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Eastern Gains Buoy Sluggish Market; Firming Futures Held to Sub-$4

For the most part, physical natural gas prices for Wednesday delivery traded within a penny or two at most locations Tuesday. Eastern points did post some double-digit gains as power prices worked higher and loads either held steady or increased slightly.

Weather forecasts showed only nominal changes from seasonal norms. Overall, the market was down a penny. Futures prices still remained under $4 but managed to regain some of Monday's losses. Traders see the market as mired in its longstanding trading range. At the close November had added 5.9 cents to $3.957 and December was higher by 6.5 cents to $4.052. November crude oil shed $1.49 to $88.85/bbl.

Firm power pricing and steady power loads provided a strong undertone for gains in the East and Northeast. The PJM Interconnection predicted that Tuesday's peak power load of 31,706 MW would rise to 32,179 MW Wednesday and ease to 31,007 MW Thursday. The New York ISO forecast Tuesday's peak load of 19,052 MW would stabilize at 18,957 MW Wednesday before sliding to 31,007 MW Thursday.

Next-day power prices rose. IntercontinentalExchange reported that peak power Wednesday at ISO New England's Massachusetts Hub rose $2.80 to $38.75/MWh and peak power at the New York ISO Zone A (western New York) added $3.81 to $38.11/MWh. At the PJM West terminal Wednesday peak power eased 77 cents to $41.25/MWh.

Weather systems across New England and the Mid-Atlantic were expected to be active, but maximum temperatures were seen close to seasonal norms. The National Weather Service in New York City said, "a frontal system will strengthen and move across the tri-state area overnight. This system will move into the Canadian Maritimes on Wednesday with weak high pressure building in from the west. The high will build to the middle Atlantic coast on Thursday...and move offshore Thursday night as a stationary front sets up from the Southern Plains to the Ohio Valley and middle Atlantic coast. Weak low pressure will move east along the front...passing just to the south on Saturday. High pressure will build in its wake for Saturday night and Sunday. Another frontal system could impact the area early next week."

Forecaster Wunderground.com predicted that Tuesday's high in Boston of 74 would ease to 71 Wednesday and drop to 63 Thursday. The normal high in Boston is 65. Providence, RI's high Tuesday of 73 was seen dropping to 70 Wednesday and 63 by Thursday. The normal early October high in Providence is 66. New Haven, CT's 72 high on Tuesday was expected to ease to 70 Wednesday before sliding to 65 Thursday. The normal high in New Haven is 63.

At the Algonquin Citygates, packages for Wednesday delivery rose 45 cents to $3.21, and gas at Iroquois Waddington gained 23 cents to $3.85. On Tennessee Zone 6 200 L, next-day gas was seen at $3.37, up 25 cents.

Prices also firmed in the Marcellus. Deliveries to Millennium rose 9 cents to $1.89, and on Transco Leidy next-day gas came in at $1.79, up 2 cents. Gas at Tennessee Zone 4 Marcellus advanced 3 cents to $1.71, and on Dominion South Wednesday parcels were flat at $1.78.

In the Mid-Atlantic, gas bound for New York City on Transco Zone 6 was flat at $1.86, and on Tetco M-3 Wednesday gas was seen at $1.81, down 3 cents.

In far west producing regions, prices moved only pennies in spite of significant maintenance. Genscape reported that "El Paso maintenance at the Bondad Station in South Colorado will disrupt nearly 100 MMcf/d of flows out of the San Juan Basin Wednesday. Mechanical inspections will reduce Bondad throughput capacity to 568 MMcf/d from its normal 745 MMcf/d.

"During the past 14 days flows through Bondad have averaged 662 MMcf/d, including a peak of 731 MMcf/d on Oct.1. Similar capacity restrictions at Bondad this past May and September 2013 disrupted roughly 100 MMcf/d of flows. During the past events, receipts from downstream processing plants increased to make up for the lost volumes."

Gas on El Paso Permian was quoted unchanged at $3.77, and deliveries to Waha gained a penny to $3.80. On Transwestern, San Juan next-day gas traded a penny higher at $3.76, and El Paso Non Bondad was flat at $3.76.

Joe Bastardi of WeatherBELL Analytics in his November forecast is calling for a very benign month with normal temperatures in all population centers and only isolated occurrences of above-normal temperatures in the far Northern Plains. As part of that forecast Bastardi is incorporating 1976 as one of his analog years. One of the most brutal winters on record.

"Here is the problem. The years that make up the analogs include 1976. I am not yet ready to swing to that extreme of an idea, but it's not like the blend is likely to work. It's either going to go one way, toward some real warm samples of that analog or to the colder analog," he said in a Tuesday morning note to clients.

"I need to see another big crash in the SOI [Southern Oscillation Index, i.e. El Nino indicator] before I can jump on a colder scenario. In 1976, the SOI (I am talking about that because the forecasted Sea Surface Temperatures for winter look very much like it) and the Pacific hurricane season has been very similar to this year. If we look at 1976 as a possible hint as to how this turns out, we see [that] there was a rise October into November and then the fall came. I am looking for the fall to start later this month again or in November, as the ECMWF [European model]. Weeklies show pressures rising over the western Pacific and falling in the central Pacific. This should bring the warmer sub-surface waters to the surface in ENSO 3.4. This has been a mainstay of our idea."

Bastardi cautioned that "...until I actually see the fall of the SOI, I am staying in the middle and keeping continuity with the November idea. November is a tough month to forecast as it is, but I suspect that we will see evidence one way or the other. The threat here is that we start turning very cold later in the month and then December is very cold. Again, we are not changing the forecast, but I am laying the foundation of my thoughts so you know what is on my mind. The Spirit of '76 is lurking, but at this time it is just one in the entire package."

If extreme cold were to surface, it would be met head on with increased production. According to Teri Viswanath, director of trading strategy for natural gas at BNP Paribas, "Despite known pipeline constraints, newly connected wells in the Marcellus and Utica shale plays contributed to continued supply growth this summer, with total dry gas production averaging 70.4 Bcf/d in July according to EIA or a year-on-year increase of 3.45 Bcf/d. We anticipate that this growth will likely accelerate over the winter as new pipelines enable currently stranded supply to reach new markets. According to our analysis, winter production should average 4.25 Bcf/d over year-ago levels.

Whether in anticipation of this supply growth or more simply a reaction to the acceleration in restocking, a sub-$4 delivery price for November leaves little doubt that supply concerns are once again resurfacing."

Near term, analysts are looking for market weakness, but a prolonged downtrend doesn't appear to be in the cards. "And while cool trends are likely to remain in place across the upper Midwest, deviations from normal don't appear as pronounced as generally anticipated at the end of last week," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday to clients. "As a result, some continued strong storage injections would appear to lie ahead. Thursday's injection isn't likely to be as strong as the prior week but could easily approach the 110 Bcf area as a result of some continued downsized electric generation demand and further production strength.

"We will reiterate that coal to gas switching hasn't been as strong as we had previously expected, and that accounts for much of our low side 'misses' within recent EIA reports. However, constructing a strong bearish case for values below the $3.85 level remains arduous, and we still view this expected support as likely to be tested and validated as this week proceeds. We may look to probe the long side at levels below $3.85 for a trading turn back up toward the $4.20 area as a renewed cold spell is apt to develop this month and should prove capable of spurring some renewed buying during this traditionally strong anticipatory phase of the heavy usage cycle."

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