Physical natural gas prices for weekend and Monday delivery beat a hasty retreat in Friday's trading as buyers saw little need to commit to three-day deals and weather forecasts for the coming week continued to moderate.
No points followed by NGI traded in positive territory and most found themselves with solid double-digit losses. The NGI National Spot Gas Average fell 14 cents to $1.40, and eastern locations averaged about a 25-cent loss. Futures managed a modest gain in uninspired trading. At the close April had added 2.7 cents to $1.666 and May had risen 2.0 cents to $1.787. April crude oil gained $1.35 to $35.92/bbl.
Observers see California gas between a rock and a hard place. A combination of healthy hydro supplies along with gas volumes attempting to make their way west out of the Rockies to West Coast markets does not bode well for California prices in what was once a premium market.
"Gas is on a collision course," said Jeff Richter, principal with EnergyGPS, a Portland, OR-based gas and power consulting firm. "Obviously, you can't inject in Aliso Canyon, and you can't put gas in storage until April 1 because of [pipeline] minimum turn requirements. There is contractual capacity that is lower than physical capacity in storage right now so that is a problem. That is why you are seeing cash disconnect from prompt month [April futures].
"Where is the bottom? Who knows. SoCal [Citygate] traded $1.34 for the three day piece, and that's 15 cents under Henry Hub. Weekends are going to get annihilated."
Perhaps not quite annihilated but lower nonetheless. PG&E Citygate fell 3 cents to $1.73, and gas at the SoCal Citygate plunged 29 cents to $1.39. Deliveries priced at the SoCal Border Avg. Average saw quotes 15 cents lower at $1.34, and gas on Kern Delivery shed 16 cents to $1.34. Gas on El Paso S. Mainline changed hands 19 cents lower at $1.32.
Major market trading points also lost ground. Gas at the Henry Hub fell 7 cents to $1.49, and deliveries to Opal were quoted 13 cents lower at $1.28. Parcels on El Paso Permian shed 14 cents to $1.29, and gas at the Chicago Citygate dropped 9 cents to $1.57.
Futures traders are equally unimpressed. "We are still looking at $1.60 to $1.75, it was only a 6-cent range and we are still stuck on these numbers," said a New York floor trader.
The weakness in the cash market in California and elsewhere is likely to lead to further declines in futures and any change in price direction will require a supply response from eastern producing basins. "Spot values at Henry Hub fell to around $1.55 [Thursday], and we view this ongoing weakening in the cash basis as suggestive of additional futures declines," said Jim Ritterbusch of Ritterbusch and Associates in a Friday morning note to clients.
"These discounts for physical product are also forcing further expansion in the carrying charges, and we still see even wider contangoes, especially within the spring-fall portion of the gas curve. The increasing possibility that storage space will eventually need to be allocated via even lower prices will continue to act as a driver of larger spot price discounts in comparison to fourth quarter futures. As the contangoes stretch, additional incentive will be provided to longer-term or investment-type speculative shorts that will realize the advantages of rolling sequentially into much higher priced futures.
"With weather-related demand expected to subside during the next few months and coal to gas displacement progressing slowly, a supply side reaction to this year's price plunge will be required in order to force a long-term price bottom. However, such a development has not been evidenced, and we will await even a minor indication of slowed output within the eastern region before considering an end to this extended bear move."
In the PJM footprint wind generation over the weekend was expected to reach only nominal levels. WSI Corp. in its Friday morning outlook said, "Low pressure and its associated snow and rain will depart and give way to a clearing trend [Friday]. It will be seasonably cold with highs in 30s to mid 40s. Another weak frontal system will drop into the power pool, with a chance of light rain and snow during Saturday into the start of Sunday, [and] a mild southerly flow will usher unseasonably warm spring like weather into the power pool next week. High temperatures may climb into the upper 50s, 60s to low 70s by Tuesday.
"Relatively light and changeable wind generation is expected during the remainder of the week into the weekend. A mild and increasing southerly wind will drive up wind gen potential during Sunday night through early next week. Output may climb 4-5 GW by Tuesday."
In its longer term 11- to 15-day forecast WSI said, "Once again, today's forecast is warmer than previous forecasts over the northern and eastern U.S. CONUS GWHDDs are down another 3.1 for days 11-14 and are now forecast to be 61.4 for the period. This is nearly 43 HDDs below average."