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December NatGas Follow-Up to Monday’s Surge Fails to Impress; Northeast Drives Cash Gains

While not as eye-catching as Monday’s advance, natural gas futures nudged higher Tuesday on colder trends in the forecast. In the cash market, another day of hefty weather-driven gains in the Northeast and Appalachia overshadowed declines in the West to push the NGI National Spot Gas Average up 9 cents to $2.95/MMBtu.

The December contract seemed ready to retreat Tuesday morning following the big gap up to start the week. But a two-cent loss turned into a two-cent gain by midday, and December settled up 1.8 cents at 3.152. January added 1.9 cents to settle at 3.251. December crude oil eased 15 cents to finish at $57.20.

The big question Tuesday was how the market would follow up on Monday’s performance, according to Powerhouse’s David Thompson, executive vice president of the Washington, DC-based risk management firm.

The verdict?

“Not all that impressive,” Thompson said. “After a big gap like that, the follow-on is often just as important as the gap is. Will it hold, will it continue to run higher? The market wasn’t quite convinced to hold on after such a strong day” Monday. He pointed to “a little double top action” with Tuesday’s price gaining on the recent 3.166 high from mid-September.

The December contract posted as high as $3.176 Tuesday but settled lower, failing to “punch above” that “old resistance” at 3.166.

“Until we do that, all this just looks like a two-day reaction to the weather revisions. If we can’t get above that high” producers are likely to step in and do some selling at current levels, Thompson said. For the bulk of winter, the market would need to hold above 3.30 “to represent a more bullish sustainment to the move. Otherwise, you could argue we got a little overdone in our sell off toward the end of October, and this is just correcting to the trading range that has held since the summer.”

The December contract rallied after “midday weather data started coming in colder trending for late next week,” said NatGasWeather.com in a note to clients Tuesday. “...The weather data held slightly cooler trends for Monday of next week, but was also colder trending with another system across the northern U.S. Nov. 16-17, especially the” Global Forecast System model. “This also still includes decent potential for another weather system sweeping across the northern United States from Nov. 19-20.

“Essentially, weather systems are expected to track across the northern U.S. every several days with mild conditions ahead of and behind them and chilly conditions as they pass through, but trending colder overall.”

Bespoke Weather Services said it still sees “modest upside” for natural gas even after the rally to open the week.

“American guidance may be overstating bullish risks in the medium-range, but we continue to see sufficient long-range bullish weather risk to expect the December contract to test at least the 3.30 level in the coming weeks, with pullbacks still seen as buying opportunities,” Bespoke analysts said.

In day-ahead trading, the standouts were in the Northeast and Appalachia, where cold moving in later in the week had prices ratcheting higher for the second straight day.

AccuWeather forecasts were calling for lows in the 20s later this week in Boston and New York.

The Northeast regional average climbed 31 cents Tuesday to $3.17, led by Tennessee Zone 6 200L, which jumped $0.78 to $3.31.

Flows into Tennessee Gas Pipeline (TGP) Zone 6 in New England have seen an uptick recently, according to Genscape Inc.

“Flows into Zone 6 on the 300 line are at an all-time high today, with Segment MLV 336 to station 261 importing 153 MMcf/d,” Genscape research analyst Molly Rosenstein said. “Additionally, the Algonquin location Mahwah Mainline (inclusive of TGP’s Mahwah interconnect) skyrocketed over the past week, flowing only 218 MMcf/d this time last week, to 1,191 MMcf/d” on Tuesday.

“This comes at a time when the Mendon/Algonquin Gas Transmission interconnect near Boston is getting less utilization due to the additional capacity through Stony Point, but TGP has better access to New York City markets via the Mahwah interconnect. This could definitely be a key basis driver, as it can compete against Millennium and Transco Zone 6 New York.”

Algonquin Citygate followed Monday’s gains by adding another 75 cents to finish at $3.01. Transco Zone 6 New York added 5 cents to average $3.08 on the day.

Appalachia seems poised to shed its shoulder season lull this week. Dominion South jumped 62 cents to $2.27, while Tetco M-2 30 Receipt added 57 cents to $2.28.

Elsewhere in the market, price action was more muted Tuesday. Henry Hub added 5 cents to $3.08, while Chicago Citygate tacked on another 3 cents to end at $3.08. Prices in the Midcontinent were mixed, though Panhandle Eastern (plus 3 cents to $2.73) and Northern Natural Demarcation (plus 2 to $3.04) both finished in the black.

Prices in the Rockies and California fell; Kern River giving up 4 cents to finish at $2.93 and CIG dropping 5 cents to end at $2.85. SoCal Citygate fell 12 cents to $3.86, and Malin dropped 6 cents to $2.95.

Production continues to increase, driven by growing output from the Marcellus and Utica, according to PointLogic Energy. Analysts modeled dry natural gas production above 76 Bcf/d for Monday, a total that retreated slightly to 75.7 Bcf/d Tuesday.

Dry gas production was down 0.4 Bcf/d from Monday “as declines in the Rockies and Gulf of Mexico are somewhat offset by gains in the Northeast," PointLogic said in a note to clients. "...In the Northeast, gains are led by the Utica, which helped propel the Northeast to a record breaking 26.5 Bcf/d of production.”

The Utica and West Virginia’s wet areas of the Marcellus producing areas “posted best-ever production” while Monday’s 8.8 Bcf/d of dry gas production from the Marcellus region in Northeast Pennsylvania also was a record, according to PointLogic.

BTU Analytics analyst Jake Fells said the growth in output coming out of Appalachia should continue “as producers bring volumes online to meet commitments” on new takeaway projects, including Rayne XPress, the Rover Pipeline, Atlantic Bridge, Access South, Adair Southwest and others. Given a depleted backlog “we don’t think that capacity fills immediately with new production for that reason, and we would then expect that, at least initially, some of the volume on new pipes would be served by redirected volumes off of existing pipes.”

Producers waiting on the new takeaway capacity got some more bad news this week after the U.S. Court of Appeals for the District of Columbia ordered a temporary stay of construction on the Atlantic Sunrise project, which targets Northeast Marcellus production. That followed Monday’s news that TransCanada Corp.’s 1.5 Bcf/d Leach XPress project would be delayed until January, instead of starting up this month.

“We don’t see a delay to Leach materially impacting Dom South pricing this winter,” Fells told NGI. “Our analysis shows that Leach by itself does not help grow production in Southwest Appalachia, but we believe that it is required to realize the full impact of Rayne XPress, which does allow production to grow (621 MMcf/d). If Leach is delayed further, we anticipate that new production associated with Rayne takeaway would be deferred, which wouldn’t necessarily exacerbate the supply situation at Dom South as it stands currently."

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