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Cash NatGas, Futures Part Company; October Adds A Nickel

Weekend and Monday physical natural gas showed some isolated pockets of strength Friday, but for the most part traders were reluctant to spring for three-day deals and prices retreated.

A few points in the Gulf Coast and Midwest were firm, but were unable to counter broad overall declines. The NGI Daily Spot Gas Average fell 4 cents to $2.46, but declines in the Northeast averaged closer to 13 cents. Futures managed a rebound off recent lows as forecasters see a return of warm temperatures, and at the close October had risen 5.1 cents to $2.715 and November was up by 4.7 cents to $2.792. October crude oil continued its recent winning ways and added $2.66 to $45.22/bbl.

Weekend and Monday gas at Northeast market centers was mixed as forecasters called for temperatures as much as 10 degrees above normal beginning next week. Forecaster Wunderground.com predicted Friday's high of 77 in Boston would rise to 83 Saturday and 88 by Monday. The normal high in Boston is 78 this time of year. New York City's Friday high of 80 was expected to reach 86 Saturday and climb to 92 by Monday, 11 degrees above normal.

Weekend and Monday deliveries at the Algonquin Citygate shed 12 cents to $2.57, while gas on Iroquois, Waddington jumped 28 cents to $3.20. Gas on Tenn Zone 6 200L fell a penny to $2.56.

Those prices could seem like bargain-basement specials if planned capacity restrictions at the Algonquin Southeast compressor station collide head on with expectations of warmer temperatures. Industry consultant Genscape reported that restrictions "will be eased only slightly on Monday, leaving the constraint on flows into New England in place for another two weeks. With more heat and demand expected next week, the restriction could continue to place upward pressure on AGT basis.

"Capacity at Southeast is currently restricted to 1,250 MMcf/d versus its normal 1,460 MMcf/d. That restriction expires Monday, but work at the Stony Point compressor will only allow Southeast capacity to rise to 1,330 MMcf/d through Sept. 8. Algonquin issued notice warning shippers to keep nominations in balance with higher than normal demand expected Monday with the return of above-normal temperatures."

Restrictions were also in play in the Midwest, as a Michigan marketer said "we continue to be concerned about capacity restrictions on some points going into Consumers. Hopefully that doesn't come back and bite us."

Gas on Consumers was quoted at $2.96, up 4 cents, and deliveries to Michigan Consolidated added 6 cents to $2.96 also. Gas on Alliance for the weekend and Monday shed a penny to $2.79, and packages at the Chicago Citygate also shed a penny to $2.77.

Overnight forecasts showed an increase in cooling load. "The 11-15 day period forecast is generally a bit warmer than yesterday's forecast," said WSI Corp. in its Friday morning report. "Period PWCDDs are up 2.1 and are now forecast to be 46.1 for the period. Forecast confidence is only average, at best, today. There is uncertainty with the long-term impacts or influence of tropical activity on the pattern and as well as potential changes with the upstream and downstream pattern drivers.

"The forecast has risks in either direction, especially late in the period. Clim[atology] and any shift with the pattern supports a risk to the downside across the eastern half of the nation, while the western half has a slight risk to the warmer side."

Analysts see the warmer forecasts as countering bearish storage numbers. "The ability of the market to shrug off bearish supply side news has been facilitated by further supportive guidance from the demand side in the form of some increasingly warm temperature deviations," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.

"Updates that are now stretching through the first third of next month are favoring much above normal temperature trends that will be downsizing storage injections beyond next Thursday's EIA release. A sizable upswing into the 75-80 Bcf zone has likely been priced in, and any extension of hot temps toward mid September or storm activity into the GOM could easily force nearby futures up into the $2.80s. But an implied price advance of more than 20 cents from yesterday's close will likely require an 'event,' such as a major hurricane or significant pipeline disruption, neither of which is currently on the radar."

Buyers for power generation over the weekend across the PJM footprint may be kept busy acquiring supply as renewable generation is expected to be light. "High pressure will support partly sunny skies, low humidity and seasonable temperatures across the bulk of the power pool [Friday]. High temps will generally range in the upper 70s to mid 80s. It will trend warmer and humidity levels will gradually creep up during the weekend into early next week," WSI said.

"This warmth and an upper-level disturbance will lead to an increasing chance of widely scattered showers and thunderstorms. High temps will range in the upper 70s, 80s to low 90s. A small boost of output is expected tonight with output as high as 1-2 GW. Relatively light and changeable wind generation is expected during the remainder of the weekend through early next week."

In its 5 p.m. EDT Friday report, the National Hurricane Center said Erika was 95 miles west southwest of the Dominican Republic and winds were at 50 mph. It was heading west at 21 mph and was projected to move northwest up the Florida peninsula.

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