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Weekly NatGas Posts Solid Gains, But Futures Portend Difficulties Ahead

A strong winter storm system that began in the West, marched eastward early in the week, made it into the Midwest by Friday and was expected to impact the East Coast by Sunday was enough to give the physical natural gas market a boost for the week ended Nov. 20.

The NGI National Spot Gas Average gained 9 cents to $2.07, and only 4 points followed by NGI failed to make gains. That advance may be short lived, however, as the often prescient futures market reeled from double digit losses.

Of the actively traded points, Texas Eastern M2 30 Delivery scored the greatest gains, making a 62-cent advance to $2.08, and gas on Tennessee Zone 6 200 L brought up the rear with an 11-cent loss to $2.42.

Most regions were close the national average. South Louisiana rose 6 cents to $2.07, and South Texas, East Texas, and the Midwest all posted gains of 7 cents to $2.06, $2.06, and $2.18, respectively.

The Midcontinent and California tacked on 8 cents to $2.10 and $2.41, respectively, and the Rocky Mountains advanced by a dime to $2.12, with the Northeast adding 19 cents to $1.85.

In spite of a robust physical market, December futures tumbled 21.6 cents to $2.145 negating an arguably supportive storage report Thursday. The EIA reported a storage build of 15 Bcf, about 3 Bcf shy of market expectations and futures looked strong for a while following the release of storage numbers. At the end of the session, however, December had fallen 7.1 cents to $2.276 and January was off 8.3 cents to $2.412.

Navigating the storage report required more than the usual amount of dexterity. Traders not only had to deal with a new five-region format, but on Monday the EIA revised the storage report for the week ended Nov. 7 upwards by 5 Bcf. Along with other revisions, total working gas stood before the report at 3,985 Bcf. The EIA said that the differences were due to internal massaging of the data and not any change in the data they receive from those they survey.

If that weren't enough, traders also had to factor in widely varying estimates for the week ended Nov. 13. Last year, 9 Bcf was withdrawn, and the five-year tally was for a 12 Bcf pull. A Reuters survey of 23 traders and analysts revealed a cavernous range from a 5 Bcf injection to a 50 Bcf increase. The average was 18 Bcf, enough to put total storage just a scooch over 4 Tcf at 4,003 Bcf.

Industry consultant Genscape had calculated an 8 Bcf increase, and PIRA Energy figured on a fill of 22 Bcf.

Some traders see future estimates as being less varied with the new five-region format. "The new format really didn't change anything, but it should refine some of the ranges, because we were getting ridiculous ranges of the estimates," a New York floor trader told NGI. "The high range on today's estimates was +50 Bcf. How can you be that far apart? I had heard earlier in the week +5 Bcf to +9 Bcf, and I was more on the lower end."

Tim Evans of Citi Futures Perspective said the aggregate 4 Tcf level was widely anticipated. "We see a further, minor 7-Bcf build for the week ending November 20 to be followed by some robust storage withdrawals as the forecast cycle of cold has its impact on heating demand."

The five-region format is designed to further enhance market transparency and acknowledge a new market configuration featuring a newly formatted East Region along with four others.

Inventories now stand at 4,000 Bcf and are 404 Bcf greater than last year and 207 Bcf more than the five-year average. In the East Region 5 Bcf was injected, and the Midwest Region saw inventories increase by 7 Bcf. Stocks in the Mountain Producing Region fell by 3 Bcf, and the Pacific Region saw supplies slide by 1 Bcf. The South Central Region, closely similar to the former Producing Region, added 7 Bcf.

Another new record is in the cards for next week, as forecast heating loads suggest another build. Estimates 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 have just 116 HDD as well, or 67 below normal.

In Friday's trading, physical natural gas for weekend and Monday delivery was mostly firm as multi-dollar gains in the Northeast more than countered losses in California along with widespread though more modest gains at most other market points.

The NGI National Spot Gas Average added 6 cents to $2.18, and the East on average rose close to 30 cents. Futures were a different story, as the technical picture weakened significantly and weather forecasts moderated. At the close, December had shed 13.1 cents to $2.145 and January was off 12.1 cents to $2.291. The expired December crude oil contract fell 15 cents to settle at $40.39 after trading below $39.00.

Market technicians were eyeing a short-term uptrend line in place subsequent to the expiration of the November contract in late October. Friday's price action breached that trend line, leading observers at the very least to conclude that any meaningful price advance had been deferred.

Jim Ritterbusch of Ritterbusch and Associates said a large portion of the day's decline "appears technically related as a chart uptrend line that has stretched across this month was violated. Meanwhile, the short-term temperature views that are now stretching well into the first week of December have shifted back toward the bearish side in reinforcing many opinions of an El Nino-induced mild winter," he said in a note to clients.

"A significant cold spell across most of the Midcontinent during the upcoming weekend has been priced in, and we feel that this cool-down will be forcing the first storage withdrawal of the season when next week's EIA report is released. However, any decline should prove minuscule, with supply remaining elevated near a record 4 Tcf. Although this storage peak has proven smaller than we had expected just a few weeks ago, the market appears to be shifting focus toward the demand side where the late stage of the shoulder period has been favoring mild temperatures that could well extend into next month based on this week's updates."

Market bulls discounting El Nino might not want to fool with Mother Nature. Meteorologists at Wunderground.com said, "Sea surface temperatures in the eastern tropical Pacific are on par with the strongest El Nino events on record (1982-83, 1997-98). The National Oceanic and Atmospheric Administration (NOAA) projects this El Nino to peak during the Northern Hemisphere winter 2015-16 before transitioning to neutral conditions by mid-2016.

"The weekly sea surface temperature reading, taken within the Nino 3.4 region near the equator, has risen to 3.0 degrees C above average. This is the highest weekly value observed during any El Nino event in NOAA's records. This week's reading beats the highest weekly departure of 2.8 degrees C recorded in late November 1997 during the record-setting 1997-98 El Nino."

"There is a reasonable chance that some of the cold from the week ending Dec. 4 will carry over into the following period,” Evans said. “In fact, if the jet stream is to stabilize, this weather pattern could persist for several more weeks, catching a market anticipating a warmer than normal winter by surprise.

"The market's failure to rally on the moderately bullish storage surprise suggests we should brace for a further test of the downside, but we continue to view the arrival of stronger seasonal heating demand as more consistent with a short-covering rally back toward the $3.00 level in the weeks ahead. From a fundamental perspective, we think the market has reached a juncture where the lower the price goes, the more bullish we'll become."

Gas buyers for weekend power generation across the MISO footprint may have to pick up the pace as forecasts call for cold temperatures and at best variable wind generation. WSI Corp. in its Friday morning report said, "Seasonably cold conditions are expected [Friday]. However, a wave of low pressure will slide across the lower Midwest through the Great Lakes late in the day through Saturday with a round of snow and rain. A swath of four to eight inches of accumulation is likely across Iowa, southern Wisconsin, northern Illinois, Indiana and Michigan. This system will usher a reinforcing shot of cold air into the power pool during the weekend. During this stretch, high temps will drop into the mid 20s, 30s and 40s and with lows in the teens and 20s.

"Changeable wind generation is expected. Wind generation will subside this morning, but low pressure will provide a boost tonight into Saturday. After a brief lull, a southwest flow may drive another spike during Sunday into early Monday."

In the physical market, weekend and Monday gas prices spiked just as Tennessee Gas Pipeline Co. LLC (TGP) on Friday filed its FERC certificate application for the Northeast Energy Direct (NED) Project. TGP said it would bring New Englanders relief from natural gas and power price spikes, but many of them have told the Commission they don't want it (see related story).

Some New Englanders aren't convinced the project is necessary. On Wednesday, Massachusetts Attorney General Maura Healey said NED and a competing project called Access Northeast, with a lower price tag of $3 billion and backed by Spectra Energy Corp., are not needed (see Daily GPI, Nov. 18).

Gas at the Algonquin Citygates vaulted $2.08 to $4.37, and deliveries on Tenn Zone 6 200L added 86 cents to $3.23. Packages on Iroquois, Waddington rose 4 cents to $2.36.

Mid-Atlantic points were mixed. Gas on Texas Eastern M-3, Delivery shed 2 cents to $1.64, and gas bound for New York City added 14 cents to $2.19.

With the exception of the West Coast, most market points firmed. Gas at the Chicago Citygates added a nickel to $2.32, but gas at SoCal Citygate shed 16 cents to $2.37. Deliveries to the Henry Hub came in a penny higher at $2.16, and gas at Opal was unchanged at $2.14.

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