October natural gas is expected to open a penny higher Tuesday morning at $2.92 as traders reassess higher power burns and what may be a realignment of supply and demand going forward. Overnight oil markets plunged.

Monday’s 12-cent gain caught a few traders by surprise as fundamentals at first glance don’t appear to support that much, if any, shoulder season price advance. Weather forecasts are moderate and storage is ample, if not burdensome.

Digging a little deeper it appears that increased power burn, even in the face of falling loads is the culprit. “Most of the market was surprised to see the front Nymex natural gas contract up 10 cents as they walked in the door [Monday] morning,” said analysts at EnergyGPS, a Portland, OR-based power and risk management firm, in a Tuesday morning report. “After all, North American load had dropped to fall-like levels after a very hot summer, and there was no heat in the forecast. Saturdays load was expected to be right at the same levels witnessed over the Labor Day weekend. If that materialized, then we could expect natural gas power burns to drop down to 30 Bcf or lower for Saturday and Sunday. That did not happen. Most market participants were surprised to see that the power burns, the major component of summer demand, had only fallen down to 32 Bcf despite a material drop in load.

“Breaking down the power burns by region, we noticed that the East, Midwest and South Central regions had not fallen by the amounts that were anticipated before the weekend started. This indicated to us that there was a material change in the generation supply stack for those regions in order for them to justify the higher power burns.

“We started to check the coal generation monitors only to discover that output had fallen off in many areas to levels not seen since May. MISO led the drop with over 15 GWs of coal generation reductions. MISO was not alone. PJM also joined the party, taking off more than 12 GWs of coal fired generation. Other areas of the country also took coal plants offline. Combined with several other factors, the power burns for this past weekend were 2.5+ Bcf higher than anticipated.

“With this coal generation coming offline, it creates a higher baseline burn rate for natural gas-fired generation this fall and heading into winter. This increase in gas demand directly affects the daily storage injections for the rest of the summer, thereby lowering our end-of-season totals.”

Could this be a game-changer going into the winter heating season? EnergyGPS said this “is just the tip of the iceberg” as far as a changing natural gas supply-demand matrix is concerned.

In overnight Globex trading October crude oil fell $1.13 to $45.16/bbl and October RBOB gasoline fell a penny to $1.3770/gal.