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Physical Gas Firm as East Readies For Cold, Curtailments; March Futures Out Like a Lamb

Physical natural gas for delivery Thursday was able to work higher in Wednesday's trading as a strong cold front along the East Coast helped lift next-day quotes. At the end of the day, gains in the Mid-Atlantic, Gulf, West Texas, and Rockies proved enough to counter weakness in New England and the Marcellus.

Overall the market rose 39 cents to average $5.69. March futures expired meekly Wednesday with a modest 12-cent trading range, failing to break the key $3.00 resistance level. At the close March had shed 0.8 cent to $2.894 and April was lower by 2.7 cents to $2.862. April crude oil gained $1.71 to $50.99/bbl.

Mid-Atlantic quotes proved to be the day's big winners, with multi-dollar advances seen at major market points. Increasing power loads, along with higher next-day peak power, helped lift quotes by close to $10.00.

ISO New York predicted that Wednesday's peak power requirements of 22,461 MW would rise to 22,648 MW Thursday before retreating to 22,423 MW Friday. PJM Interconnection forecast that peak load Wednesday of 43,387 MW would climb to 44,222 MW Thursday before sliding to 43,804 MW Friday.

Peak power for Thursday followed the path of increased loads. Intercontinental Exchange reported that peak power at the New York ISO Zone G (eastern New York) terminal added $5.00 to $170.00/MWh, and power delivered to the PJM West Hub rose $26.45 to $100.48/MWh.

Gas for delivery Thursday into New York City on Transco Zone 6 jumped $9.53 to $23.36, and deliveries on Tetco M-3 soared $9.65 to $20.40.

In the Marcellus, next-day packages eased slightly. Packages on Transco Leidy were seen down 3 cents to $1.58 and deliveries to Tennessee Zone 4 Marcellus came in flat at $1.50. Gas on Dominion South changed hands a nickel lower at $2.87.

The National Weather Service in New York City forecast a series of cold fronts and storm systems expected to impact the area.

An Arctic front was expected Wednesday night with low pressure expected to “track east of the region Thursday and Thursday night. Canadian high pressure then builds into the area through Saturday...then slides offshore from Saturday night into Sunday.

“A cold front approaches from the northwest late Sunday...then crosses the area Sunday night and early Monday...with waves of low pressure riding along the front. High pressure builds in behind the front into Tuesday. Another storm system impacts the area Tuesday night and Wednesday."

Next-day deliveries to New England fell by multiple dollars, but that may change quickly as record demand looms and Algonquin, the major pipeline into the area, experiences problems. Industry consultant Genscape Inc. noted that Algonquin posted a notice Wednesday morning that Algonquin "has experienced operational problems at its Southeast Compressor. Capacity and the point will be reduced by 121 MMcf/d to 1,359 MMcf/d. Scheduled flows through Southeast for Feb. 25 are at 1,369 MMcf/d, but have flowed as high as 1,465 MMcf/d this month-to-date.

Gas at the Algonquin Citygates for Thursday delivery fell $4.57 to $25.42, and gas on Iroquois Waddington shed $3.83 to $15.23. Parcels on Tennessee Zone 6 200 L dropped $2.87 to $25.44.

Genscape's data indicated that New England demand for Feb. 25 was at 3.58 Bcf/d, but with colder weather moving into the area, the demand forecast exceeded 4 Bcf/d for Thursday and Friday.

“At present, there is roughly 600 MMcf/d of additional capacity for New England to import from Canada via the Maritimes and Northeast Pipeline, and about 70 MMcf/d of spare import capacity from Canada on the Portland system,” Genscape noted. With recent arrivals of liquefied natural gas “cargoes to the Everett terminal, there should be some supplemental supplies available."

Outside of the refrigerated Northeast, next-day gas prices were able to make double-digit gains. Thursday parcels at the Cheyenne Hub rose 41 cents to $3.27, and gas on CIG Mainline changed hands at $3.03, up 21 cents. At Opal, next-day gas came in at $2.96, 14 cents higher, and gas headed out on Northwest Pipeline WY added 18 cents to $2.92.

Gas on El Paso Permian for Thursday delivery rose 17 cents to $3.00, and deliveries to El Paso non Bondad added 14 cents to $2.97. Transwestern San Juan also added 14 cents to $2.97, and packages on El Paso S Mainline were seen at $3.09, up 17 cents.

Weather models overnight Tuesday turned more moderate near term. Wednesday’s six-10 day period forecast lost 8.5 continental U.S. heating degree days (HDD) when compared to Tuesday’s forecast, said WSI Corp.

"Most of these changes stem from a 7.3 HDD reduction over the consuming East between Tuesday, March 3 [and] Thursday, March 5. Forecast confidence is considered near to slightly below average standards and results in increased uncertainty with a developing low-pressure system to impact the eastern two-thirds during the middle half of the period.”

Wednesday’s “forecast has followed the recent warmer trends of the ECMWF [European] op model over the East regarding the evolution of an inland runner storm system over the East. However, the 0Z and 6Z GFS [Global Forecast System] op and ensembles promote a 10-14 HDD upside risk over the consuming East now as the model shows cold air damming over the Northeast and hence a colder outcome than the ECMWF model."

Current estimates of Thursday's Energy Information Administration (EIA) report on natural gas inventories currently hone in on a 240 Bcf-250 Bcf withdrawal, but some think it could be higher.

Tim Evans of Citi Futures Perspective said those kind of numbers are strong "compared with 111 Bcf in the prior week and 130 Bcf on average over the past five years.

"While the expectations for a 240-245 Bcf net withdrawal certainly look supportive enough, we see some potential for an even larger drop given our model's higher 257 Bcf estimate," he said. "Tuesday's weather forecast was mixed, but we saw it as supportive for the market overall." Evans' data shows a year-on-five-year deficit ballooning to 292 Bcf by March 13.

"In effect, this would tighten the market back up to where it was in early December. So far the market has been quite tolerant, even complacent, regarding both the current cold snap itself and its likely impact on storage levels, but we continue to see potential for a short-covering rally to $3.20 or more over the next few weeks," Evans said.

Other estimates of the 10:30 a.m. EIA report include a Reuters poll of 23 industry cognoscenti showing an average 241 Bcf with a range of 230 Bcf to 257 Bcf. IAF Advisors calculates a pull of 238 Bcf, and ICAP Energy is looking for a decline of 234 Bcf. Last year 117 Bcf was withdrawn, and the five-year average is for a 131 Bcf pull.

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