Physical natural gas gained ground in trading Tuesday for Wednesday delivery. Gains were widespread in the Midcontinent, Midwest and Gulf, with isolated setbacks in the East and West Coast.
The NGI National Spot Gas Average rose 6 cents to $2.54. Cash prices looked content to follow a firm screen, and at the close of futures trading, September had gained 3.5 cents to $2.685 and October was up 3.9 cents to $2.695. October crude oil recovered $1.07 to $39.31/bbl. The Dow Jones Industrial Average appeared on the verge of a recovery, but at the end of the day finished down 205 points to 15,666.
Analysts are looking for near-term robust storage injections, actually exceeding last year's builds. Those, however, are expected to be short-lived, with injections falling behind last year as the injection season winds down.
"Based on the current weather outlook, we expect that the daily storage injections to revert closer to the five-year average. Our analysis suggests that the industry likely built 62 Bcf of working gas in storage for the week ending Aug. 21," said Teri Viswanath, director of natural gas strategy at BNP Paribas, in a Tuesday morning note to clients.
Her figures show this comparing to last year's build of 77 Bcf and the five-year average of 61 Bcf. As of Aug. 28, she expects a plump build of 85 Bcf. "If verified, this weekly stock build would outpace last year's injection of 79 Bcf, or the first outsized injection since the first week in June," she said. "Thereafter, the pace of injections should begin to materially lag last year's build."
Viswanath sees power burn as tempering earlier end-of-season inventory estimates of 4 Tcf and notes that those rosy projections were likely derived from injections running 20% higher than the five-year average for the first four months of the injection season. She estimates an ending inventory of 3.9 Tcf.
"Based on our analysis, utility demand growth will more significantly offset the surplus domestic production, limiting net storage injections for the balance of the season. Consequently, the reduced likelihood that storage capacity will be insufficient this season to store excess supply should prevent an exaggerated sell-off as the industry winds down the injection season."
If Viswanath's projections come to fruition, a healthy chunk of that utility usage is likely to come from the Southeast. Industry consultant Genscape said, "Gas demand for power gen on the Southern Natural system in Georgia has been a major driver of the Southeast/Mid-Atlantic market's strong demand numbers this summer. Georgia is showing its strongest power burn since 2012, outpacing what had been the high water mark for the past five years."
Growth on some portions of the Southern system has been off the charts. "Activity on Southern Natural has proven particularly relevant. Between 2011 and 2012, demand for power experienced significant growth, mostly on the back of nominations to Plant McDonough. Over this time period, nominations ramped up from 7.3 MMcf/d to an average of 238.7 MMcf/d. For 2015, summer to date nominations at McDonough are up 4% to 317 MMcf/d when compared to the same time period last year.
"Of equal importance, nominations to smaller plants for peaking activity have made a resurgence. While sporadic in nature, taken as a whole, these plants represent a significant amount of nominations and have helped demand along the pipeline increase by 13% summer to date."
Prices on Southern Natural and the Gulf firmed. Gas on ANR SE added 4 cents to$2.65, and deliveries on Southern Natural came in 4 cents higher at $2.68. Gas on Columbia Gulf Mainline changed hands a nickel higher at $2.64, and packages on Transco Zone 3 changed hands 6 cents higher at $2.70.
Gas in the Midwest was strong despite temperature forecasts calling for below-normal readings. AccuWeather.com predicted the high Tuesday in Chicago of 72 would rise to 73 Wednesday before making it to 75 Thursday. The normal high in the Windy City this time of year is 81. New York City's 90 degree high Tuesday was anticipated to ease to 85 Wednesday and 82 Thursday. The normal late-August high in New York is 81.
Deliveries to Alliance added 6 cents to $2.82, and gas at the Chicago Citygate rose 8 cents to $2.80. Gas on Northern Natural Ventura was quoted 8 cents higher at $2.69, and parcels at Northern Natural Demarc gained 9 cents to $2.69.
Next-day power prices slumped. Intercontinental Exchange reported Wednesday on-peak power at the PJM West Hub slipped $2.24 to $32.04/MWh, and power at the ISO New England's Massachusetts Hub eased $1.93 to $41.06/MWh.
Spot pricing at some major market centers posted double-digit gains. Deliveries at the Algonquin Citygate vaulted 36 cents to $3.29, but gas bound for New York City on Transco Zone 6 added just a penny to $2.55. Gas at the Henry Hub was seen 6 cents higher at $2.70, and packages delivered to Opal fetched $2.57, or 19 cents more.
Medium-term weather was forecast to warm appreciably. Forecaster WSI Corp. in its Tuesday morning outlook said, "Tuesday's] six-10 day period forecast is even warmer than yesterday's forecast over the northern half of the nation. Portions of the West and southern U.S. are a little cooler. PWCDDs are up 2.3 to 53.6 for the CONUS.
"Forecast confidence is near about average today due to reasonably good model agreement and consistency with the large-scale pattern. There is still some uncertainty and variability due to tropical activity, especially TS Erika in the Atlantic Basin. The forecast might waiver a bit in either direction. It's hard to get temps much warmer than the forecast, but there is a small upside risk across the Southwest, Plains and Midwest. The West Coast, the immediate East Coast and the South have a risk to the cooler side."
In its 5 p.m. EDT Tuesday report, the National Hurricane Center (NHC) said Danny had been reduced to remnants and NHC had turned its attention to TS Erika. Erika was sporting winds of 40 mph and was 605 miles east of Antigua. It was heading west at 20 mph and was projected to move toward Florida and the Bahamas.