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Physical Natgas, Futures Take Different Paths; October Slides 3 Cents

Physical natural gas for Tuesday delivery romped higher Monday as traders had to deal with late summer heat expected to bake key Midwest and eastern populations centers. Gains were widespread, with only a small roster of points failing to show gains.

The NGI Daily Spot Gas Average surged 7 cents to $2.53 as forecasters called for temperatures from Chicago to New York to range from 5 degrees to 15 degrees above normal. Futures found no such inspiration, and the October contract dropped 2.6 cents to $2.689 and November fell 3.1 cents to $2.761. All eyes appeared to be on crude oil, with the October contract vaulting $3.98 to $49.20/bbl.

"Crude oil has shown a wicked three-day reversal with people saying it's the biggest three-day rally since Saddam Hussein went into Kuwait,” said Powerhouse LLC Vice President Elaine Levin. “However, last I checked there were no military interventions in the Middle East.”

There was no such drama in natural gas.

"We are looking at the shoulder season with the days getting shorter, and given where we are with storage, I don't think anyone is too worried," she told NGI. "The market has been in a range for several months, and until you decide to leave that range it's difficult to say much.

“On the downside, you have support at $2.55 and the upper end at $3.00, maybe a little above. As long as the market drifts within these defined ranges, it's hard to get excited about the market. No one is concerned about availability this winter."

Others echoed that sentiment. A top energy analyst sees natural gas prices constrained through 2016. "Since U.S. oil and gas prices are not closely linked anymore, it is not surprising that Henry Hubgas prices have consistently hovered just under our $3.00/Mcf forecast while oil prices have crashed and burned," said analysts with Raymond James and Associates Inc. on Monday (see related story).

They see infrastructure improvements and continued Marcellus Shale growth as more than offsetting production declines driven by price changes.

"The problem is that falling gas extraction costs and stubbornly low industrial gas demand growth means our 2016 gas price decks of $3.55/Mcf and our long-term deck of $3.75 is too high. Put simply, there is plenty of U.S. natural gas to meet rising demand at prices of $3.25 (or possibly lower) for the next five years," the firm said.

"Sure, oil-directed U.S. rig count decline is having some slowing effect on the pace of associated gas supply growth, though not as much as some would have expected. The bigger issue is that estimated Marcellus growth (about 1.5 Bcf/d) combined with soon-to-open pipeline takeaway capacity (of which we have identified about 4 Bcf/d) is set to more than compensate for price-driven associated gas production declines elsewhere.

"On the gas demand side, power generation and exports to Mexico have been strong, but industrial demand has been consistently much weaker than we (and most) have modeled. Of course, liquefied natural gas projects should help in 2016/2017, but there should still be more than enough gas at $3.25/Mcf to satisfy this growth. The bottom line is that we think readily available Marcellus/Utica gas supply will keep a lid on U.S. natural gas prices well into 2016. While there are reasons to believe that the demand picture will look more encouraging in 2017 and beyond, the industry's ability (and willingness) to deliver low-cost supply represents an offset to any gas demand resurgence."

At eastern points, next-day gas staged dollar plus gains. At the Algonquin Citygate Tuesday packages surged $1.18 to $3.75, and at Iroquois Waddington gas changed hands 7 cents lower at $3.13. Deliveries to Tennessee Zone 6 200 L jumped $1.02 to $3.58.

Gas on Tetco M-3 added 22 cents to $1.26, and packages bound for New York City on Transco Zone 6 gained a healthy 86 cents to $2.78.

"July-like heat and humidity will continue around New York City for the first week of September,” said AccuWeather.com meteorologist Dave Samuhel. “High temperatures will exceed 90 degrees F nearly every day this week [and], with several consecutive days of at least 90 degrees in the forecast, this will mark a heat wave for the region."

Hurricane Erika over the weekend lost the battle with the mountains of Hispaniola and degenerated into a tropical rainstorm.

"Flooding downpours will continue to spread from Cuba to Florida, grazing the Bahamas in the process,” said AccuWeather.com meteorologist Kristina Pydynowski. “In addition to flash flooding, mudslides are a serious concern in the mountains of Cuba. Rain totals of two to four inches can be expected along the coast and into central Florida, with widespread one to two inches across the Southeast and the rest of Florida.”

Monday afternoon Hurricane Fred was pummeling the Cape Verde Islands in the far eastern Atlantic. The National Hurricane Center in its 5 p.m. EDT Monday report said Fred was 165 miles north of the southernmost Cape Verde Islands and was holding winds of 80 mph. It was moving to the northwest at 12 mph.

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