Cash prices fell between 5 and 20 cents at most locations across the U.S. on Monday in response to slightly moderating futures prices and somewhat lower temperatures outside the Southeastern quadrant of the nation where the heat continued to push mercury into the low to mid 90s. However, some locations, such as Algonquin Citygate and Niagara in the East, MichCon in the Midwest and San Juan Basin points in the West, saw even larger drops.
"It's a little bit cooler than we saw last Thursday and Friday in the Northeast," said a New England marketer. "Temperatures have backed off somewhat. Fixed pricing has calmed down at least slightly. Nonetheless, it was still a pretty robust day of trade. Cash at the Henry Hub was still holding a premium to futures.
"We're still seeing very good power generation demand in New England although temperatures have dropped between 15 and 25 degrees from their highs set on the weekend. The rest of the week, it looks like temperatures will be somewhere around normal maybe slightly below normal before we get another blast of summer that smacks us next weekend." He said prices at many Northeastern points were off on average about 10-15 cents, while Gulf Coast locations posted smaller declines of 5-10 cents.
In the futures market, the September natural gas contract ended down 4.8 cents to $9.540, but posted a low of $9.38. The September crude oil futures contract lost 59 cents to end the day at $66.27. Meanwhile, Henry Hub cash prices averaged around $9.52, down about 6 cents.
Some analysts were suggesting a possible top forming on natural gas futures unless some new bullish news can be found, such as a hurricane. Hurricane Irene veered northeast and away from endangering the coastline while Tropical Depression Ten about 750 miles east of the Leeward Islands remained poorly organized and unlikely to develop into a tropical cyclone, the National Hurricane Center said.
"We don't know if this is the start of the larger reversal we have been looking for, but with the markets both overvalued and overbought, we continue to see potential for sharp declines," said Tim Evans, a futures analyst with Thomson Financial.
The heat is expected to return to the East and West coasts by the weekend. The National Weather Service said in its six- to 10-day forecast that it is expecting above normal temperatures over the eastern third of the nation and along the West Coast and over the Southwest, with below normal temperatures expected over the Rockies and western portions of the Upper Midwest.
However, the short-term break in the heat at some locations Monday, particularly in the Northeast, helped undermine pricing values. "We have about 85 degrees here in New York today and should see that or a little lower through the rest of the week so you would expect cash to soften a little bit," noted a Northeastern marketer. "Basis should be a little bit weaker with the lower temperatures this week, but as for the value of Henry Hub cash, that will all depend on where the September contract goes."
He noted that there have been a number of bottlenecks at some pipeline locations. "A lot of the interconnects coming into Transco have been tied up because the prices have been so high," he said. "People are desperately trying to take advantage of these high prices."
However, a Canadian producer said a lot of buyers have been trying to avoid this market. "People will be holding off, trying not to buy storage gas, or really any gas at all for that matter, this week because prices are so high," he said.
A local distribution company buyer confirmed that. "We've been staying out of the market so far this week. But who knows what this market is going to do? We could be making the wrong choice. With our baseload supply and where we are in storage we should be okay for a little while. We are hoping prices come down a little bit. We can put this off until September if we have to."
Like many other LDCs, he would like to have storage nearly full by the end of September so that there is more flexibility to rely on only baseload gas in October rather than spot purchases. "October should be a neutral month in terms of storage fill," he said.
"It's not like we've cut our purchases to zero right now. We are still buying a certain amount of baseload gas, and we'll have that going in September, but there is more that we could buy day to day. We target roughly 20% of our requirements, between storage and market, to buy in the day market. We have a plan and we will try to stick to it. But these prices are difficult to swallow."
Another utility mentioned transportation restrictions at Niagara as a minor concern on Monday. "At the Niagara meter a lot of people have seen that there's a price difference there -- it's a little cheaper to bring gas in -- so they are trying to bring in as much as they can and that is forcing the pipeline to restrict activity. But there also are some restrictions in the Gulf Coast supply area and that could be for similar reasons. Thankfully there are no other major transportation problems right now that could help push prices even higher."
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