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NatGas Cash Grinds Higher, But Futures Take A Breather

Next-day natural gas at major market centers crept higher in Tuesday's trading, with double-digit gains at New England points able to offset broader losses of a few pennies at producing regions and double-digit hits at Mid-Atlantic locations.

The NGI National Spot Gas Average rose a penny to $2.69. Hefty gains in New England got a boost from supportive next-day power prices, but although futures traded at a new high, at the closing bell November had lost 3.8 cents to $3.237 and December had dropped 2.5 cents to $3.429. November crude oil retreated 56 cents to $50.79/bbl.

Alliance Pipeline, a major gas pipeline from Canada into the Chicago area, was scheduled to shut entirely its throughput of about 1.5 Bcf/d Wednesday (see Daily GPI, Oct. 5), but industry consultant Genscape noted that it "has already begun curtailing volumes ahead of [Wednesday's] system shutdown. Alliance will shut down its system for line work near Regina, Saskatchewan for approximately seven days. Evening nominations are already down to 1,474 MMcf/d, down from the last seven day's average of 1,526 MMcf/d.

"On the downstream side, Vector and ANR receive the most gas from Alliance. In previous events, it did not appear ANR sourced alternative supplies to compensate for volumes lost from Alliance,” Genscape said. “Vector moves the gas it receives from Alliance into Dawn; our expectation is that -- during the outage -- Vector will simply curtail deliveries/injections into Dawn. This is not expected to generate large basis swings at Dawn since storage there is essentially full.

"From a price perspective, we are expecting Alliance Interstates basis to show a similar $0.08-0.12 swing it showed in previous outages. Midwest demand will be supported in the early portion of this week by some heating demand, but is expected to progressively wane with warming temperatures. Demand for spot market gas for injections has also been relatively well supported in recent days by attractive storage spreads to November and December. However, most storage facilities have fairly healthy inventory levels that could make additional injections difficult," Genscape said.

A Midwest buyer said he wasn't seeing much in the way of a market impact from the announced shutdown. "Not right now. Tomorrow will probably be our coldest day of the season, but it is expected to warm up very quickly.”

"This is a good time of year to do it [shut down the pipeline]," an industry veteran said. "Demand is pretty low, and some of this gas was going into storage so storage will be shorted a little bit. At the end of the day, it will probably be a mild effect.

"If it were 25 below zero, it would be a different story. It looks like 811 MMcf/d goes to ANR and 309 MMcf/d goes to Vector. Aux Sable is at 185 MMcf/d."

Gas at New England points rose as next-day power prices proved supportive. Intercontinental Exchange reported that on-peak power Wednesday at the ISO New England's Massachusetts Hub rose $3.34 to $24.27/MWh and deliveries to the PJM West terminal gained $3.10 to $37.55/MWh.

Gas at the Algonquin Citygate gained 33 cents to $2.21, and deliveries to Iroquois, Waddington added 31 cents to $2.31. Gas on Tenn Zone 6 200L rose 19 cents to $2.13.

In the Mid-Atlantic, prices eased. Gas on Texas Eastern M-3, Delivery shed 11 cents to 97 cents, and gas on Transco Zone 6 NY fell 26 cents to $1.07.

Market centers were largely mixed. Gas at the Chicago Citygate rose a dime to $3.10, and deliveries to the Henry Hub were clocked at unchanged at $3.14. Packages at Opal came in at $2.81, down 7 cents, and gas priced at the SoCal Border Avg. was quoted 12 cents lower at $2.88.

Futures traders weren't particularly bothered by the soft finish. "$3.18 to $3.21 is the DMZ of market support, and the market is holding against that right now," said a New York floor trader. "If it can get above $3.29 on the next push, then we go to $3.35. I think this move is part technical and part colder weather coming in with a little sympathy with crude oil above $50."

Forecasters are calling for cooler temperatures, but in the big picture heating load and cooling load are below seasonal norms.

"[Tuesday's] forecast is cooler than yesterday's forecast across a good portion of the eastern and central U.S., as well as the northern Rockies. California and the southwest U.S. are warmer," said WSI Corp. in its Tuesday morning report. "PWCDDs are only down 0.1 for days 11-14 and are now forecast to be 7.5 for the period. GWHDDs are up 1.9 to 41.9, which are almost 14 below average.

"Forecast confidence is average as all models suggest a breakdown with the Pacific pattern and a moderating trend, but there is always inherent uncertainty with the details during periods of transition. There is some upside potential across SoCal early in the period, but a drop in the PNA [Pacific North American system] offers some minor upside over the Midcontinent as the period progresses."

Analysts are scratching their heads at the six-day run of November futures in light of unsupportive weather factors. "The upside price acceleration of the past week has surprised given the fact that the weather factor has offered negligible impetus toward higher prices," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report. "Updates to the short-term temperature views are favoring above-normal temperature trends during the next couple of weeks that will keep both HDDs and CDDs appreciably reduced as this shoulder period proceeds. And given a lack of storm threat at this advanced stage of the hurricane season, we feel that the market should be erasing storm premium.

"Nonetheless, the fact that the longstanding supply surplus against five-year averages has been cut to only around 200 Bcf appears to have triggered the attention of the bulls in allowing the market to prioritize technical rather than fundamental factors, which it is often able to do across a very short-term time frame. Nonetheless, we see this price rally as extended with downside price risk now far exceeding that to the upside, in our opinion."

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