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Firm Power, Screen Lift Daily Quotes; September Up 8.5 Cents

Spot gas prices for Wednesday delivery moved almost hand-in-glove with rising screen quotes in Tuesday’s trading.

Gains were widespread, and only a few points slipped into the red. The greatest advances were seen in New England and Marcellus quotes, but strong moves were posted in the Great Lakes and Midwest as well as Appalachia. Overall, the market rose 6 cents. At the close of futures trading, September had risen 8.5 cents to $3.877 and October was higher by 8.0 cents to $3.908. September crude oil tumbled $1.48 to $94.48/bbl.

In the Northeast, next-day gas prices rose as Wednesday power loads were forecast to increase and next-day power pricing provided a firm undertone for prompt gas purchases. ISO New England predicted that peak load Tuesday of 17,030 MW would increase to 17,750 MW Wednesday before easing somewhat Thursday to 17,290 MW. The New York Independent System Operator forecast that Tuesday's peak load of 22,164 MW would rise to 22,918 MW Wednesday and slide to 22,417 MW Thursday.

IntercontinentalExchange reported peak next-day power at the ISO New England Massachusetts Hub rose by $2.33 to $35.67/MWh.

Next-day gas at the Algonquin Citygates rose by 9 cents to $2.75, and gas at Iroquois Waddington jumped 37 cents to $3.74. Deliveries on Millennium changed hands at $2.33, up 7 cents.

Forecasters called for warming temperatures across the broad PJM footprint, and next-day power quotes rose. WSI Corp. in its Tuesday morning outlook said, "Generally fair weather is anticipated this week [PJM] into the weekend with a daily threat of scattered showers and thunderstorms each afternoon and evening along a stalled-out stationary frontal boundary. Temperatures run seasonable early on but warm to mostly above normal by late this week into the weekend. Total precipitation runs between 0.50-2.00 inches."

Renewable power generation is also seen subsiding. "Weak wind power generation will be the rule into midweek with relatively benign output forecast (mostly between 1-2 GW). The recent and anticipated wet weather this week will lead to elevated streamflow and favorable hydro prospects throughout the forecast period."

IntercontinentalExchange reported that Wednesday peak power at the PJM West terminal rose $1.83 to $44.10/MWh.

Marcellus and Appalachia points rose, but the Mid-Atlantic was seen weaker. Gas for delivery Wednesday at Transco Leidy rose 29 cents to $2.02, and parcels on Tennessee Zone 4 Marcellus gained 44 cents to $1.88. Columbia Gas TCO was quoted at $3.91, up 10 cents and parcels on Dominion South changed hands at $2.36, up 2 cents.

Gas bound for New York City on Transco Zone 6 fell 16 cents to $2.58, and gas on Tetco M-3 dropped 2 cents to $2.60.

The expansive Midwest Independent System Operator grid was also seen having to endure above-normal temperatures, WSI said. "An upper low straddling the Canadian border elevates the risk of showers and possible thunderstorms early this week, mainly in the east today. Otherwise, sunny skies are anticipated. Another disturbance brings more scattered showers and thunderstorms to the region Wednesday-Thursday. Generally fair Friday, chance of more showers and storms in the west by Saturday. Temps run mostly above normal with highs in the middle 80s to low 90s. Total precipitation runs 0.25-1.00 inches with locally heavier to 2 inches across the Dakotas, Minnesota and the Great Lakes."

Renewable power generation was seen increasing. "Benign wind power generation will continue today with output in the 1-3 GW range. Generation should spike up to around 4-5 GW by midweek ahead of the next cold front approaching from the northwest. Wetter weather in the coming days elevates hydro prospects," WSI said.

Next-day gas across the Midwest and Great Lakes posted solid gains. Deliveries on Alliance added a dime to $3.94 and gas at the Chicago Citygates tacked on 10 cents to $3.94. Next-day gas on Michcon rose 8 cents to $3.96, and packages on Consumers gained 8 cents as well to $3.96.

Weather forecasters for the next week saw an active summer-like pattern. NatgasWeather.com said, "Numerous compact, but warmer, weather systems will track across the US this week with showers and thunderstorms. The southern U.S. will remain quite hot as highs in the 90s surge northward and become widespread over the Plains and Tennessee Valley. The western U.S. will have several weather systems track through with showers and slightly cooler than normal temperatures to counter. While this week will be warmer, there will be enough weather systems tracking across the country with cloud cover and cooler temperatures to again expect another much larger than normal build for next week’s EIA release, albeit leaner than builds of recent weeks.

In spite of a slight tweak warmer to the weather outlooks, analysts see continued downside pressure. "[T]acking on additional price gains this week that might extend beyond the $3.95 level will prove arduous with another sizable storage build highly likely on Thursday," said Jim Ritterbusch of Ritterbusch and Associates in closing comments to clients. "We will be expecting a hike of 84 Bcf that would compare with a five-year average build of 48 Bcf and a 58 Bcf upswing seen a year ago. The sizable deficit contraction will go on and the shortfall against average levels should continue to shrink by about 1% per week on average culminating in a peak supply during November of around 3.6 Tcf.

"Scheduled pipeline expansion in the eastern region will help to keep production elevated in blunting much of the impact of utilities switching away from coal and toward gas within the current environment of sub $4 pricing. All in all, we are viewing [Monday's] lows as highly vulnerable and will expect a price decline this week to as low as $3.65 should our expected storage be realized amidst any further cold movement into the upper Midwest later this month," he said.

Risk managers don't see much near term market movement on the horizon and Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm, advises trading accounts and end users to stand aside. For those with exposure to lower prices he counsels holding on to the balance of a short summer strip (April-October) initiated at $4.20. He also advises those holding a second short summer strip in place at $4.50 to continue holding that as well.

"[I]n the absence of any significant hurricane activity, the gas market is going to have a difficult time mounting any significant rally until we approach the heat season. On a trade basis, we will continue to hold our short hedge positions," DeVooght said in a weekly letter to clients.

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