Natural gas for weekend and Monday delivery rose modestly in Friday trading as gains in the East, Rockies and California outdistanced flat pricing in South and East Texas and weakness in Appalachia.
The NGI National Spot Gas Average rose 7 cents to $2.72, but futures couldn't muster enough oomph to reach a positive close. At the close, July settled at $3.037, down 1.9 cents after trading at a new high of $3.082, and August slid 1.8 cents to $3.060. July crude oil rose 28 cents to $44.74/bbl.
Surging Monday on-peak power prices on both the East and West coasts provided plenty of incentive to make incremental gas purchases for weekend and Monday power delivery viable. Intercontinental Exchange reported that on-peak Monday power at the ISO New England's Massachusetts Hub rose a stout $11.93 to $34.21/MWh, and power at the New York ISO Zone G (eastern New York) delivery point rose $15.00 to $40.00/MWh.
Gas at the Algonquin Citygate gained 31 cents to $2.42, and deliveries to Iroquois Waddington gained 27 cents to $2.56. Gas on Tennessee Zone 6 200 L added 28 cents to $2.41.
Gas bound for New York City on Transco Zone 6 gained 16 cents to $2.37, but packages on Dominion South added just a penny to $1.87.
The West Coast was little different. Intercontinental Exchange reported that on-peak Monday power at NP-15 jumped $20.59 to $53.59/MWh, and power at SP-15 added $16.58 to $52.43?MWh.
Gas priced at the PG&E Citygate rose 9 cents to $3.17, but deliveries to the SoCal Citygate added 11 cents to $3.25, and gas priced at the SoCal Border Average was quoted 11 cents higher at $2.90. Gas on El Paso S Mainline changed hands 8 cents higher at $2.89.
"It's getting hot and the next marginal megawatt is natural gas,” said EnergyGPS principal Jeff Richter. “You've got to keep sliding up the stack.”
He noted that heat rates are around 14.5 MMBtu/MWh. “It's high but not exorbitant, and kind of right where it should be with the load that's out there."
Gains at other market points were lower. Deliveries to the Chicago Citygate rose a nickel to $2.84, and gas at the Henry Hub added 4 cents to $2.96. Deliveries to El Paso Permian came in 8 cents higher at $2.74, and gas at Northern Natural Demarcation rose 3 cents to $2.73.
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July futures opened off a couple of pennies Friday morning at $3.03, even though weather forecasts remain supportive and market technicians get a new lease on life with Thursday's settle well above $3.
Weather models Thursday overnight maintained the overall pattern of above-normal temperatures but with a high degree of uncertainty. Friday’s six-to-10 day forecast was generally warmer than Thursday’s forecast over the south-central and eastern United States, as well as the West Coast," said WSI Corp. in its Friday morning report to clients.
"The Interior West, Rockies and Plains are cooler.” Continental U.S. (CONUS) population-weighted cooling degree days “are up 0.6 to 56.3, which are 12.8 above average. Given the inconsistency and inherent uncertainty with tropical activity, the forecast has risks in either direction.
“The northern half of the CONUS has generally cooler risks, while the southern states have minor warmer potential."
Thursday's surge above $3 may be a shot across the bow by the bulls. Analysts longer term see the market vulnerable to the upside.
"Underlying fundamentals remain tight with core summer exposed to upside price risk, and core winter 17/18 highly exposed in anything other than a mild winter scenario," said Societe Generale (SG) analyst Breanne Dougherty in a report.
The market, she said, “is seemingly attempting to incentivize production growth with short-term price upside. With mid/small caps now the dominant U.S. producers, SG sees production base as only marginally influenced by 2017 prices; near-term growth should hinge on 2018/2019 contract prices, which are predominantly below $3/MMBtu.”
SG analysts are more positive on the market's post 1Q2018 price view, reflecting the thesis that the market will struggle to bounce back after extended fundamental tightening. Year/year demand growth, residential/commercial, Mexico exports, liquefied natural gas exports all require strong production growth to restore equilibrium to the market in 2018.
"SG's near-term price view, and risk bias, does not reflect a cost of supply methodology,” Dougherty said. Cost of supply is an “appropriate consideration” when assessing long-term equilibrium price for the market, which is reflected in the post-2018 price outlook.
However, she said SG “does not see it as an appropriate measure when assessing near-term price behavior/risk given the extreme vulnerability of the market to weather, the limited elasticity within the market during peak demand periods, the supply skew created by hedging programs, and the lag between price signals and volume response from the now predominantly shale derived production base.”
A revival in production growth and stability “hinges heavily on the messages being provided by the New York Mercantile Exchange curve going forward,” said the SG analyst. “The unlikelihood of a perfectly complemented supply/demand growth profile in the near term gives rise to near-term tightening, but also to backwardation and loose balances in 2019/2020."