Physical gas prices for Thursday delivery headed south on Wednesday as moderate weather conditions throughout much of the nation offered little incentive to buy next-day gas. Localized market strength was seen in New England on the heels of ongoing pipeline constraints, but the Mid-Atlantic, Marcellus and Great Lakes all fell anywhere from a nickel to a dime.
Overall, the market dropped 7 cents. Futures markets got some support from a reported flash fire at a gas storage tank in Wyoming. October gained 9.5 cents to $3.911 and November rose 9.6 cents to $3.965. November crude oil gained $1.24 to $92.80/bbl.
Next-day gas in the Great Lakes and Midwest eased as weather forecasts at major population centers gravitated around normal. Wunderground.com forecast that Milwaukee's high of 69 degrees Wednesday would rise to 71 Thursday and reach 72 on Friday. The normal mid-September high in Milwaukee is 68. Chicago's Wednesday max of 72 was predicted to slide to 70 Thursday and Friday, below the normal high for this time of year of 72. Detroit's 74 high on Wednesday and Thursday was expected to reach 75 Friday, somewhat higher than its normal 67.
"High pressure remains in control of the region resulting in extended period of pleasant weather,” said the National Weather Service in Detroit. “The upper level ridge is quite extensive as it consumes the greater part of the Continental U.S. with troughing only over the West Coast."
Next-day gas on Alliance slipped 6 cents to $3.89, and gas at the Chicago Citygates fell 7 cents to $3.89. Packages on Michcon fell 5 cents to $3.94 and gas on Consumers shed 4 cents to $3.96. At Demarcation gas for Thursday changed hands at $3.83, down 7 cents.
Points in New England proved to be the day's big gainers as pipeline constraints continued. Algonquin Gas Transmission said it was restricting a whopping 96% of secondary out of path nominations between its Cromwell and Burrville compressor stations. "No increases in nominations sourced from points west of Cromwell for delivery to points east of Cromwell, except for primary firm no-notice nominations, will be accepted," the company said on its website.
Prices responded accordingly. Gas at the Algonquin Citygates jumped 73 cents to $4.77.
Elsewhere in the East, prices retreated. Gas at Iroquois Waddington fell 7 cents to $3.92 and deliveries to Dominion South shed 7 cents as well to $1.79.
In the Marcellus, gas changed hands on Transco Leidy at $1.84, down 4 cents, and on Tennessee Zone 4, Marcellus gas was seen at $1.73, off 9 cents.
The Mid-Atlantic suffered a double-digit drubbing. Gas bound for New York City on Transco Zone 6 skidded 13 cents to $1.86, and deliveries to Tetco M-3 came in 13 cents lower at $1.85.
Futures got a mid-session boost after a flash fire at a natural gas storage tank in western Wyoming owned by EOG Resources Inc. resulted in the death of one worker and injuries to three others (see related story). One gas well was shut in as a result and was the only impact on processing and other operations in the area.
Further boosts are less likely once the Department of Energy’s (DOE) Energy Information Administration reports on storage builds Thursday. Estimates are swirling around the low 90 Bcf mark, ahead of last year's 81 Bcf injection and a five-year average of 79 Bcf.
Analysts at United ICAP are looking for an increase of 97 Bcf, and First Enercast is predicting a build of 89 Bcf. A Reuters survey of 25 traders and analysts resulted in a sample mean of 94 Bcf with a range of 88 Bcf to 101 Bcf.
Analysts see the only route to higher prices is limiting inventory builds, but that looks to be at least three weeks away.
Tim Evans of Citi Futures Perspective calculates a 92 Bcf increase for Thursday's storage report but beyond that he sees triple-digit builds dropping the year-on-five-year deficit from its current 444 Bcf to 312 Bcf by Oct. 10.
"Expectations for Thursday's DOE storage report for the week ended Sept. 19 are still in flux, but the consensus may have drifted somewhat higher in the past 24 hours from 95 Bcf up to 97 Bcf in net injections,” said Evans. “Our model features a slightly smaller 92 Bcf build, but that would still look bearish compared with the 79 Bcf five-year average refill," he said in closing comments Tuesday to clients.
"This declining year-on-five-year average deficit confirms the market is becoming better supplied on a seasonally adjusted basis, which we consider as downward fundamental pressure on prices," Evans said. "We continue to view these large seasonal storage builds as consistent with a break to new lows in price, with the natural gas market having a much better chance at a seasonal rally once heating demand picks up to a level that starts limiting builds."
Looking at the math, the question out there is will inventories less than last year be enough to cope with another 3 Tcf winter draw? Natural gas inventories currently stand at 2,891 Bcf, and by all accounts robust injections going forward are anticipated.
With seven weeks left in the traditional inventory-building season an assumed 95 Bcf average weekly build brings ending supplies to 3,556 Bcf. Add a couple of more weeks into November at say a 90 Bcf average overall and the industry enters the heating season with 3,701 Bcf. Last year season-ending inventories tallied 3,816 Bcf.
Evans suggested working an order to buy November on a limit order at $3.73 then working an initial protective sell stop at $3.48 to limit losses on the trade.