Natural gas futures gained modestly Tuesday ahead of the Independence Day holiday as small changes to weather guidance left the market to continue weighing near-term heat and storage deficits against surging production.
In the spot market, East Coast points moderated on deals for delivery over the mid-week holiday, while Southern California prices gained ahead of what could prove a tough test for the region’s pipeline system with triple-digit temperatures expected later this week; the NGI National Spot Gas Average fell 6 cents to $2.70/MMBtu.
The August contract added 0.8 cents Tuesday to settle at $2.870, while the September contract added 0.2 cents to settle at $2.846. Front-month prices peaked around noon ET, running up as high as $2.903 before declining through the afternoon to settle closer to even.
“It’s hot out. Everybody knows it,” Powerhouse President Elaine Levin told NGI Tuesday. “That could have contributed to some of the move up earlier in the day, but we just weren’t able to hold onto it. Trading is so thin as everybody’s leaving for the holidays, so I think this is one of those days” where it’s difficult to read too much into price moves due to lower volume.
As for the latest weather data, NatGasWeather said overnight European model guidance heading into Tuesday’s session came in slightly hotter for the July 11-15 period, with the Global Forecast System (GFS) mostly unchanged.
“However, the midday GFS data was a little hotter trending for the middle and end of next week by seeing a slightly stronger ridge extending across most of the country,” the firm said. “Although, both weather models continue to show bouts of modest cooling into the Northeast and where the data could be hotter...No major changes bigger picture as hefty deficits and hot weather patterns battle record bearish production.”
Meanwhile, because of the Fourth of July holiday, the market will have to wait an extra day for the Energy Information Administration’s (EIA) upcoming natural gas inventory report. The data is scheduled for release Friday at 10:30 a.m. ET instead of the usual Thursday timeslot.
The Desk’s Early View natural gas storage survey showed 12 respondents on average expecting EIA to report a 72.8 Bcf build this week, with a range of 57 Bcf to 82 Bcf. Last year, EIA recorded a 60 Bcf build, and the five-year average is a 70 Bcf injection.
Turning to the spot market, deals for delivery over the July Fourth holiday and Thursday saw discounts along the East Coast, where hot temperatures had driven premiums earlier in the week.
Genscape Inc. on Monday said it estimated about 16 Bcf of total Lower 48 demand destruction for the week due to the holiday, and forecasters have been calling for temperatures in the Mid-Atlantic and Northeast region to cool off to slightly below-normal levels by the weekend.
“New York City to Chicago will remain under a strong dome of high pressure the next several days with highs of 90s to near 100 degrees for strong demand, aided by high humidities pushing the Heat Index to dangerous levels,” NatGasWeather told clients Tuesday. “Demand would be more impressive if not for office and business closures due to the Fourth of July holiday.
“The core of the hot ridge is still on track to shift over the western and central U.S. late in the week, allowing a weather system to sweep across the East Friday through Sunday with highs cooling into the 70s and 80s,” the forecaster said. “The hot ridge is expected to re-strengthen across the east-central U.S. next week to dominate most of the country for another surge in demand, although likely to be followed by a second modest shot of cooling into the Northeast around July 14-15.”
Radiant Solutions was calling for temperatures in Boston, New York and Washington, DC, to remain hotter than normal over the holiday break with highs in the upper 80s to low 90s. By Saturday, temperatures along the populated Interstate 95 corridor should moderate significantly, delivering highs in the 70s and low 80s across a number of major cities, according to the forecaster.
Most Northeast and Appalachian points took a tumble Tuesday, with Transco Zone 6 New York plummeting 42 cents to $3.06, while in Appalachia, Texas Eastern M3 Delivery dropped 18 cents to $2.45. Further south, Transco Zone 5 fell 44 cents to $3.06.
Prices also fell across the Midwest ahead of the holiday, with Chicago Citygate giving up 7 cents to $2.76.
In the West, a recipe for price spikes could be brewing at SoCal Citygate as hot temperatures in the region later this week are expected to put pressure on the hamstrung Southern California Gas (SoCalGas) system.
SoCalGas and affiliate San Diego Gas & Electric warned shippers in a notice Tuesday that the utilities were bracing for “warmer temperatures throughout the service territories starting Thursday” and continuing through Sunday.
Radiant Solutions was calling for temperatures in Burbank, CA, to rocket to triple digits by Friday, including a high of 105, about 14 degrees above normal. That’s versus temperatures Wednesday expected to average in the low 70s, with a high of 83.
Energy GPS on Tuesday noted that ongoing maintenance issues have limited import capacity on the SoCalGas system to 2.6 Bcf/d, a situation compounded by the regulatory restrictions on the Aliso Canyon storage cavern following the 2015 leak at the facility that have made it a resource of last resort.
“The problem arises when the temperatures drive heating or cooling load above the available capacity rating of the system,” Energy GPS said. “This past spring has been rather mild with only a handful of days in the LA Basin reaching over 90 degrees. This is about to change.”
The upcoming triple-digit highs will push SoCalGas demand “far above pipeline supply,” the firm said. “They will have to dip into their storage inventory in order to maintain reliable pressures on the system.”
An average temperature of 90 degrees comes out to SoCalGas demand of more than 3.2 Bcf/d, according to Energy GPS, meaning 0.6-0.8 Bcf pulled from storage, a situation “that puts the beleaguered Aliso Canyon storage cavern on deck for withdrawal volume. If that asset is deemed necessary, all other avenues of managing system balances must be exhausted...Prices are likely to break out to higher levels this week as demand response and rationing options get put on the table to manage the pipeline pressures.”
California regulators on Monday ordered SoCalGas to increase the range of working gas volumes at Aliso Canyon, the state’s largest underground natural gas storage facility, from 24.6 Bcf to 34 Bcf "to maintain safe and reliable service."
The California Public Utilities Commission (CPUC) energy division published its summer supplemental report and cited the current "unprecedented level of outages" on the SoCalGas pipeline system as contributing to the need to increase Aliso Canyon volumes.
This comes as “SoCalGas’s total storage inventory is approaching year-to-date highs,” according to Genscape analyst Joe Bernardi. “...The highest system-wide SoCalGas storage inventory in 2018 was 63.84 Bcf on Jan. 1. This past weekend inventories rose above 62 Bcf for the first time since mid-January.
“Aliso Canyon inventories are still estimated to be 24.6 Bcf, meaning that the other three storage facilities operated by SoCalGas are roughly 76% full.”
SoCal Citygate jumped 26 cents to $3.44 Tuesday as prices across the rest of California were mixed. SoCal Border Average added 3 cents to $2.54, while Malin fell 4 cents to $2.37.
Further upstream in West Texas, Transwestern added 13 cents to average $2.20, while Waha gained 3 cents to $2.22.
Maintenance on Northern Natural Gas scheduled for Thursday and Friday was expected to impact about 100 MMcf/d of flows out of the Permian Basin, according to Genscape.
“Northern Natural will be conducting maintenance in Gaines County, TX, affecting operational capacity out of the Brownfield and Mitchell to Gaines groups,” Genscape analyst Vanessa Witte said. “Brownfield will be reduced to 370 MMcf/d from the current 490 MMcf/d, and Mitchell to Gaines will be reduced to 410 MMcf/d from the current 516 MMcf/d.
“Brownfield nominations have averaged 390 MMcf/d for the prior 30 days, while Mitchell has averaged 507 MMcf/d,” Witte said. “This event may not be entirely impactful to northbound flows to the Midwest, as it lies in conjunction with the Field to Demarc operational capacity restrictions that are still in effect. However, while Field to Demarc operational capacity is currently 920 MMcf/d, nominations have been flowing at a steady 1.23 Bcf/d.”