safety is our top priority and crews are following strict regulatory and safety protocols. We are working hard to resolve this matter as soon as possible to minimize the disruption being experienced by our shippers."
The pipeline decided that flaring is the safest method to remove the hydrogen sulphide from its pipeline system and is following regulatory procedures with additional precautionary measures to protect people, the site and the surrounding area.
To replace linepack lost as a result of the flaring process, Alliance said it intends to initiate purchasing natural gas. In addition, Alliance will evaluate the opportunity to purchase additional volumes to assist in the expeditious start-up of the pipeline. Alliance will invite shippers to bid at the beginning of the week, and will commence these purchases prior to restarting the pipeline. Shippers will be asked to contact their customer service representative for further information.
“Despite the major loss of imports along Alliance, most pipelines have been able to successfully make up the difference and are flowing near normal levels,” Genscape said. “There are some major shortfalls, however. ANR is showing paltry deliveries of 13 MMcf/d at its St. Clair location, down from 585 MMcf/d on Thursday."
"That helps the Utica producers a little bit,” said an industry veteran. “All these guys trying to move gas across on REX [Rockies Express Pipeline] gives them a little better pricing, I would think.
"That gas coming west on REX was coming anyway and now it has something to displace. That parking space in front of the Chicago Citygates is now available."
The trader noted that even with a large 2 Bcf/d capacity pipeline such as Alliance out of commission, with current U.S. production in the vicinity of 72 Bcf/d, there “is plenty of gas to make that up."
Gas headed west on REX enjoyed some healthy gains Monday. According to NGI’s Rockies Express Zone 3 Tracker, gas for delivery to Moultrie, IL, on REX rose 6 cents to $2.85, and deliveries to REX at Douglas, IL, added 6 cents to $2.86. Parcels at Lebanon, OH, were seen 3 cents higher at $2.86.
Upstream of REX Zone 3, prices advanced smartly. Deliveries to Transco-Leidy Line added 19 cents to $1.37. Parcels on Tennessee Zn 4 Marcellus gained 18 cents to $1.28, and gas on Dominion South jumped 26 cents to $1.48.
Prices at major hubs gained ground as well. Deliveries to Algonquin Citygate rose 35 cents to $1.79, and parcels at the Chicago Citygate added 3 cents to $2.92. Gas at the Henry Hub was quoted 5 cents higher at $2.85, and deliveries to the SoCal Citygate climbed 12 cents to $3.14.
Futures traders saw heavy volume, but little price action.
"We only had a 3.5-cent range, but the volume was there," said a New York floor trader Monday.
Overnight forecasts turned warmer. MDA Weather Services in its Monday morning six- to 10-day outlook said the forecast “trends warmer versus expectations from Friday, particularly along the northern tier. Above-normal temperatures are now forecast from the eastern Midwest to the Northeast, with 'aboves' in these areas fairly steady throughout the period.
“Above-normal temperatures can also be expected along the West Coast and into parts of Texas, with changes over the weekend reflecting an increase in Pacific influences as the -AO [Arctic Oscillation] trends back toward neutral. While most of the South leans warmer than normal as well, anomalies are weak in that region. Confidence is moderate overall."
Risk managers see an influence from broader commodity market trends.
"Although most of the U.S. is starting to see a slight increase in temperature, more than adequate supplies and general weakness in the commodity markets (especially crude oil) continues to keep the gas market under pressure," said DEVO Capital President Mike DeVooght.
He said the likelihood of a major market move in either direction is remote and counseled trading accounts, end-users and producers to initiate no new positions. "On a trade basis, it's difficult to make a case for a significant move, either up or down, in the gas market at this time. We will continue to stand aside and await future developments," he said in a weekly report to clients.
Some traders aren't waiting for a significant move and will try to capitalize on their weather expertise to capture what they see as a near-term market advance. Weather trader Bespoke Weather Services said it went long Sunday evening "after looking through the most recent weather model guidance and price action.
"We were impressed by the gap up of 4.8 cents from Friday's 5:15 p.m. electronic close, and though we still sit up 1.2% above Friday's pit close we feel that there is more room for prices to run into [Monday] and Tuesday.
"The evening run of the GFS [global forecast system] is the most bullish we have seen in a few days, and we feel the heat along the East Coast has not been entirely priced in yet. Accordingly, we will play for an early week test of the $2.92 resistance level.
"We may add to this position on weakness [Monday] morning if we expect GFS modeling to remain bullish [Tuesday] afternoon. Our stop sits at $2.78, as we will re-evaluate our long position should the gap from this evening be filled during the day…”