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Nymex July Natural Gas Contract Edges Higher Ahead of Wednesday’s Expiration

July natural gas prices treaded water throughout Tuesday’s trading session -- ultimately gaining just 1.6 cents to settle at $2.939 -- as the latest weather data held slightly cooler trends for the first week of July, while maintaining a hot pattern overall for the June 29-July 6 period. Spot gas prices were mixed amid a slew of maintenance events and mild weather on tap for the next couple of days. The NGI National Spot Gas Average edged up 4 cents to $2.58.

The Nymex July gas futures contract saw mostly sideways trading action on Tuesday as traders continued to weigh weather forecasts calling for widespread heat across the country in the weeks ahead against strong production. Genscape Inc. on Monday estimated that volumes remain more than 1 Bcf/d higher than last week’s volumes and are hovering near record levels.

An additional 1 Bcf/d of production growth from this point through the end of the storage injection season would still leave end-of-injection season storage levels at less than 3,600 Bcf, assuming flat year-on-year (y/y) demand and normal temperatures, Mobius Risk Group said.

Indeed, after two bearish storage injections in a row, the market is looking ahead to this coming Thursday’s Energy Information Administration (EIA) storage inventory report. This week’s injection (for the week ending June 22) is expected to be 70 Bcf, which would imply relatively flat year-on-year demand growth and would be consistent with last week’s reported injection of 91, Mobius said.

As for weather details, the midday Global Forecasting System weather data was a little hotter for July 9-11, reflecting a stronger ridge over the East to gain back a few cooling degree days (CDDs), NatGasWeather said. Overall, a bullish pattern is expected beginning late this week into mid-July as most of the country is forecast to see temperatures warm to above-normal levels.

Indeed, high temperatures are expected to reach the 90s and low 100s over the eastern half of the United States, including in major cities from Chicago to New York City. “The core of the hot ridge is still expected to shift to being centered more strongly over the Southwest and Plains around July 6-8, easing hot conditions over the East, but still very warm,” NatGasWeather said.

Meanwhile, the ridge has the potential to spring back strong across the eastern United States around July 10, so “there's a way the data again trends hotter for mid-July and needs close watching,” the weather forecaster said.

Tuesday’s lackluster trading action came as no surprise to many market observers. Before the market opened, EBW Analytics said Nymex futures would likely rebound modestly on Tuesday with support for the July contract established above $2.90. With weather model runs continuing to call for the ridge to start slowly regressing in week 3, range-bound trading is likely to continue unless the expected pattern shift abruptly changes, the firm said.

Friday, however, the EIA is expected to release its monthly production report. “If production continues to grow rapidly, the August contract (which by then will be the front month) could challenge support as low as $2.77 during the first half of July,” EBW said. The EIA has projected that production would grow 1.1 Bcf in July.

Bespoke Weather Services said that current spreads continue to indicate that any short-term heat is likely to be dealt by cash and prompt prices, indicating that any rallies should fail. There are, however, risks surrounding the July contract’s expiry on Wednesday.

“Resistance from $2.97-$3.00 should easily hold without significant additional burn tightening, which is unlikely, while $2.87-$2.90 should temporarily hold until forecasts cool further or production keeps rising. Overall, risk remains to the downside into July,” Bespoke chief meteorologist Jacob Meisel said.

Daily Markets Mixed on Mild Temps, Maintenance

Spot gas prices across the country were mixed as several gas pipelines announced maintenance events planned for the coming days. In the Rockies, Trailblazer Pipeline started maintenance that is cutting about 0.8 Bcf/d of eastward flows of Rockies gas. Trailblazer is replacing pipe immediately downstream of compressor station 601 in Logan County, CO, which necessitates zero flow through that segment through and including June 28. The recent 30-day average is 801 MMcf/d, according to Genscape.

A somewhat analogous zero-flow event occurred on two days in December 2016. At that time, Trailblazer’s deliveries to Natural Gas Pipeline Co. of America and Northern Natural Gas Pipeline in southeastern Nebraska dropped to zero after averaging nearly 600 MMcf/d in the previous month. “However, that event corresponded with relatively mild demand in the downstream markets, and there was neither a notable increase in those pipelines’ receipts from other sources or a significant fluctuation in the downstream basis prices,” such as NGPL-MidContinent and Northern Natural Demarc, Genscape natural gas analyst Joe Bernardi said.

In Tuesday trading for Wednesday’s gas day, NGPL-MidContinent climbed 5 cents to $2.25, while Northern Natural Demarc rose 7 cents to $2.64.

On the upstream side, Rockies production around the Cheyenne Hub is down only slightly, suggesting much of the displaced volumes are finding alternatives. Genscape’s Rockies production estimate for the Green River Basin is down just 20 MMcf/d day/day (d/d) the Powder River Basin is down about 60 MMcf/d (d/d), and the Denver-Julesburg Basin is down about 60 MMcf/d d/d, Bernardi said.

In the southeast, Creole Trail Pipeline released a notice Monday stating that supply from Trunkline at the Gillis Interconnect in Beauregard Parish, LA, was to be shut-in effective immediately “due to delivered gas not meeting specifications.” Creole Trail expects this outage to last until June 27.

Receipts at Trunkline Gillis fell 420 MMcf/d between June 24 and evening cycles for June 26, while total deliveries to Sabine fell 337 MMcf/d over the same time, according to Genscape. Still, June 26 total deliveries of 2.81 Bcf/d are far above the previous month’s average as Sabine just finished downstream maintenance within the last week, Genscape natural gas analyst Josh Garcia said.

Spot gas prices in the region were largely unaffected by the brief maintenance event, with Trunkline W. LA trading at $2.80. The pricing location did not trade on Monday. Trunkline E. LA traded at $2.82 Monday and at $2.81 on Tuesday.

In Texas, the force majeure on El Paso Natural Gas’ Line 1100 in West Texas, between the Guadalupe and Cornudas compressor stations, is now expected to remain in place through July 3. The force majeure was declared on June 18 and has been limiting the capacity of the “GUADLUP” constraint point in west Texas to 863 MMcf/d, a reduction of roughly 90 MMcf/d from the previous 14-day average, Genscape natural gas analyst Dan Spangler said.

Despite the extension, spot gas prices in the region declined. El Paso-Permian next-day gas slipped 3 cents to $1.73, while Waha dropped a nickel to $1.72.

Meanwhile, Genscape also reported that gas exports to Mexico have fallen since setting back-to-back records in mid-June. But they’re getting some help from new flows from the Permian Basin.

Genscape’s model of exports to Mexico -- which uses proprietary, real-time estimates of flows on the NET Mexico system -- shows total U.S. exports set a new record high of 4,626 MMcf/d on June 14, followed by another 4.6 Bcf/d the next day. Shortly thereafter, though, exports fell to as low as 4,193 MMcf/d, primarily due to an ongoing force majeure on the Tennessee Gas Pipeline (TGP) system in south Texas declared on June 14.

TGP does not anticipate resolving the issue until mid-July. As a result, TGP exports through two points to Mexico have fallen to an aggregate 256 MMcf/d, about 55% (200 MMcf/d) below the month-to-date average prior to the event, Genscape said. Gas does not appear to be getting rerouted via other systems, which is consistent with previous south Texas outages.

This is also causing power price spikes in Mexico’s northern power market around the Reynosa and Monterrey markets, it said. Total U.S. exports would be lower were it not for a near coincidental (though smaller magnitude) increase in exports out of West Texas. Gas has begun flowing on a pipeline system serving western Mexico, with feed gas coming from supply that ultimately originates out of the West Texas Permian, where exports have increased to about 433 MMcf/d in the past several days, about 40 MMcf/d above the prior month-to-date average, Genscape said.

Elsewhere across the country, weather forecasts calling for a couple more days of seasonable weather sent prices lower on Tuesday. NatGasWeather said several weather systems are expected to impact the northern United States the next couple days, making for comfortable temperatures and light demand. The southern United States, however, was expected to remain hot, with daytime highs reaching the 90s and 100s due to strong high pressure overhead.

“Heat will intensify Thursday into Friday across the important Midwest and Northeast regions as the upper heat dome strengthens over the eastern half of the country...” NatGasWeather said.

With heat waiting in the wings, prices in those region were mixed. In the Midwest, Chicago Citygate next-day gas inched up a few pennies to $2.75, while Michigan Consolidated tacked on 2 cents to $2.76.

In the Northeast, Algonquin Citygate climbed 3 cents to $2.58, while Transco Zone 6-NY held steady at $2.73. Tennessee Zone 6 200L slipped a penny to $2.61.

Across the border in Canada, spot gas at Nova/AECO C plunged 54 cents to $1.12 as Alberta gas demand has dropped about 280 MMcf/d since the Syncrude Canada upgrader went offline on June 20, Genscape said. The upgrader has the capacity to process 350,000 b/d and features an onsite cogeneration unit with a capacity of 510 MW.

Genscape’s Canadian oil team shows utilization of the cogeneration plant has dropped to just 30%. On the day following the start of the outage, gas demand posted on the Nova Gas Transmission system fell to a 24-day low of 4,252 MMcf/d, compared to the prior 30-day average of 4,529 MMcf/d.

The same Syncrude Canada facility suffered an explosion last March, when generation utilization also fell into the 30% range. The incident resulted in March volumes falling dramatically and led to April volumes of around 20 million b/d due to the outage. That event coincided with flows dropping more than 430 MMcf/d below the prior 30-day average (although slightly warmer temperatures at the time also contributed to the demand drops), Genscape said.

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