Mercados / NGI Mexico GPI

Natural Gas Futures Gain with Support from Hotter June Outlook; Spot Prices Mixed

  • July settles 1.0 cents higher at $2.962; August up 1.1 cents to $2.976
  • “About as slow a day as expected in the natural market” following rally Thursday, says Bespoke
  • Hotter temperature outlook and bullish storage create “most serious test yet of whether resistance can be broken”: EBW’s Weissman
  • Spot prices gain in the West amid upstream restrictions on EPNG

Natural gas futures inched higher Friday in a range-bound session following Thursday’s rally, with hotter June temperatures and a leaner-than-expected weekly storage report continuing to lend support to prices. The spot market saw mostly small adjustments heading into the weekend, with notable exceptions being steep declines in the Northeast and some double-digit gains in the West; the NGI National Spot Gas Average eased 3 cents to $2.57/MMBtu.

The July contract settled at $2.962, up 1.0 cents on the day, though prices were working higher after the settle as afternoon weather data trended hotter. The prompt month traded as high as $2.976 and as low as $2.932 Friday. August settled at $2.976, up 1.1 cents.

“It was about as slow a day as expected in the natural gas market following an active Thursday, though prices into and post settle did catch a bid with afternoon model guidance confirming long-range hot trends,” Bespoke Weather Services said. The winter months leading the gains Friday “is extremely supportive on a technical basis, and coming in a period of seasonal strength could potentially put $3.05 in play” to start this coming week “should long-range heat trend even more intense into the medium-range.”

That said, a foray to the $3.05 area “would likely be a gift to those seeking short exposure, as we see prices struggle to sustain above the $3 level for any significant amount of time unless we are able to continue seeing near-record cooling demand through the month,” Bespoke said.

In the lead-up to Thursday’s 6.7 cent rally for the front month, weather models added an estimated 8.4 Bcf of demand to EBW Analytics Group’s Week 3 outlook period, CEO Andy Weissman told clients Friday.

The hotter temperature outlook, combined with a bullish storage report for the week, “could provide the most serious test yet of whether resistance can be broken,” Weissman said. After the Energy Information Administration’s weekly storage report came in lower-than-expected Thursday “the July contract made a serious run at breaking resistance at $2.98.

“This effort ultimately failed,” he said. “The combination of hotter weather in Week 3 and a bullish storage miss reignited bullish sentiment. A renewed challenge to resistance at $2.98” could occur early in the week ahead, though “the most likely scenario is that resistance will hold at $3 or lower.”

EIA reported a net 96 Bcf build into Lower 48 gas stocks for the week ending May 25, more than the 80 Bcf build recorded last year but less than the five-year average 97 Bcf injection. The year-on-year storage deficit week/week (w/w) shrank from 804 Bcf to 788 Bcf, while the year-on-five-year deficit increased slightly from 499 Bcf to 500 Bcf, EIA data show.

Early indications are that the upcoming EIA report for the week ending June 1 will again see injections fail to eclipse the triple-digit mark, potentially growing deficits in the process.

The Desk’s Early View natural gas storage survey showed respondents on average expecting a 91.5 Bcf build for the period, with a median of 91 Bcf. That’s versus 103 Bcf recorded last year and a five-year average 104 Bcf injection.

As for Thursday’s bullish storage miss, “compared to degree days and normal seasonality a 96 Bcf build appears very slightly tight versus the prior five years by 0.2 Bcf/d,” Genscape Inc. analyst Margaret Jones told clients Friday. “Relative to the previous week, total power generation was up 2 average GWh though thermal generation dropped 1 average GWh.

“Nuclear generation was up almost 3 average GWh, while wind was down 1 average GWh and hydro was up 1 average GWh relative to the previous week,” Jones said. “Gas generation was close to flat w/w with a slight increase of 584 average GWh or an estimated plus-0.1 Bcf/d gas burn w/w.”

Analysts with Tudor, Pickering, Holt & Co. (TPH) noted Friday that warmer-than-normal temperatures have continued to prevent triple-digit storage injections “before new supply comes online.” However, cooling degree days (CDD) surpassing heating degree days (HDD) “at the end of May is consistent with norms.”

While liquefied natural gas exports “remain depressed at around 2.8 Bcf/d, Mexican exports migrated marginally higher w/w and U.S. natural gas production finally breached 80 Bcf/d,” the TPH analysts said. With the Rover Pipeline’s Mainline B cleared for service Thursday “the aforementioned supply ramp (in the Northeast) is imminent.”

In fact, flows on Rover were already starting to increase Friday following FERC’s order, according to Genscape analysts Colette Breshears and Vanessa Witte.

“However, FERC did not authorize Rover to operate the Burgettstown or Majorsville supply laterals, which restricts the addition of new supply to the mainline section,” Breshears and Witte said. “It is not clear if these new supply points are necessary to sustain a higher level of throughput on the pipeline, which Rover had said would increase by an incremental 0.85 Bcf/d if they were authorized in conjunction with the other facilities, or if currently operational receipt points will be able to increase volumes to take advantage of the extra capacity.”

Turning to the spot market, three-day deals in the Northeast saw sharp discounts Friday as hotter temperatures to end the week were expected to cool off over the weekend.

Radiant Solutions was calling for above-normal conditions in the region -- including highs in the 80s and low-90s from Boston to Washington, DC, Friday -- to flip to below-normal by Sunday and Monday, with temperatures averaging in the 50s and 60s.

Algonquin Citygate tumbled 23 cents to $2.48 Friday, while Transco Zone 6 New York fell 50 cents to $2.47. Further upstream in Appalachia, Texas Eastern M2 30 Receipt dropped 11 cents to $2.41.

Deliveries from Columbia Gas (TCO) to Texas Eastern (Tetco) at the Waynesburg interconnect were to be unavailable due to maintenance starting Monday and continuing until Saturday, according to Genscape’s Witte.

“Scheduled deliveries at this location have averaged 266 MMcf/d for the past 14 days,” Witte said. “TCO notified customers in an additional notice that due to this maintenance, the total firm service reduction through ‘Clendenin to Waynesburg’ and ‘Lone Oak A MA41’ is estimate at around 120 MMcf/d for the duration of the event.”

In the West, a number of points across the Rockies, California and Arizona/Nevada regions gained heading into the weekend amid upstream restrictions from a series of force majeures on the El Paso Natural Gas (EPNG) system.

In California, SoCal Border Average surged 19 cents to $2.64, while in Arizona/Nevada El Paso S. Mainline/N. Baja added 35 cents to $2.86.

EPNG declared force majeures Friday due to issues discovered at its Puckett and Wink compressor stations (CS) in West Texas. At the Puckett CS, the operator said it was “experiencing a failure of equipment associated with Unit 1” that would require capacity through the point to be reduced to zero starting Friday and continuing until further notice.

At the Wink CS, EPNG said it identified an equipment failure “due to purchase power transformer failure” requiring capacity through Wink to be reduced to 200,000 Dth/d until further notice.

These latest restrictions come as an earlier force majeure event has been limiting capacity through EPNG’s Cimarron point to zero due to an anomaly identified on its Line 2000. EPNG told shippers Friday that it tentatively plans to resolve that restriction by Tuesday (June 5).

Further upstream in West Texas, El Paso Permian averaged $1.88, up 2 cents on the day after dropping 17 cents the day before.

A number of Rockies points strengthened Friday. Opal tacked on 9 cents to $2.31, while Kern River added 9 cents to $2.30.

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