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Weekly Natgas Ekes Out 5th Consecutive Gain As Futures Zero In On $3

For the short Thursday-Friday trading week for July delivery, physical gas saw a wide range of pricing with modest gains in the Rockies and West Texas offset by healthy double-digit gains in the Midwest and Gulf and stout double digit losses at eastern points.

The week's greatest gainer was PG&E Citygate with an advance of 26 cents to average $3.16 and the poorest performer was Tetco M-3 Delivery with a loss of 39 cents to $1.56. After the smoke cleared weekly traders saw the NGI National Weekly Spot Gas Average a penny higher at $2.56.

Eastern points were hit hard. Gas at the Algonquin Citygate shed 25 cents to $2.52 and parcels bound for New York City on Transco Zone 6 were off 34 cents to average $1.72.

Balancing out the sharp eastern losses were gains in the Midwest, Gulf, and Southeast. Gas at the Henry Hub changed hands 17 cents higher at $2.89 and gas priced at Transco Zone 4 added 13 cents to $2.83.

Deliveries to the Chicago Citygate added a dime to $2.77 and gas at Dawn was quoted 11 cents higher at $2.80.

Gas on El Paso Permian added 2 cents to $2.62 and packages on Transwestern San Juan rose a penny to $2.62 as well.

August futures for the five-day trading week added a hefty 29.3 cents to $2.987.

The July futures expired Tuesday at $2.917, up 95.4 cents from the June expiration.

Thursday's physical market trading saw gas for delivery Friday slump as a strong performance by Northeast points was unable to offset declines in the Gulf Coast, Texas, California and the Rockies.

The NGI National Spot Gas Average shed 9 cents to $2.61, but many traders elected to get their deals done prior to the release of storage data by the Energy Information Administration (EIA).

The EIA reported a storage build of 37 Bcf for the week ending June 24, lower by about 9 Bcf from market expectations. The figure, however, included a 5 Bcf downward inventory revision, thus making the implied flow 42 Bcf. That was good enough for market bulls, and at the end of trading the August contract had marched higher by 6.1 cents to $2.924 and September was higher by $0.060 to $2.918.

"The storage number was low, but I think it will take a lot more of these low builds to push the market through $3. Look for the market to slow down as we are heading into a long weekend," said a New York floor trader.

Traders didn't blink at the 5 Bcf adjustment in the Pacific Region, which was likely due to an adjustment posted by SoCalGas on its website Monday (June 20) and picked up in the storage report for the week ended June 24.

"SoCal announced on May 26 they would be adjusting system inventory down by 4.62 Bcf due to adjustments applicable to Aliso Canyon storage. However, the change was not actually reported on the SoCal website until this Monday," industry consultant Genscape said in a report (see Daily GPI, June 23).

"The number came out 37 Bcf, and we were looking for 46 Bcf," said a New York floor trader. "We were trading $2.89 to $2.90 before the number came out so we retraced back to where we were."

Even with the adjustment traders saw the report as supportive. "The DOE reported a 37 Bcf net increase in US natural gas storage for the week ended June 24, but the data did include a 5 Bcf reclassification of working gas as base gase," said Tim Evans of Citi Futures Perspective. " The implied flow was therefore a somewhat less bullish 42 Bcf. Even so, this was less than the 46 Bcf consensus expectation and implied a tighter supply/demand balance, a bullish outcome."

Inventories now stand at 3,140 Bcf and are 582 Bcf greater than last year and 637 Bcf more than the five-year average. In the East Region 20 Bcf was injected, and the Midwest Region saw inventories increase by 18 Bcf . Stocks in the Mountain Region rose 4 Bcf, and the Pacific Region was lower by 3 Bcf. The South Central Region shed 2 Bcf.

In Friday's trading physical natural gas for the extended holiday weekend skidded as more moderate declines in Texas and Louisiana were incapable of offsetting significantly bigger drops in the Rockies, California, and the Northeast.

The NGI National Spot Gas Average fell 10 cents to $2.51, although futures continued higher, coming within a half cent of $3. At the close August was up 6.3 cents to $2.987 after trading as high as $2.995 and September had advanced 6.3 cents as well to $2.981. August crude oil rose 66 cents to $48.99/bbl.

Market observers are scratching their heads and asking, "Why haven't higher prices loosened the market after a $.70 cent rally?" said industry consultant Genscape. "The short answer is that, while gas is in fact ceding market share back to coal, nuclear and hydro have gone from being much above normal in April and May to below normal in June, which is increasing the call on thermal generation (both gas and coal) and partially offsetting the reduction in gas burn vs coal.

"Higher gas prices are indeed having an impact, and coal generation has indeed risen more sharply than gas in the last few weeks. Comparing week ending June 23 versus the week ending May 26, coal generation is up nearly 50 average Gigawatt Hours, while gas generation is up 37 (5 average gigawatts of gas generation equates to nearly 1 Bcf/d of gas burn).

"Power is not the only factor keeping the market tight as production has been declining in absolute terms and even more quickly versus the five-year average," Genscape said.

There wasn't much market tightness in play Friday, especially in market points delivering gas to California and the West Coast. Forecasts of falling temperatures and soft power pricing were enough to pull the plug on a number of locations. Forecaster reported that Friday's expected high in Los Angeles of 80 was seen sagging to 76 Saturday and 74 Monday, right at the seasonal average. Normally toasty Burbank, CA, was predicted to see its Friday high of 84 slide to 82 Saturday and rise to 84 Monday, also the seasonal norm.

Gas on Malin fell 19 cents to $2.49 for the long holiday weekend, and gas at Opal retreated 15 cents to $2.51. Gas on Kern Delivery shed 18 cents to $2.66, and packages on El Paso S. Mainline/N. Baja changed hands 11 cents lower at $2.73.

Intercontinental Exchange reported that power for delivery Tuesday at SP-15 fell 89 cents to $36.61/MWh.

Other market points were soft as well. Gas at the Algonquin Citygate fell 35 cents to $2.34, and deliveries to the Chicago Citygate gave up 6 cents to $2.74. Parcels at the Henry Hub were quoted at $2.87, down 3 cents, and gas on Transwestern San Juan fell 13 cents to $2.55. Gas priced at the SoCal Citygate dropped 23 cents to $2.69.

Analysts see a market ready to push through $3. "Although this market was unable to post fresh highs overnight, its ability to push above [Thursday's] peak suggests a bull market that is very much alive and apt to realize a $3 price handle next week," said Jim Ritterbusch of Ritterbusch and Associates in Friday morning comments to clients.

"The short-term temperature views remain tilted bullish with above normal temperatures extended out toward end of month, according to most forecasts. However, deviations from normal don't appear appreciable across the northern half of the U.S., and this is precluding strong upside follow-through at the present time.

"Nonetheless, the cash market at Henry Hub appears well supported despite the fact that industrial demand will be downsized in conjunction with the upcoming three-day holiday period. This comparatively strong cash basis is likely to keep the front August-September switch inverted in providing a significant bullish portent in our opinion. Furthermore, this market may still need to price in another sharply downsized 40-50 injection in next week's EIA report as a result of this week's warm temperatures and disrupted supply out of a major gas processing plant."

Others aren't so sure about a sustained push through $3 any time soon. Traders saw Thursday's six-cent advance as impressive and said, "It has a shot a $3, but that is a tough, tough area. Did you see what happened in the crude oil? As soon as it hit $50 [Wednesday] it came off 18 cents. $50 was such a benchmark for crude oil and that is the way traders are going to look at $3 natural gas," said a New York floor trader."

Gas buyers for power generation over the weekend across the PJM footprint should be faced with less of a challenge as temperatures are expected to moderate, but wind generation is also expected to lessen. Forecaster WSI Corp. said, "high temps will range in the upper 70s and 80s along with mins in the mid 50s, 60s to near 70. A residual frontal boundary and ripple of low pressure will be a focal point for rain and thunderstorm activity during Sunday night into early next week. Wet weather will continue suppress temperatures.

"The cold front passage will boost wind generation today into Saturday morning, but output will only top out around 2 GW range. Wind gen will relax and become light during the remainder of the period."

Longer term, WSI is looking for a cooler West and warmer East. "Above average period anomalies are expected across much of the central and eastern U.S. during the six-10 day period. Period anomalies will range closer to, if not a tad below, average over the West. [Friday's] forecast is a bit warmer over the eastern half of the nation and cooler over the western half. As a result, CONUS PWCDDs are up 0.7 to 69.8 for the period."

In order to better reflect ever-changing physical market dynamics NGI, as previously announced in a June 1 Price Notice, has added two new regions to the gas price index tables in its newsletters, along with two new price points. As of July 1, NGI has split the existing Northeast section into separate Northeast and Appalachia regions; initiated a new Southeast region, which is a combination of the original Alabama/Mississippi and Florida regions; and created separate Transco Zone 5 North and South prices, while continuing to publish combined Transco Zone 5 prices.

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