April contract settles 0.8 cents higher at $2.786 after Monday’s 4.6 cent rally
Guidance maintains cold trends for East this week and next: NatGasWeather
But “calendar works against” further upside, says Powerhouse’s Thompson
SoCal Citygate spikes on new import constraint, forecasts for cold this week
Natural gas futures traded both sides of even Tuesday but ultimately held on to Monday’s gains as weather models continued to advertise cold temperatures in the East this week and next. In the spot market, more import constraints sent SoCal Citygate prices spiking; the NGI National Spot Gas Average climbed 7 cents to $2.75/MMBtu.
The April contract settled at $2.786 Tuesday, up 0.8 cents on the day after trading as high as $2.811 prior to the opening bell. The May contract settled at $2.809, up 0.9 cents day/day.
“We had a strong day Monday, one of the stronger days we’ve had in probably two or three weeks,” Powerhouse Vice President David Thompson told NGI. “Overnight we made a slightly new high” before prices pulled back around 2-3 cents after the open as the market saw “a little bit of profit-taking.”
Heading into the shoulder season, Thompson said he would expect the market to hold above the $2.538 front-month low set in February, with the current rally likely to see a correction prior to summer.
As for further price upside on the latest round of colder trends, “I think the calendar works against it,” he said. “I think the market is behaving quite logically” based on “not a lot of weather stimulus” as cold is unlikely to stick around.
NatGasWeather.com on Tuesday reported “minor changes in the latest midday weather data, but most importantly holding colder trends for late this week as a reinforcing cold shot out of Canada sweeps across the Northeast. The data also held colder trends over the eastern U.S. for the middle of next week as another weather system tracks through, and also was colder March 25-28 as weather system with colder than normal conditions continue across the northern U.S.
“...To our view, colder trends across the northern and eastern U.S. for the second half of March in recent days could have easily been reason enough for prices to rally further, but they have yet to meaningfully do so,” the firm said. “This makes it difficult to know what the main price drivers are since weather patterns have failed to generate much price reaction the past few weeks.” It’s possible “bears are just stalling, regardless of weather patterns, waiting to take prices lower at some point.”
Analysts with the BMO Capital Markets in a note this week pointed to production to explain why the 2017/18 winter has been “a bust” for natural gas prices.
“North American natural gas prices have generated lackluster performance despite a normal winter,” the BMO analysts wrote. “The reason is rising production from associated gas and gas shale plays. We believe that the market will remain well supplied and see little prospect for materially higher natural gas prices.
“We expect Henry Hub prices to remain in a $2.50-3.50/Mcf trading range for the foreseeable future.”
In the spot market, SoCal Citygate followed up Monday’s 91-cent jump with a $2.07 day/day leap Tuesday to finish at $5.49, roughly double other points in the region. SoCal Border Average added 14 cents to $2.62. El Paso S. Mainline/N. Baja added 23 cents to $2.67.
A new restriction to flows through the Southern California Gas Co. (SoCalGas) Southern Zone appeared to be driving this week’s price gains, although the utility on Tuesday announced plans to temporarily increase flows through the zone amid higher demand expected this week.
Citing cold temperatures expected in their service territories this week and next, SoCalGas and San Diego Gas & Electric said they would be increasing capacity through the Southern Zone to 900 MMcf/d until further notice. The utilities said they would also postpone a planned low inventory shut-in for the Honor Rancho storage facility.
“Multiple maintenance events have further restricted SoCalGas’s capacity to import gas and withdraw from storage,” Genscape Inc. told clients Tuesday. “...As a result, SoCal Citygate could be primed for substantial increases later in the week, when another round of significantly colder-than-average temperatures are forecasted to hit the region.”
Prior to Tuesday’s announcement, the restriction to SoCalGas’s Southern Zone -- announced over the weekend -- was expected to cut up to 300 MMcf/d of flows until further notice, according to Genscape.
SoCalGas had previously planned to limit “total firm receipts from El Paso Ehrenberg, North Baja Blythe and TGN Otay Mesa to 708 MMcf/d. In the two weeks prior to this restriction, the three locations averaged 1,020 MMcf/d,” Genscape said, adding that the reduction has been focused at the Ehrenberg interconnect.
Demand on the SoCalGas system has been lower since last Friday, averaging around 2.27 Bcf/d, below the 2.61 Bcf/d winter-to-date average and 3.1 Bcf/d averaged during the prior three week period, according to the firm.
“However, more elevated demand appears to be on the horizon,” Genscape said. The firm’s forecasts for Southern California “for later this week and this weekend are consistent with demand values above 3 Bcf/d.”
SoCalGas’s “extensive use of its storage reserves over the last several weeks has depleted its inventories at non-Aliso Canyon fields, resulting in upcoming low inventory shut-ins at the Honor Rancho and La Goleta fields,” Genscape said. Honor Rancho had been scheduled to shut in for two weeks starting Wednesday, while La Goleta is scheduled to shut in during the month of April.
Meanwhile, a separate one-day maintenance event at the SoCalGas Moreno Compressor station reduced flows through the TGN Otay Mesa point to zero Tuesday, the firm said.
Price changes were mostly small through the middle of the country, as NWS was calling for “mild and mostly sunny” conditions in the central United States through midweek.
Henry Hub finished a penny lower at $2.76. The Midwest regional average finished even at $2.63.
In South Texas, Tennessee Zone 0 South dropped 3 cents to average $2.64, while Tres Palacios gave up 2 cents to $2.78.
Tennessee Gas Pipeline (TGP) plans to conduct maintenance should reduce capacity to its Mexican export locations by 237 MMcf/d until mid-April, according to Genscape.
“The restriction is in place for TGP to conduct repairs on Unit 1A on the Donna Lateral. Normal operational capacity on this line is 582 MMcf/d, but it will be capped at 345 MMcf/d through April 16,” Genscape said. “The work has already affected 222 MMcf/d of TGP exports, but some re-routing via other systems is helping offset this.
“TGP deliveries to Gasoducto Del Rio -- a 330 MMcf/d line that serves power plants in Tamaulipas -- have fallen 79 MMcf/d. However, previous interruptions to TGP exports to Rio Bravo have been offset by increased exports via Texas Eastern Transmission Co., which also gets into the Tamaulipas market.
“At the moment, the event is not impacting Mexican power prices,” Genscape added. “Our Mexico power group is noting northeastern Mexican power prices are actually printing negatives due to congestion resulting from rerouted gas and a cold front causing weak power loads around Monterrey, forcing electrons to move southward.”