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Solid NatGas Cash Gains Outdo Futures; April Adds 3 Cents

With help from the screen, next-day gas put in solid advances across all major market points Tuesday.

Nearly all market points added anywhere from a nickel to a dime and gains were particularly strong in the Gulf Coast, Midcontinent, Northeast and South Texas. The NGI National Spot Gas Average rose by 8 cents to $1.63.

Natural gas futures continued on their upward trajectory. At the close April was up 3.2 cents to $1.851 and May had gained 3.1 cents to $1.945. April crude oil fell 84 cents to $36.34/bbl.

A year ago U.S. working gas storage stood at 1,483 Bcf and by the end of the injection season inventories stood at 3,953 Bcf. By most accounts, the current withdrawal season ended with last week's pull of 48 Bcf to leave ending inventories at a stout 2,536 Bcf. The dominant storage question is where is the industry going to put all the gas queuing up to go into storage over the summer.

The forward curve is the most obvious market method of rationing scarce storage space. As storage becomes in greater demand, the discount between succeeding storage months widens. "We wouldn't see it initially, but what we would see is as the gas is going into storage the expectation would be for October-November or November-December spread would be where the forward carry would show the biggest negative number," said Tom Saal, vice president at FCStone Latin America LLC.

Saal said that with the current October-November differential at 16.5 cents and November-December at 25.5 cents, "it's already priced in. The market is already anticipating it, and as we approach 4 Tcf or higher total storage that spread will get larger. Storage has increased, but maybe not over the last year.

"Last year October-November went out about 18 cents and we had high storage, but from where we are now we will probably have more gas in storage unless we have a hot summer. With more gas in storage, that spread probably has a little room to widen out.

"If we go back to 2009, that spread was almost $1. Total storage was high at about 3.8 Tcf, but since that time we have seen numbers close to that. At that time the spreads were quite rich, and that incentivized people to build more storage.

“Going into next winter we could have more than 4 Tcf in storage and that has already been priced into the market.”

Looking further out, Saal said that October-November of 2017 stood at a 7.1 cents. "There's probably a trade there," he said.

Despite recent market strength, analysts don't see much in the way of bullish factors capable of generating a sustained price advance. "This market appears poised for a pause following the dramatic price decline that has been developing since the winter of 2014," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients.

"We will reiterate that the process of capturing the final 30-35 cents of a $4.50 price decline will prove arduous and could require a few more weeks, especially if production shows any signs of significant slippage. Evidence in this regard has not been seen thus far as output remains elevated by about 1.5-2% above a year ago and is apt to maintain year over year gains through most of this year. About the only bullish consideration that we can cite is the fact that the market has recently become technically oversold and is requiring a significant price advance in order to attract fresh speculative selling.

"But we also feel that the large non-commercial entities have available capital to employ toward bearish strategies with the short-to-long ratio that we monitor at about 1.79 to 1. We usually view a ratio of 2 to 1 as representing the red zone in which the funds are fully allocated toward the short side. With this in mind, the possibility of some fresh three-week highs in today's trade may not see much upside follow-through."

Liquefied natural gas (LNG) export activity continues at Sabine Pass LNG in preparation for full-scale export activities. Industry consultant Genscape said "The Office of Energy Projects has authorized Sabine Pass LNG to continue commissioning activities at Train 1, including the loading systems, meaning limited loading and export of produced LNG for commissioning cargoes. The authorization is in response to Sabine's request on Feb. 24 and supplemented on March 10. In this authorization Sabine will file weekly reports moving forward on the ongoing commissioning activities until the Commission authorizes the commencement of service. These reports have to demonstrate progress in the 'punch list' items needed to show safe and reliable operation of the facility."

The first shipment of LNG from Sabine Pass left late February on the Asia Vision for Brazil (see Daily GPI, Feb. 24).

"Sabine also continues to show progress on Train 2 and its start to commissioning. On Friday afternoon, Genscape's infrared monitors have seen initial commissioning activity begin at the compressor stacks on Train 2. This follows the approval on March 3rd for Sabine to introduce fuel gas to Train 2. Last but not least, the Clean Ocean LNG vessel made its way into the Sabine berth on Friday afternoon to take the second LNG export cargo produced at Train 1. This 3.31 Bcf ship has been waiting out in the Gulf of Mexico.

In physical market trading prices at major market centers rose. Gas at the Chicago Citygates added a dime to $1.87, and packages at the Henry Hub also changed hands a dime higher at $1.78. Gas on El Paso Permian rose 7 cents to $1.62, and deliveries to PG&E Citygate were quoted 4 cents higher at $1.99.

Eastern points firmed. Gas on Texas Eastern M-3, Delivery added a couple of pennies to $1.13, and gas bound for New York City of Transco Zone 6 gained a nickel to $1.17.

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