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NatGas Cash, Futures Race Lower; November Nears Lows of June 2012

Selling was broad and pervasive in the next-day gas market Wednesday. Of all the points followed by NGI, only a couple of Marcellus points managed gains and most locations were off a nickel to a dime.

The NGI National Spot Gas Average was down 9 cents to $2.22, and major hubs were down by close to a dime or more. Double-digit losses were seen in the Northeast as temperature forecasts proved moderate and power prices and loads withered. A major New England pipeline maintenance program has prompted declining production at a number of points upstream, yet the loss of production has had minimal price repercussions.

Futures set new lows, with the spot November contract closing at its lowest point since mid-June 2012. At settlement, November was down 7.2 cents to $2.404, and December was off 6.8 cents to $2.603. December crude oil did little better dropping $1.09 to $45.20/bbl.

New England next-day gas prices fell hard as a moderate temperature environment stretching from Boston to Chicago to Los Angeles prompted little in the way of incremental power demand. The Weather Channel forecast a high in Boston on Thursday of 71, while Chicago was expected to see 61, and Los Angeles a mild 73. Denver and the interior West remained the nation's cool spot with a Weather Channel forecasting a high Thursday of 52.

At the Algonquin Citygate, next-day gas shed 83 cents to $2.82, and parcels at Iroquois, Waddington fell 12 cents to $2.78. Gas on Tenn Zone 6 200L dropped 74 cents to $2.81.

The Mid-Atlantic was weak as well. Packages to Texas Eastern M-3, Delivery fell 3 cents to $1.75, and gas headed for New York City on Transco Zone 6 changed hands 12 cents lower at $2.17.

Power loads in New England and the Mid-Atlantic were forecast to decline. ISO New England predicted Wednesday's peak load of 15,770 MW would slide to 15,520 MW Thursday and 14,810 MW Friday. The PJM Interconnection expected Wednesday's peak load of 31,056 MW to reach 31,480 MW Thursday before sliding to 29,776 MW Friday.

Even a sharp decrease in production couldn't halt the slide in prices. Industry consultant Genscape Inc. reported Tuesday that in the Lower 48, dry gas production was down nearly 1.65 Bcf/d from Monday “on large declines in the East, Rockies and Texas.” Spring Rock Daily Pipe Production data estimated Tuesday volumes at 71.23 Bcf/d.

“East production is down 0.95 Bcf/d from [Monday] with 0.7 Bcf/d of the declines occurring in Northeast Pennsylvania,” Genscape said. Within Northeast Pennsylvania, Tennessee was showing the “largest drops by pipeline, with sample nominations down 0.43 Bcf/d DOD led by a 0.13 drop in receipts from the UDP Latini processing point, and 0.12 Bcf/d drops from both the UDP Liberty Dehy gathering point and Lake Loomis Dehy processing point."

Algonquin (AGT) also “has some maintenance, and people who are affected by that are people with transport from the Marcellus area so that's why it has dropped off," said a Houston-based industry veteran.

Algonquin reported on its website that it had placed severe restrictions at its upstream Stony Point Compressor Station. "AGT has restricted 100% interruptible and 100% secondary out of path nominations that exceed entitlements sourced from points west of its Stony Point Compressor Station (Stony Point) for delivery to points east of Stony Point. No increases in nominations sourced from points west of Stony Point for delivery to points east of Stony Point, except for Primary Firm No-Notice nominations, will be accepted."

"The maintenance on Algonquin is affecting the production at Mahwah [New Jersey] so people who deliver to Mahwah are going to have to cut back," the veteran trader said.

"Rockies declines are spread across basins but led by 0.12 Bcf/d declines in both the Green River and Piceance,” Genscape noted. “Texas production is down 0.38 Bcf/d DOD.”

Other major market hubs saw price decreases as well. Gas at the Chicago Citygate was quoted a dime lower at $2.34, and deliveries to the Henry Hub came in 9 cents lower at $2.36. Gas at Opal changed hands 8 cents lower at $2.14 and parcels at the SoCal Citygate were seen 13 cents down at $2.40.

"The forecast is adjusted warmer...in this period, with this being a result of increased variability from moisture feeding into the South and East from the Gulf of Mexico,” said MDA Weather Services in Wednesday morning in its six-to-10 day outlook. “This should act as a limiting factor to the southern extent of Canadian high pressure in the second half; however, the forecast remains on the cool side of guidance as a ridge builds northward over western North America.

"In all, the eastern half favors a period with near and marginally below normal temperatures, while the West continues to hold above and much above normal for this period's duration."

Looking ahead to Thursday's storage report from the Energy Information Administration, Tim Evans of Citi Futures Perspective calculated a build of 93 Bcf, a bit above the 86 Bcf five-year average, and said his figures show the year-on-five year surplus growing from its present 168 Bcf to a stout 248 Bcf by Nov. 6.

"A rising surplus still confirms the market is becoming better supplied on a seasonally adjusted basis, putting increased downward fundamental pressure on prices,” Evans said. "While the rising storage surplus may have prices capped for now, we continue to see potential over the intermediate term for a seasonal short-covering rally that could lift nearby futures back above the $3.00 level. Of course, it would help if we see at least some early cold to help set that recovery in motion."

Evans recommended "working a buy stop at $2.81 as the entry to a long position in December natural gas futures, then using a protective sell stop at $2.57 to limit the initial risk on the trade once the entry has been made."

Others see the December contract giving out bullish vibes as well. Technically, gas futures continue to waffle within a 20-cent trading range, but "with the December contract currently commanding a 20-cent premium over November, bulls appear to have the advantage for now," said United ICAP analyst Brian LaRose, in closing comments Tuesday.

Other estimates of Thursday's storage report include First Enercast with a build of 83 Bcf and a Reuters survey of 26 traders revealed an average 88 Bcf with a range of 82 Bcf to 95 Bcf.

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