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Lower 48 NatGas Cash Weak, But Canadian Prices Go Negative; October Drifts Lower

Neither the physical or futures natural gas markets could gain much traction in Tuesday's trading, and soft pricing in the Midcontinent, Midwest, California, and the Southeast of a few pennies to a nickel lower were trumped by double-digit declines in Appalachia and the Northeast. The NGI National Spot Gas Average fell 6 cents to $2.65.

Futures trading was equally uninspired and at the close the soon-to-expire October contract fell one-tenth of a cent to $2.918 and November rose 1.2 cents to $3.00. November crude oil skidded 34 cents to $51.88/bbl.

Western Canadian markets were in a pickle.

"At AECO you have all kinds of problems," said Jeff Richter, principal with EnergyGPS, a Portland,OR-based energy risk management firm. "There are all kinds of constraints going on that they need to shut off production. There are bottlenecks all over the place and they are stranding gas. That market point will have to send a price signal and three weeks ago $C0.45/Gj didn't do it so you had to go to $C0.25.

"If $C0.25 doesn't do it you have to go to $C0.05, and if that doesn't do it, you have to go to negative because everything is getting pushed back there from maintenance.

"GTN is having maintenance and that is going to push a half Bcf/d back into AECO, and intra provincial maintenance is going on. The last three weeks AECO has been getting hammered. They came out of it a little bit, but to send a negative price signal there just sends a signal 'I've got to turn you off'," said Richter.

Negative pricing is a first. "NGI began offering NOVA/AECO C pricing in March 2002. In the more than 15 years since, NOVA/AECO C has never before traded in the negatives. In today's trading, prices ranged from negative 29 cents to positive 55 cents $CDN/Gj averaging just 8 cents," observed NGI Market Analyst Nate Harrison.

In the Lower 48 gas sellers didn't have to worry about extreme congestion, just low next-day spot power prices. At the Indiana Hub Intercontinental Exchange reported on-peak Wednesday prices slumped a stout $28.62 to $42.18/MWh and on-peak power at the PJM West terminal skidded $10.25/MWh. At the ISO New England's Massachusetts Hub next-day on-peak power fell $1.20 to $52.66/MWh.

Gas at the Algonquin Citygate shed 32 cents to $3.03 and deliveries to Iroquois Waddington fell 11 cents to $2.97. Gas on Tennessee Zone 6 200 L was quoted 31 cents lower at $3.02.

Gas bound for New York City on Transco Zone 6 fell a dime to $2.94 and deliveries to Tetco M-3 changed hands 17 cents lower at $1.44. Packages on Dominion South fell 15 cents to $1.30.

Elsewhere declines were more benign. Gas at the Chicago Citygate fell 7 cents to $2.88 and gas at the Henry Hub gave up 2 cents to $2.95. Marketers trying to move gas out of Transco Zone 4 saw steady quotes at $2.95, and gas on Panhandle Eastern was quoted 7 cents lower at $2.51.

Deliveries to Opal were seen 4 cents lower at $2.52, and gas at Malin fell 3 cents to $2.56. Parcels priced at the PG&E Citygate dropped 8 cents to $3.16 and gas at the SoCal Citygate lost 8 cents as well to $3.00.

Traders noted an early test of recent lows and thought "the establishment of lowest levels in more than two weeks early in the day further suggests a test of support at the $2.88 level," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Tuesday.

"While we look for this support to hold into Thursday's Energy Information Administration release, we feel that the report is more apt to indicate a bearish rather than a bullish figure. While we are looking for about a 65 Bcf injection, a 70 handle could briefly push values to below our expected support that has been formed by a shelf of triple lows this month.

"Bearish impetus remains driven largely by a stronger than expected production pace as well as a shift toward mild temperatures that now stretch through the first third of next month. While most outlooks have swung back in favor of above normal trends, such patterns don't necessarily equate to a sizable upswing in cooling degree days (CDD) during the fall period."

"[Tuesday's] six- to 10-day forecast is even warmer than yesterday's forecast for much of the central and eastern U.S.," said forecaster WSI Corp. in a morning report. "The West is much cooler.” Continental United States (CONUS) population-weighted CDDs “are up 1.2 to 18.4.” CONUS gas-weighted heating degree days “are down 1.2 to 11.7, which are 17.9 below average.

"Overall forecast confidence is average, and the forecast has room to deviate in either direction given the model spread. The West has some cooler potential, while the central and northern U.S. has some warmer potential based on the ECMWF.

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