Physical natural gas for Thursday delivery gained ground in Wednesday's trading with higher quotes in the Gulf, Midwest, Midcontinent, Rockies and California equalling lower readings in New England. The overall market was unchanged at an average of $2.35.
Futures managed a gain, although short-term traders anticipate Thursday's Energy Information Administration (EIA) storage inventory report may have a negative impact and send quotes lower.
At the close, June had added 6.9 cents to $2.606, and July was higher by 6.8 cents to $2.659. June crude oil gained $1.52 to $58.58/bbl.
Futures traders didn't see the day's advance representing any fundamental market shift.
"I think what you are seeing here is just a little short covering," said a New York floor trader. "We are hearing a 90 Bcf build for Thursday's number and I think once the number comes out the market gets flushed to the downside. I don't see the market getting above $2.70 near term and on the downside I think we are at $2.38-2.40.
"Maybe if we get a crazy number you would get a chance to sell it at $2.70 to $2.75, but I think after Thursday we'll be trading in the low $2.50s again.
Others have a somewhat different take on the day's advance. Natgasweather.com's Andrea Paltrinieri said Wednesday's gain "seems related to another downward revision of production, lingering now below 73 Bcf/d (72.7 Bcf/d), 1 Bcf less than Monday's highs. Moreover, this week I see more demand from power burns than last week and believe this will likely cause a downward revision for next week's injection. But all the eyes are on [Thursday's] number. I expect a plus-92 Bcf injection, a bearish number compared to average estimates I've seen around 86-87 Bcf."
If industry estimates are correct, the closely watched year-on-five-year EIA storage deficit should continue shrinking. Currently, working gas inventories are 101 Bcf less than the five-year average, but last year 77 Bcf was injected and the five-year pace is for a 56 Bcf increase. Current estimates are well above 56 Bcf. ICAP Energy calculated an 89 Bcf increase, and Ritterbusch and Associates is looking for an 85 Bcf build.
Tim Evans of Citi Futures Perspective sees the current year-on-five-year deficit flipping to a surplus by mid-May. For this week's injection report he is forecasting a build of 82 Bcf, about in line with industry consensus.
"By definition, a declining deficit or an expanding surplus confirms that the market is becoming better supplied on a seasonally adjusted basis, and most often translates into falling prices over the intermediate term," Evans said in closing comments Tuesday. "However, after a full year of a declining deficit and declining prices, we don't see the upcoming storage data as enough of a shock to preclude a short-covering rally if the market can get turned higher again. Crude oil has certainly demonstrated that it's possible to rally in the face of bearish inventory numbers."
Evans recommended holding a long position in June natural gas rolled from the May at $2.514 on Monday. He advised a protective stop at $2.44 to limit exposure on the trade.
According to National Weather Service data, little in the way of either heating or cooling load is expected for prominent energy markets for the week ended May 2. The agency's figures show heating degree day (HDD) accumulations of 95 for New England, 8 degrees below normal, and 87 for the Mid-Atlantic or 3 degrees above seasonal trends, and the greater Midwest from Ohio to Wisconsin is expected to see 89 HDD, or 2 degrees above normal. No cooling degree days are forecast for the period.
Tom Saal, vice president at FC Stone Latin America LLC in Miami in his work with Market Profile looked for the market to test Tuesday's value area at $2.536-2.520 and "maybe" test $2.589-2.559. His calculations of the weekly initial balance show a range of $2.545 to $2.481. Market movement above the upper range of the initial balance should be a "buy" signal, and conversely, declines below the initial balance should be sold, according to Market Profile methodology. The day's upside breakout targets were $2.577 and $2.609.
In the physical market, next-day gas on the West Coast rose as power load increased and temperatures were forecast about 10 degrees above normal. AccuWeather.com forecast that Wednesday's high in Los Angeles of 89 would ease to 84 Thursday and 83 by Friday, still 9 degrees above normal. San Diego's 81 high Wednesday was expected to ease to 79 Thursday and Friday, 11 degrees above normal.
Gas for delivery at Malin rose 3 cents to average $2.40, and deliveries to PG&E Citygate were higher by 3 cents to $2.91. Gas at the SoCal Citygates was seen at $2.66, up 3 cents, and parcels at the SoCal Border also changed hands 3 cents higher at $2.49. Gas on El Paso S Mainline added 2 cents to $2.49 as well.
Next-day power at California points made gas purchases for power generation more feasible. Intercontinental Exchange reported that peak power for delivery Thursday to NP-15 gained $3.00 to $40.50/MWh, and on-peak power at SP-15 added $2.02 to $37.35/MWh.
"We are seeing somewhat higher loads," said a gas trader for a Southern California gas and power merchant. "Gas burn in Southern California has increased to about 3.1 Bcf/d from last week's 2.8 Bcf/d." He added that during a normal summer day gas burn would typically average about 4 Bcf/d. "This is a little higher than normal," he said.
Spot prices at other major gas trading hubs were mostly higher. Deliveries to Columbia Gas rose a penny to $2.47, and gas bound for New York City on Transco Zone 6 added 3 cents to $2.44. At the Henry Hub, Thursday gas was quoted at $2.56, up 3 cents and at the Chicago Citygates gas was seen at $2.57, up 3 cents.
Algonquin Citygate was the big loser on the day as the contract dropped 64 cents to average $2.52.
There are projects in the works to help alleviate the gas-constrained Northeast market, U.S. Energy Secretary Ernest Moniz said during a Senate Energy and Natural Resources Committee hearing on Tuesday. However, U.S. Sen. Angus King (I-ME) expressed concern that the possible reversal of the existing Spectra Energy's Maritimes & Northeast Pipeline (M&NE) would exclusively serve any of several proposed East Coast liquefied natural gas (LNG) terminals that have suggested that they could make use of M&NE capacity.
"I would hope that you would consider as that [M&NE] project moves forward inserting a requirement that gas be divertible during times of peak demand -- rather than going to Canada, that there be a provision that during peak demand it be retained in the region," King said. However, there is currently not a project planned to reverse M&NE, although the idea has been talked about, Spectra Energy spokesman Steve Rankin told NGI (see related story).
"There are several proponents proposing LNG export terminals near our pipeline, and we have been in general discussions with them, but we don't currently have any plans in place to reverse the pipeline. To move forward with that, we would need to have firm contracts in place...that would underwrite basically our efforts to design a reversal in whatever way to serve existing customers and other future customers like LNG export terminals," Rankin said.
It is possible, though, to reverse M&NE, Rankin said. Other Spectra pipelines have expansions in the works to serve the Northeast market area, such as Algonquin's Incremental Market and Access Northeast projects, as well as the Atlantic Bridge project, which would involve M&NE facilities.
"We have three expansions in various stages of development, and that would bring more gas supply from the Marcellus into the Maritimes & Northeast Pipeline system as well," Rankin said.
"Like all of our markets in Atlantic Canada, our contracts for gas supply that our customers have in place are indexed off of Boston prices, so if there's an impact on Boston pricing by adding more capacity to bring Marcellus supply in and just making it a more liquid trading point, it could lower the price a little bit. Experts have sort of indicated to us that that could happen. So all three of them really impact on Maritimes; it's just whether the facilities are on there or not is the question."