Physical natural gas prices for the week ended Oct. 23 moved little if viewed from a broad perspective, but underneath the nominal change may mask something of a tectonic shift in U.S. and North American natural gas pricing. For the week the NGI Weekly Spot Gas Average slipped lower by just 3 cents to $2.28, but significant price shifts took place as major pipeline realignments start swinging into high gear and gas starts flowing from oversupplied eastern basins to Midwest market points.
Of actively traded points the week's greatest gainer was the Algonquin Citygate with a rise of $1.06 to average $4.28 followed closely by nearby market point Tennessee Zone 6 200 L with a rise of 95 cents to average $4.08. SoCal Citygate had the distinction of dropping the most as it shed 31 cents to average $2.49.
Regionally the Northeast stood atop the leader board with a gain of 31 cents to average $2.23 and California brought up the rear with a decline of 24 cents to $2.44.
The Rockies dropped 17 cents to $2.14, and both South Texas and the Midcontinent came in 12 cents lower at $2.27 and $2.23 respectively.
East Texas fell 11 cents to average $2.28, South Louisiana dropped a dime to $2.29 and the Midwest shed 4 cents to $2.46.
Pivotal Midwest market points along the newly expanded east to west Rockies Express (REX) Zone 3 fell over a dime, but delivery points upstream in the Marcellus gained demonstrably in what may signal the beginning of a major market realignment.
In Illinois and Indiana market interconnects between REX and Midwest Pipeline, ANR, NGPL, Panhandle Eastern, and Trunkline were all quoted between $2.27 and $2.29, down anywhere from 10 cents to 13 cents.
In the Marcellus, Millennium was quoted at $1.28, up 16 cents, Transco Leidy was higher by 15 cents to $1.20, Tennessee Zone 4 Marcellus was up 19 cents to $1.19, and Dominion South was quoted at $1.64, up 37 cents.
November futures skidded 14.4 cents to $2.286 for the week, approaching lows not seen since April 2012.
Thursday's trading saw a futures decline in what should have been an advance off a supportive Energy Information Administration (EIA) storage report. A storage build of 81 Bcf for the week ended Oct. 16 was reported, well below expectations closer to 88 Bcf, and after an initial advance, prices rolled over to finish lower on the day.
Traders looking for a market advance following the release of the thin 81 Bcf build got burned. "A lot of guys got long on the number and watched it go right against them," a New York Floor trader told NGI. "There was no push [higher] beyond the number, no oomph. I bailed and lost just a touch, but I should have made a lot of money.
"The number was 81 Bcf, and they were expecting 88 low side and 90 high side. That tells me that it was a padded number, or there is going to be a revision. l'm playing this market from the short side from now on," he said.
Others see the miss as mistiming of the data. "I think last week [100 Bcf] was high by 8 Bcf, and there was some correction this week,"said John Sodergreen, publisher of Energy Metro Desk.
"If you look at the GWDDs and if you compare last week and this week's DDs and put them all in a row, you would see that they all balance out, but last week's 100 Bcf should have been around 92 Bcf and this week around 89 Bcf. I think there was probably some late reporting, and EIA is not obligated to report any changes less than 7 Bcf."
Once the number hit trading screens November futures rose to a high of $2.435, and by 10:45 a.m. November was trading at $2.395, down 0.9 cent from Wednesday's settlement.
Prior to the release of the data, analysts were looking for an increase in the upper 80 Bcf area. Bentek Energy was at the low end of estimates with 82 Bcf, utilizing its flow model, and Genscape was figuring on an 87 Bcf build. A Reuters poll of 26 traders and analysts showed an average 88 Bcf with a range of 82-95 Bcf.
"The initial reaction was higher since we were looking for an 87 Bcf to 88 Bcf build," a New York floor trader said. "We basically went back to where we were before the number came out. There was really nothing crazy off the number."
Tim Evans of Citi Futures Perspective said "The 81-Bcf build in storage was at the bottom of the range of market expectations, bullish for prices. The smaller net injection - with no adjustments such as reclassification behind it - implies a tighter background supply/demand balance that should carry over into the weeks ahead."
Inventories now stand at 3,814 Bcf and are 434 Bcf greater than last year and 163 Bcf more than the five-year average. In the East Region 49 Bcf was injected, and the West Region saw inventories increase by 3 Bcf. Stocks in the Producing Region rose by 29 Bcf.
In Friday's trading there was little incentive for traders to commit to three-day weekend deals as a double whammy of a weak screen and moderate weather outlooks weighed on physical natural gas markets.
Only two physical points followed by NGI managed gains, and the NGI National Spot Gas Average for weekend and Monday gas fell 8 cents to $2.23.
The East managed an overall gain of 3 cents, but that was due in large part to ongoing maintenance and restrictions in New England. Futures traders found the market spiraling lower as medium-term weather forecasts called for mild conditions and the injection season appeared ready for an extension well into November. At the close, November had fallen 10.0 cents to $2.286 and December was off 9.0 cents to $2.493. December crude oil sank below $45, posting a settlement of $44.60, down a stout 78 cents.
Midwest power generators are taking full advantage of lower natural gas prices.
"What we've seen has been a great benefit. We have two coal plant outages and one of our nuke contracts is offline this month," said a Wisconsin power generator. "The low gas prices drive the [power] market, and we are basically buying on the spot market this month with our units off, and we are looking at saving $5/MWh from what we had budgeted for buying load. That's a huge savings for us. It's a tug-of-war between how much revenue is lost on plants that would normally run, and how much you can buy at what savings and how does it all balance out." The generator's experience is that it has been a net saving.
"We have a combined-cycle generator tied to the Chicago Citygate price that has been running at much higher capacity. In July and August it ran around the clock which is unheard of."
Those savings continue to grow. Weekend and Monday gas throughout the Midwest fell hard. Deliveries on Alliance fell 11 cents to $2.34, and gas at the Chicago Citygate shed 6 cents to $2.30. Gas on Consumers was quoted 6 cents lower at $2.65, and deliveries to Michigan Consolidated were quoted 7 cents lower at $2.64.
Weekend and Monday temperatures across key population centers were expected to continue mild. Wunderground.com predicted that the Friday high in Chicago of 60 would rise to 67 Saturday before dropping to 60 on Monday, right at the seasonal average. New York City's 66 high on Friday was expected to ease to 59 Saturday and make it back to 60 on Monday. The normal high in New York is 61 this time of year.
The Algonquin Citygate was one of the few points to record a gain. Weekend and Monday deliveries came in 38 cents higher at $5.18 as maintenance and outages continued. By contrast deliveries to Tennessee Zone 6 200 L fell 66 cents to $4.37 as gas was able to make it from other supply sources. Gas on Iroquois, Waddington shed 15 cents to $2.87.
Marcellus prices were soft. Gas on Tennessee Zone 4 Marcellus fell a dime to $1.17, and deliveries to Transco-Leidy Line also retreated a dime to $1.24.
In spite of Thursday's November futures drop to new three-plus year lows, analysts see still further weakness for the December contract as well.
"[Thursday's] counter-intuitive downside response to what appeared to be a bullish storage figure fortified our bearish convictions of this market," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "We still advise accepting partial profits at our long targeted $2.35 level basis November futures. However, we suggest maintaining a core short position in the December contract as we maintain a downside target of $2.35 looking out over the next two- to four-week time frame."
For now, the temperature factor is maintaining a neutral-bearish appearance when extending a view out through the about the first week of November. Furthermore, attainment of the psychologically important 4 Tcf end of season supply level is possible with such a development only requiring an average weekly build of about 62 Bcf/week during the next three weeks.
Gas buyers for power generation across the MISO footprint over the weekend should have ample renewable energy supplies to work with. WSI Corp. in its Friday morning report said, "A storm system will move across the power pool during the next one to two days with a chance for rain and embedded storms, as well as blustery conditions. This will usher high pressure and seasonable conditions into much of the power pool during the end of the weekend into the start of next week, though a storm system will bring heavy rain into Entergy.
"High temps will dip into the mid 40s, 50s and 60s. The next potential frontal system and round of wet weather will likely slide into the north-central U.S. by Tuesday. A south-to-northwest wind associated with the frontal system will drive strong wind generation during the next two days. Output might top out as high as 7-9 GW. Wind gen will relax and become more variable during Sunday and Monday. The next potential storm system should drive up wind gen by Tuesday."
Tom Saal, vice president at FC Stone Latin America LLC, in his work with Market Profile said Friday to look for the market to test Thursday's value area at $2.400 to $2.358 and "maybe" test a second value area at $2.493 to $2.473.