Both physical and futures natural gas values drifted higher in uninspired trading Tuesday, as traders were reading the tea leaves for the market's next big move. Physical natural gas prices were widely mixed, but most points held within a nickel either side of unchanged.
Eastern physical points were generally higher and rose about a nickel, but the NGI National Spot Gas Average was flat at $2.66. September futures were confined to a narrow 6-cent range and added a thin two-tenths of a cent to $2.844. October gained three-tenths of a cent to $2.871. September crude oil continued under pressure and fell $1.88 to $43.08/bbl.
Midwest points appeared to see little impact from the ongoing loss of Alliance volumes. Genscape reports that the system is largely non-operational following the discovery of high levels of H2S August 7. "Alliance has stated that they will get rid of the sour gas by flaring at two locations near the US/Canada border" (see Daily GPI, Aug. 10).
According to Alliance, it is planning to initiate a resumption of operational service on its mainline pipeline system commencing with receipt of operational linepack on Wednesday. The pipeline is targeting the lifting of the Force Majeure and resumption of full contract firm service on Thursday.
Flaring operations at mainline block valve sites near Arcola and the Alameda compressor station in southeastern Saskatchewan have progressed well and are expected to be completed on Wednesday.
"Our flaring operation is on track and the amount of hydrogen sulphide hydrogen sulphide in the small segment of pipeline is being reduced to a safe level," said Daniel Sutherland, Vice President, Commercial Operations. "Our monitoring indicates that all ambient air quality standards continue to be met."
To replace natural gas lost as a result of the flaring process, and to increase the pressure to expedite the flow in the pipeline, Alliance has issued a request to existing shippers for purchase of up to 400 MMcf of natural gas. As Alliance acquires and receives the natural gas, the company will begin a carefully controlled restart of the pipeline to achieve the targeted resumption of service on Thursday.
Gas for delivery at the Chicago Citygate slipped a penny to $2.91, and gas on Michigan Consolidated added 2 cents to $3.00. Deliveries to Consumers came in unchanged at $3.01 and gas at Northern Natural Ventura was seen four cents lower at $2.85.
New England locations generally firmed as next-day power prices rose. Intercontinental Exchange said Wednesday on-peak power at the ISO New England's Massachusetts Hub gained $3.96 to $31.07/MWh.
Gas at the Algonquin Citygate gained 21 cents to $2.00 and deliveries on Iroquois Waddington were flat at $3.00. Gas on Tenn Zone 6 200L added 8 cents to $2.01.
Next-day gas at interconnects with the newly re-routed REX Zone 3 Pipeline fell slightly. According to the NGI Rockies Express Zone 3 Tracker, deliveries to ANR at Shelby, IN were flat at $2.86, and gas at the Midwest Pipeline interconnect at Edgar, IL eased 2 cents to $2.84. Gas delivered to the Putnam, IN interconnect with Panhandle Eastern was flat at $2.86.
Rather than wringing his hands at the current rangebound trading of the futures market commodity trader and writer Andrew Hecht believes there are several strong reasons natural gas is poised to move higher. The first one being the failure of the market to work lower following the last two EIA inventory reports.
Writing on the Seeking Alpha website, he said that "two straight weeks of bearish key reversals on the daily chart following EIA inventory data could not push the price lower, so therefore it went higher last week. Technically, the market that had been looking so brutally bearish after two weeks of bearish key-reversals is starting to look bullish now. I guess if they cannot take the price lower on bearish news, it has to go higher."
He added that fundamentals have also changed. "Last week we witnessed events that will cause a significant change in the fundamentals for natural gas. A mandated increase in demand coming from U.S. government regulation via the President and the EPA, a blessing for the industry from one of the smartest, successful and most aggressive investors out there today [Carl Icahn has taken a big stake in Cheniere Energy, LNG] and a shift in momentum may just ignite the commodity that has been dead for quite some time.
"Two straight weeks of bearish key reversals may just be a watershed event in hindsight. If a market does not go down on bearish news and signals, it is often a big clue that the path of least resistance is higher."
Others aren't quite so exuberant and technicians see the market mired in mediocrity. "Still stuck in neutral territory," said Brian LaRose, technical analyst at United ICAP in closing comments Monday to clients. "Bulls need to push natural gas through the $2.939 level to open room up to $3.115. Bears need to push natural gas beneath $2.706 to signal a test of the $2.556/2.443 lows is ahead.
"In between support and resistance we are stuck sitting on our hands. At the moment the technicals still favor the bulls. But are they finally ready to take advantage?"
Fundamental analysts see a market causing equal angst among both bulls and bears. "This market continues to frustrate both the bulls and the bears given its lack of sustainable price movement in either direction," said Jim Ritterbusch of Ritterbusch and Associates in morning comments to clients. "We are continuing to emphasize that supply/usage is maintaining a relative balance for a time of year when cooling needs tend to crank up price volatility. Although Thursday's storage report will likely show some expansion in the supply surplus against 5 year average levels, the adjustment is apt to be small in keeping the overhang modest at less than 85-90 Bcf.
"Within such an environment, even a shocker of a supply number may exert only limited price increase as was vividly displayed last week when the bullish miss of more than 10 Bcf failed to drive sustained price gains. We would ideally prefer to approach the market from the long side as we see our expected $2.65 support more sustainable over the long term period than our anticipated resistance at the $3.00 area. But, an implied price decline of some 15-20 cents will likely require evidence of a broad based cool down capable of pushing the supply surplus into triple digit territory."
Tom Saal, vice president at FC Stone Latin America, LLC in his work with Market Profile expects the market to test Monday's value area at $2.843 to $2.827 before moving on and testing $2.814 to $2.790.
He pointed out in a morning note to clients that "[Monday's] Market Profile pattern was a 'non-trend day' structure, showing intense price control or equlibrium. Look for the market to work lower today and maybe the rest of the week..however, note the 'trend day space'...."
Saal identified the nearest trend day space at $2.902 to $2.886. "Trend day 'space' is areas of illiquidity, or no price control, which can act like magnet when prices approach this area."