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Northeast Gas Prices Fall; Storage Refill Debate Continues

In mixed physical natural gas trading on Wednesday, a majority of pricing points gained or lost a couple of pennies to a nickel, except in the Northeast, where a number of points dropped by more than a dime, and Algonquin Citygate took a 30-plus-cent plunge. June natural gas futures traded within about a 10-cent range on the day, before closing out the regular session 1.6 cents lower than Tuesday's finish at $4.815, as traders bided their time ahead of Thursday's fresh dose of gas storage news.

Next-day Northeast physical gas prices were the story on Wednesday as the rest of the market action was fairly muted. With temperatures turning more spring-like following the long, cold winter, values dove in the Northeast for the second straight day as physical gas in the region continues to realign with the Henry Hub (see Daily GPIApril 29). Leading the charge lower for Thursday delivery was Algonquin Citygate, which lightened its load by 38 cents to average $4.52. Transco Zone 6 NY shaved off 15 cents to $4.23, and Tetco M3 Delivery was down 11 cents to $4.24. Dominion South declined by 16 cents to average $4.15.

In the Rocky Mountains, next-day gas mostly added anywhere from a couple of pennies to a little more than a nickel. A Rockies producer told NGI that his company’s May bidweek dealmaking had been pretty quiet as it has 70%-plus of its gas hedged. He added that prices remain depressed due to too much gas.

Most gas in the Rockies is still trading at more than a dime lower than the Henry Hub, thanks to a combination of getting the gas out of the region and reduced demand from population centers, which can now pull gas from shale plays that are much closer in proximity. Gas for Thursday delivery at White River added 2 cents to average $4.62, while Cheyenne tacked on six cents to $4.66. CIG added 7 cents to $4.64. Meanwhile, across the country, the Henry Hub slumped 4 cents to average $4.78.

With the development of the Marcellus and Utica shales, Rockies Express Pipeline LLC (REX) has been gauging interest in reversing certain flows on its cross-country system from west-to-east to east-to-west. After receiving upwards of 5.5 Bcf/d in shipping interest from Appalachian producers during a nonbinding open season launched in January for its east end backhaul from Ohio to Illinois, REX announced a binding open season through Wednesday (May 7)  for the 1.2 Bcf/d it has available on the stretch. The capacity at the east end of the 1,698 mile pipeline, or Zone 3, which gives producers in the Appalachian Basin east-to-west access to growing markets in the Midwest, is expected to increase.

Looking ahead at prices, the Rockies producer said all eyes in the market are currently on the storage situation. After more than 3 Tcf were removed during the brutally cold 2013-2014 winter heating season, the race -- and the bets -- are on as to whether domestic production can muster the push necessary to refill inventories prior to next winter.

"The next few storage reports are going to be pretty important to the gas market," he told NGI. "We'll start to get a better picture of whether or not we're filling fast enough to get to 3.5 Tcf by Nov. 1. If we're not on that track, prices will go up until we back off enough demand from the power sector to fill storage."

That said, the producer noted that some of the recent bullish price forecasts are works of fantasy. "First off, I am pretty bearish here, because production is coming from everywhere, whether it be the Marcellus, Utica, Eagle Ford, Permian or somewhere else," he said. "Now, if things align right, we could certainly see $5 gas, but some of these new forecasts for $5.75-6.00 gas are really out there in my opinion. We've just got too much gas being produced."

As for the other side of the coin, he said the storage picture is key. "If we see two triple-digit storage injections before Memorial Day, then prices are going to probe $4 or below pretty quickly."

Taking a closer look at Thursday's storage report for the week ending April 25, it appears most market watchers are gunning for an injection in the mid- to high-70s Bcf. Citi Futures Perspective analyst Tim Evans is looking for a 78 Bcf build, which would be considered bearish compared to both last year's date-adjusted 41 Bcf injection and the five-year average build for the week of 58 Bcf. A Reuters survey of 22 market analysts and traders produced a 62-82 Bcf injection range with consensus pegged at a 75 Bcf build.

"The natural gas market is coming under selling pressure as the weather outlook continues to trend in bearish fashion, as heating demand tapers off and cooling has yet to offset the decline," Evans said early Wednesday. "Storage remains tight after a cold winter, which may limit the decline, but we continue to see significant risk of a cycle of long liquidation, with a break in temperatures triggering a break in price."

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