Physical natural gas for Wednesday delivery continued to slip lower Tuesday as weather forecasts continued to be uninspiring and traders saw little on the horizon to spark any kind of price rally.
The NGI National Spot Gas Average slipped 6 cents to $1.97. Eastern points were among the few bright spots with an average gain of about a nickel. California and the Rockies gave back the weather-driven gains they’d experienced Monday, and Texas and Louisiana points, on average, fell by double digits. Futures trading was equally lackluster, with December easing 1.4 cents to $2.371 and January dropping 2.7 cents to $2.527. December crude oil fell $1.07 to $40.67/bbl.
"I see the natural gas market as just kind of struggling," said David Thompson, vice president at Powerhouse LLC, a Washington DC-based trading and risk management firm. "I talked to someone in Chicago today and it's 60 degrees. Normally by this time of year they have had snow, and there is little in the short term to turn things around.
"There may be a blip up when we finally get our first blast of weather, whenever that comes, but I don't think it will be enough as it currently stands. We need a polar vortex to settle in over Chicago to get an updraft in natural gas.
"Exports were designed to be the ultimate relief valve; well, natural gas in Asia doesn't cost what it used to. If you are going to go ahead and spend a couple of billion on an export facility, you need really big spreads in which to justify it. Natural gas at $4 as it used to be over to Asia at $16 in Japan, well that is good enough to go on.
"Now we are at $2.50 and Asia is well under $10, according to some of the data I've seen, so that spread is no longer there. I'm not so sure there is an export market to solve our supply problem," Thompson said.
Extended weather forecasts overnight turned milder. WSI Corp. in its Tuesday morning report said, "[Tuesday's] 11-15 day period forecast is warmer over the East and colder over the western half of the nation. GWHDDs are down 5.3 for Days 11-14 and forecast to be 120.1 for the period. Forecast confidence is near average today as medium-range models are in better agreement throughout the whole medium range. However, the influence of WestPac tropical activity is a wildcard and source of uncertainty late in the month.
"The forecast has room to sway in either direction due to the timing of a frontal system, amplification of the pattern late in the period and any impacts from tropical activity. The East has more of a downside risk, while the West has more of an upside risk by the end of the period."
Analysts see the market supported by fuel-switching as long as cash prices hover in the $2 area. "[T]he bearish dynamic of supply surplus expansion will be sustained and will continue to mitigate the effects of the colder temperature outlooks," said Jim Ritterbusch of Ritterbusch and Associates in commenting on the week's anticipated storage build. "But at the same time, we will note that Friday's storage injection was again downsized against average industry expectations by a significant amount for about the fourth consecutive week. We feel that some structural shifts are evolving to downsize injections to well below levels that might be implied by HDD accumulations.
"Since we are not seeing dramatic shifts in production, we believe that changes are taking place on the demand side as utilities have been shifting away from coal and toward the gas alternative following the recent declines in Henry Hub spot pricing to around the $2 mark where cash values finished last week. Any continuation of this trend will be limiting downside possibilities in the futures, especially if expected colder trends prove sustainable."
The physical market grappled with an ongoing price realignment as quotes in the Marcellus managed to make some gains and prices farther downstream, specifically on the REX Zone 3 Expansion, eased.
Gas for delivery on Tennessee Zn 4 Marcellus came in 6 cents higher at $1.27, and deliveries to Transco-Leidy Line jumped 16 cents to $1.28. Packages on Dominion South added a dime to $1.42.
Interconnections with REX Zone 3 to markets in the Great Lakes and Midwest saw quotes drop. Gas on Midwestern at Edgar County, IL, fell 6 cents to $2.02 and gas on NGPL at Moultrie County, IL, gave up 6 cents as well to $2.01. Deliveries on REX Zone 3 to Panhandle Eastern at Putnam County, IN, dropped 4 cents to $2.03.
Major market hubs were quoted lower. Gas at the Chicago Citygate fell 5 cents to $2.09, and deliveries to the Henry Hub shed 9 cents to $2.05. On El Paso Permian next-day deliveries changed hands 15 cents lower at $1.95, and at the PG&E Citygate gas was quoted 7 cents lower at $2.80.
Forecasts by the National Weather Service (NWS) show continuing below-normal heating requirements in major population centers. For the week ending Nov. 21, NWS predicts that New England will see 145 heating degree days (HDD), or 29 below normal, and the Mid-Atlantic, including New York, New Jersey and Pennsylvania, will experience 116 HDD, or 44 fewer than its normal seasonal tally. The greater Midwest from Ohio to Wisconsin should endure just 116 HDD as well, or 67 fewer than normal.