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Futures Record Three-Month High; Tetco Pipe Blast Spooks Northeast

With no real weather to speak of, natural gas cash market values on Friday for gas to be delivered Sunday and Monday slid. That was excluding many Northeast prices, which rebounded from a couple of consecutive down days, perhaps on news that part of a Texas Eastern (Tetco) mainline in Pennsylvania exploded Friday morning.

Over in the futures arena, the June natural gas contract looked to be still finding it's prompt-month footing, trading a wide $2.042-2.195 range during the regular session before closing out at a three-month prompt-month high of $2.178, up a dime from Thursday but 8.9 cents below the contract's previous Friday's close.

Living up to the typical definition of a shoulder season, temperatures in most high gas demand regions are currently too warm for heating load, and too cool for air-conditioning demand. While most individual natural gas index points were in the red, the declines were lackluster -- mostly in the 2- to 5-cent range. However, thanks to more than a few gains of a dime in the Northeastern region, NGI's National Spot Gas Average came in at $1.79, unchanged from Thursday.

As one of the only points outside of the Northeast to record a gain, the Henry Hub's 2-cent increase to average $1.91, remains a 26.8-cent discount to front-month natural gas futures. Other Gulf points such as Columbia Gulf Mainline stuck to the decline trend, slipping 3 cents to average $1.82.

In the Midwest, Chicago Citygate managed to come in unchanged at $1.94, but Consumers Energy and Michigan Consolidated recorded declines of 3 cents and a penny, respectively, to $2.03 and $2.00.

Ever the contrarian, Northeast points posted mostly gains, which ranged from a couple pennies to a little more than a dime. However, the large-swinging Algonquin Citygate was relatively quiet for Sunday and Monday delivery, tacking on only 3 cents to average $2.35. Dominion South and Transco Zone 6 NY were some of the largest gainers on the day, adding 11 cents and 12 cents respectively, to $1.34 and $1.45.

The bump in Northeast pricing, and perhaps in futures as well, could be attributed to the force majeure on Tetco on Friday, which Spectra Energy Corp. issued following a massive explosion and fire on its Penn Jersey Line near the Delmont Compressor Station in Westmoreland County, PA, about 30 miles east of Pittsburgh (see related story). With 9,096 miles of pipeline, Tetco is a vital piece of infrastructure that connects the Gulf Coast with high-demand markets in the Northeast. The pipeline can transport up to 10.46 Bcf/d.

Pennsylvania Department of Environmental Protection (DEP) spokesman John Poister said the system’s 36-inch mainline ruptured, exploded and caught fire at 8:30 a.m. EDT on Friday. The fire had been extinguished by early afternoon, but first responders, utility workers, state regulators, area residents and others were left to deal with the aftermath. One person was injured. Spectra Energy Corp. personnel on Friday afternoon were conducting a controlled release of some of the natural gas that’s still built up in the system. DEP said it is a looped line with four pipelines running parallel to one another in the right-of-way, adding that it’s unclear which of the pipelines caused the incident and how badly damaged each one is. Tetco declared a force majeure and an operational flow order at about 11 a.m. on Friday. It also issued a number of operational flow restrictions and imbalance warnings, noting that excess takes beyond limited amounts could lower line pack, further hindering deliveries.

Texas Eastern M-3, Delivery was the single largest index gainer on the day, adding 13 cents to average $1.40. How much capacity is shut-in and for how long remains to be seen. The fact that they don’t yet know which or how many of the looped lines exploded argues for an extended downtime. The site has to cool down and be gas free before any work can commence.

Looking in on natural gas futures, the June contract on Friday posted the highest settle for a front-month contract since Jan. 29, 2016. Some market-watchers believe this could be part of a meaningful, albeit moderate rebound. "We remain in a relatively shallow and thus sustainable rate of advance in price, which has been going on since the end of February," David Thompson, vice president at Powerhouse LLC, a Washington DC-based trading and risk management firm, told NGI. "Sometimes when you have near vertical price moves, either up or down, they don't last."

Thompson also pointed to the recent pushback and delays of pipeline projects in the East as reason for some of the recent price rebound. "If some of these pipeline issues delay or restrict Marcellus gas getting down to the Gulf Coast and the pricing points, that may be slightly bullish. In addition, with the possibility of increased exports via LNG out of the Gulf Coast, that also will help prices."

The broker said it is important to remember that the natural gas market has been in bear mode a lot longer than the oil market has been, so a lot of that economic rationalization has had the time to work its way through. He added that markets often create symmetry.

"Back in April of 2012 we hit a significant low on the weekly chart around the $1.90ish range. Then we had a solid 97-week rally up north of $6 in March 2014, which sparked another sell-off. It looks like a very symmetrical mountain with roughly 97 weeks on either side," he said. "I would suggest we've been in this basing phase since the end of 2015 and that the market has rationalized demand and supply given the new shale economics. I think we're moving up in a moderately bullish pattern due to the impacts of supply from constrained Marcellus Shale supplies, as well as the normal seasonal push higher as we come into summer."

Looking at Thursday's natural gas storage report one day later, analysts at Tudor, Pickering, Holt & Co. (TPH) called the 73 Bcf build for the week ending April 22 a "bearish tilt" and "well high of historic norms."

The significant build also brought into question whether the fundamentals are currently in place to erase the current storage surplus. A combo of very mild weather and a miss versus expectations indicates a market no better than balanced on a weather-adjusted basis," TPH analysts said Friday morning. "Not good enough when we need to see both normal weather and a 3 Bcf/d undersupply to erase excess storage levels." They added that weather for the week was warmer than normal with just 48 heating degree days (HDD) versus the 79 HDD five-year average.

"Declining production and decent weather-adjusted demand has the market increasingly confident that a much higher gas price will be needed this coming winter to balance the market," they said. "However, in the meantime the market needs to be tighter than it has been recently to work down excess storage, so in the near-term price needs to adjust accordingly."

In the heart of 1Q2016 earnings reporting season, low oil and gas commodity prices are a constant and familiar gripe, but some industry executives see signs of hope. During a 1Q2016 conference call on Thursday, Jim Teague, CEO of Enterprise Products Partners LP's general partner, told analysts his outlook on prices "is probably worth what you're paying for it," and then he made his case for optimism (see Daily GPI, April 28). "Almost all the experts have been saying that we've seen the bottom for oil prices and that prices in general should be on an upward move," Teague said. "We believe the fundamentals point in that direction."

From now until 2020, new U.S. LNG export capacity will be steadily entering service, he said. Meanwhile, demand for gas among power generators continues to increase, and industrial load continues to grow, "...all in the face of gas rig counts that are less than 90 in the U.S., considerably past any historic lows [see Daily GPI, April 22].

"For liquids, NGL prices are influenced by oil, and with ample export capacity, ample shipping and a wave of new ethylene plants coming online, we don't see that changing. Said simply, if you're bullish oil, you have to be at least as bullish on natural gas liquids. Thus, the fundamentals for oil, natural gas and all the NGL products look constructive. Hydrocarbon demand continues to grow; production continues to fall, which points to improved pricing."

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