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Natural Gas Demand in Florence’s Path of Destruction as Futures, Spot Prices Fall

The prospect of demand destruction from Hurricane Florence as it hammered the Carolinas Friday helped send natural gas futures lower, although not enough to break below the recent trading range.

Gas traded for weekend and Monday delivery saw discounts throughout most of the Lower 48 as Florence pressured prices in the Southeast and Mid-Atlantic; the NGI National Spot Gas Average dropped 7 cents to $2.54.

The October Nymex futures contract sold off early in the day before settling a nickel lower Friday at $2.767. The November contract dropped 4.9 cents to $2.751, while January dropped 4.7 cents to $2.934.

“Despite volatility through the week the October contract settled just a cent lower from last Friday, fitting our neutral weekly sentiment well as resistance from $2.85-2.88 held and $2.75 support was only tested Monday,” Bespoke Weather Services said. “We continue to like this trading range short-term, though note that if anything today’s price action seems to indicate a bit more short-term downside towards at least $2.75 early next week on any Florence demand destruction and lingering cash weakness like we saw” Friday.

“Should burns really loosen over the weekend from Florence, we could even see a test of $2.70-2.71, but we see that as relatively unsustainable given current low stockpiles and burns that before the hurricane were increasingly tightening,” Bespoke said.

As of 5 p.m. ET Friday, Florence had weakened into a tropical storm as it churned about 50 miles west-southwest of Wilmington, NC, dropping catastrophic amounts of rainfall and carrying maximum sustained winds of 70 mph, according to the National Hurricane Center (NHC).

Florence was “moving toward the west near 3 mph,” NHC said Friday afternoon. “A slow westward to west-southwestward motion” was expected through Saturday, and on the forecast track, the storm’s center was likely to move farther inland across extreme southeastern North Carolina and across extreme eastern South Carolina through Saturday. The storm then was likely to “move generally northward across the western Carolinas and the central Appalachian mountains” after the weekend.

As of Friday afternoon, Duke Energy was reporting more than 400,000 customers affected by power outages in its Carolinas service territory, with coastal areas of North Carolina the hardest hit. The Charlotte, NC-based utility had warned earlier in the week of anywhere from one to three million customer outages due to the storm, predicting that restoration work could potentially last weeks.

Early signs of Florence’s natural gas impact were already emerging as the storm made landfall Friday.

“Sample demand for North Carolina is down to 1,238 MMcf/d, a drop of about 439 MMcf/d from Thursday,” Genscape Inc. senior natural gas analyst Rick Margolin told clients Friday morning. “The drop is almost entirely concentrated on Duke Energy Carolinas power plants on Transco (Duke has eight gas-fired power plants throughout the state).”

Margolin also noted that Duke had shut down its 1,980 MW Brunswick nuclear plant in advance of the storm’s arrival.

“South Carolina nominated demand appears relatively unaffected as the storm is coming in a bit to the north,” he said. “However, cooler temperatures and storm preparations are contributing to Virginia sample demand dropping about 300 MMcf/d day/day to fall to 1,701 MMcf/d.”

Meanwhile, even as Florence’s looming presence seemed to overshadow the usual discussions of weekly inventory data, an on-target storage report from the Energy Information Administration (EIA) Thursday left the market with more to ponder as the injection season rapidly draws to a close.

EIA reported a 69 Bcf build for the week ended Sept. 7, slightly above major surveys but lower than both the 74 Bcf five-year average and the 87 Bcf injection recorded in the year-ago period.

“Weather-adjusted, the market is about 2.0 Bcf/d oversupplied, marking the third straight week the market is oversupplied,” analysts with Tudor, Pickering, Holt & Co. said Friday. “U.S. production is now at 83.3 Bcf/d with Northeast production rising about 300 MMcf/d week/week (w/w). Since the end of June, Northeast production has increased around 2.0 Bcf/d.”

Genscape analyst Margaret Jones viewed the 69 Bcf build as “about 2.1 Bcf/d loose versus the five-year average. This includes an estimated 9 Bcf demand impact from the Labor Day holiday.

“Relative to the previous week, total power generation was down almost 12 average GWh,” Jones said. “Collectively, nuclear and renewable gen were down about 13 average GWh w/w as wind gen was down almost 12 average GWh and hydro generation was also down 1 average GWh w/w. Coal was up around 4 average GWh w/w, and gas generation was down around 4 average GWh for an estimated 0.7 Bcf/d less gas burn w/w.”

Turning to the spot market, as Florence plotted its slow path of destruction through the Carolinas Friday, points across the Southeast and Mid-Atlantic fell.

Transco Zone 5 shed 10 cents to $2.83, while Dominion Energy Cove Point tumbled 12 cents to $2.85.

Friday’s discount saw Transco Zone 5 trade 2 cents back of Henry Hub, a relatively uncommon flip to negative basis for the point after Henry Hub shed 8 cents to $2.85.

For most of the summer, Transco Zone 5 -- extending from the Georgia/South Carolina border to the Virginia/Maryland border -- has traded at a premium to Henry. Prior to Friday, spot prices at Zone 5 had averaged a negative basis on only three different trade dates since June, trading a mere penny back of the Hub twice in June and once in August, Daily GPI data show.

Meanwhile, just last month, Zone 5 prices accrued as much as a 95-cent basis premium on the Aug. 7 trade date, according to Daily GPI.

Further upstream in Appalachia, Columbia Gas dropped 22 cents to $2.47, while Texas Eastern M2, 30 Receipt dropped 12 cents to $2.17.

As of Friday, NatGasWeather predicted mostly bearish impacts from Florence as it was expected to make its way inland in the Southeast, bringing rain, cooler temperatures and knocking out power.

“Texas and the South will see areas of showers as a weak tropical system stalls, while a cooler system impacts the Northwest,” NatGasWeather said in its one- to seven-day outlook Friday. “It remains hot over the Southwest with 90s and 100s, while also hot over the Southeast with lower 90s. Warm high pressure will strengthen over the northern half of the country” in the week ahead “with 80s becoming widespread besides the Northwest.”

In South Texas, Tennessee Zone 0 South dropped 9 cents to $2.65.

In the Rockies, prices sold off heading into the weekend as Radiant Solutions was predicting cooler-than-normal temperatures across much of the Pacific Northwest over the next several days. Radiant was calling for highs in Seattle to hover in the mid to low 60s over the weekend and into the week ahead.

Opal gave up 11 cents to $2.12.

Further north, NOVA/AECO C added C13 cents to C$1.38/GJ as Radiant was predicting temperatures in Western Canada to plunge into heating degree day territory over the weekend. The forecaster predicted temperatures averaging around 15 degrees colder than normal in Calgary, including a low of 30 degrees Monday.

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