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All NatGas Cash Points Decline, Bringing Futures Along for the Ride

Every point fell in Wednesday's trading for Thursday physical gas delivery. New England points took the biggest hits, falling by double-digits, but similar losses were also noted on the West Coast as slipping temperatures joined forces with declining power loads and weak next-day power prices.

Mid-Atlantic and Appalachia points also were lower, and only a couple of points traded in positive territory. Most locations were seen from a nickel to a dime lower and the overall average national decline was 9 cents to $3.40.

Futures continued to trade in uninspired fashion and eased a little more than a penny. At the close, November was lower by 1.6 cents to $3.800, and December shed 1.5 cents to $3.885. November crude oil fell 6 cents to $81.78/bbl.

Prices eased on the West Coast as a cooler temperature regime was forecast, while power loads and prices softened.

"After a warm start to the week, cooler air has returned to the Los Angeles area and will remain into the weekend,” said AccuWeather.com meteorologist Erik Pindrock. “A disturbance pushing into the Pacific Northwest will help bring a more Pacific influence to temperatures, [and] temperatures will remain in the middle to high 70s throughout the remainder of the weekend. There will be low morning clouds that may create delays for travelers at the Los Angeles International Airport. Nighttime lows will be in the upper 50s to low 60s through Saturday."

The California Independent System Operator forecast that peak load Thursday would slide to 31,179 MW from Wednesday's expected peak of 31,719 MW.

IntercontinentalExchange reported that peak Thursday power at NP-15 fell $1.32 to $46.81/MWh and deliveries to SP-15 shed 46 cents to $46.76/MWh.

Temperatures at major population centers on the West Coast were forecast to be at or slightly below normal. AccuWeather.com forecast that the high Wednesday in San Francisco of 67 would hold Thursday before adding a degree to 68 Friday. The normal high in San Francisco is 70. The high on Wednesday in Los Angeles of 78 was seen sliding to 75 Thursday and 74 by Friday. The seasonal high is 79. In San Diego, Wednesday's high of 75 was expected to ease to 74 Thursday and 72 Friday, 1 degree below normal.

Gas for delivery Thursday at Malin fell 13 cents to $3.70, and packages at the PG&E Citygates lost 10 cents to $4.31. Gas at the SoCal Citygates was quoted at $4.11, down 8 cents, and parcels at the SoCal Border shed 8 cents to $3.88. On El Paso S Mainline, next-day deliveries fell 8 cents to $3.94.

Gas in New England took the biggest hit. Deliveries to the Algonquin Citygates shed 41 cents to $3.08, and at Iroquois Waddington, gas changed hands at $3.92, down 5 cents. On Tennessee Zone 6 200 L, Thursday gas was seen at $3.09, down 26 cents.

At Appalachian and Marcellus points, gas eased about a nickel overall. Deliveries to Tennessee Zone 4 Marcellus shed 8 cents to $1.93, and packages on Dominion South came in 3 cents lower at $2.02. On Millennium, next-day gas was seen at $2.06, down 3 cents, and on Transco Leidy, Thursday gas was quoted at $2.00, down 3 cents.

Gas headed for New York City on Transco Zone 6 shed 7 cents to $2.06, and deliveries to Tetco M-3 fell 4 cents to $2.06.

Quotes at Appalachian and Marcellus locations may get a lift starting in November.

According to industry consultant Genscape Inc., Spectra’s Texas Eastern filed a request Tuesday with the Federal Energy Regulatory Commission to place 510 MMcf/d of the 600 MMcf/d Texas Eastern Appalachia-to-Market (TEAM 2014) project in-service on Nov. 1.

“The project includes the installation and/or uprating of new pipe and compression along the Tetco system in central Pennsylvania in order to move growing volumes of Marcellus production to Northeast and Southeast markets,” Genscape analysts noted.

"Three of the northern upgraded compressors were placed in service on July 30 in order to serve existing firm transportation customers that would have otherwise seen constraints due to maintenance on the Texas Eastern system. However, none of the additional TEAM 2014 capacity was added to the system at that time.

“Flows through Berne, Summerfield and Somerset stations will increase to TEAM 2014 capacity levels on Nov. 1. Upgraded compressors will be coming online for the first time at Uniontown, Armagh and Entriken,” Genscape said. “There remains another 90 MMcf/d of capacity due to come online as part of the TEAM 2014 project. However, that capacity addition has been delayed due to a materials delivery delay with the Delmont compressor station, which should be fully upgraded and in-service by Nov. 15. The southern portion of TEAM 2014, TEAM South, began flowing gas southbound on Texas Eastern at the beginning of September."

Thursday's Energy Information Administration (EIA) storage report will give analysts and traders a somewhat sharper focus on the ever-declining year-on-five-year deficit. Last year 79 Bcf was injected and the five-year average is for a 78 Bcf build.

Analysts at ICAP calculate an 87 Bcf increase, and First Enercast is looking for an 86 Bcf increase. A Reuters poll of 25 traders and analysts showed a sample mean of 91 Bcf with a range of 78 Bcf to 106 Bcf.

The debate lingers as to whether recent softness in futures prices was weather-derived or the result of free-falling oil prices. One analyst sees Tuesday's decline as more the result of a change in the weather outlook than any sympathetic move lower with plunging petroleum prices.

"The natural gas market came under selling pressure on Tuesday as the 11-15 day temperature forecast looked warmer than a day ago, with the reduction in heating demand allowing a larger rate of storage injections," said Tim Evans of Citi Futures Perspective. It was the lowest settlement by a spot contract ($3.816) since Sept. 23.

"An early edition of Bloomberg's survey puts the median estimate at 92 Bcf, a more robust gain than the five-year average increase of 78 Bcf than our simple weather-based model produced," Evans said. "As we've been noting, our model has performed poorly of late, suggesting that there have been other shifts in underlying supply and demand. Over the intermediate term, however, we still think the model has merit, and it currently points to above average storage injections through the end of the month."

Evans' calculations show that by the end of October the current year-on-five-year deficit shrinks from its current 378 Bcf to 312 Bcf with total storage at 3,520 Bcf, "with some further gains before seasonal heating demand reaches the point that it overbalances supply and withdrawals begin," he said.

Evans has shifted an earlier buy recommendation on the November contract at $3.73 to the December contract at $3.83 with a protective stop at $3.58.

WeatherBELL Analytics in its Wednesday morning 20-day energy forecast expected below-average accumulations of both heating and cooling degree days for the next two weeks. Nationally, it projected 123.2 HDD (heating degree days), well below last year's 156.8 HDD and a 30-year average of 138.1 HDD. Cooling degree days (CDD) were seen at 19, fewer than last year's 20.8 CDD and a 30-year average of 25.8 CDD.

"A downturn of the SOI [Southern Oscillation Index] has started, which means we need to look for the modeling to start waffling in the longer term as the implications of the slowing of the easterlies in the tropical Pacific will lead to a reaction over North America,” said Joe Bastardi, WeatherBELL meteorologist. “This most likely will happen in the Week three and Week four period."

WeatherBELL places the August SOI at -10.1 and September at -6.6. An index of less than -8 generally indicates an El Nino event.

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