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Physical NatGas Inches Lower on Easing Energy Demand; April Quietly Adds 2 Cents

Physical natural gas for weekend and Monday delivery found few takers in Friday's trading as ample storage, along with a quiet energy market, gave traders little incentive to lock in three-day deals.

The biggest changes were in the Northeast, but those paled in comparison to price moves earlier in the week. The NGI National Spot Gas Average eased a penny to $2.74, and futures trading was equally lackluster. April added 2.5 cents to $3.076 and May rose 2.2 cents to $3.153. May crude oil tacked on 27 cents to $47.97/bbl.

Energy demand was expected to take a sharp dive over the weekend at eastern market centers. New York ISO forecast that peak power load Friday of 18,642 MW would fall to 17,999 MW Monday. PJM Interconnection forecast Friday peak load of 35,649 MW would plunge to a maximum 30,402 MW Monday.

Gas at the Algonquin Citygate fell 18 cents to $2.60, and deliveries to Iroquois, Waddington gave up 5 cents to $3.06. Gas on Tenn Zone 6 200L dropped 4 cents to $2.87.

Major market points drifted lower. Gas for weekend and Monday delivery to the Chicago Citygate slipped a penny to $2.87, and packages at the Henry Hub were down 1 cent at $2.92. Gas on El Paso Permian was quoted 4 cents lower at $2.53, and gas priced at the PG&E Citygate eased a penny to $3.17.

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Little change was seen in next-day (Monday) power pricing as well. Intercontinental Exchange reported that on-peak Monday power at ISO New England's Massachusetts Hub fell 60 cents to $28.75/MWh and on-peak power deliverable to the PJM West terminal dropped 57 cents to $29.53/MWh.

Building new gas markets for power generation along the southern tier of the U.S. may be something of an uphill battle. A report by EnergyGPS, a Portland, OR-based energy and risk management firm, shows new capacity additions in the U.S. by type of generation. "Solar has grown from 4% of new capacity in 2010 to 39% of new capacity in 2016. Coal has declined from 32% in 2010 to 0% in 2016. Wind has ebbed and flowed during the same time period and is holding strong in 2016 at 26%."

EnergyGPS notes that capacity increases are shown as MWdc rather than MWac. "The DC MWs represent how many MW are installed behind the DC to AC inverter. The AC MWs represent the amount power actually pushed onto the grid. For large solar installations the ratio of MWdc to MWac often exceeds a ratio of 1.3 depending on a variety of factors. The installation in 2016 of 14.7 GW is almost double the installations in 2015. This is impressive growth.

"Not surprisingly, California accounts for about one-third of total installations in the U.S. in 2016 coming in just over 5 GW. Western states account for five of the top 10 states. Interestingly, decentralized markets account for seven of the top 10. This may simply be due to the fact that the southern swath of the U.S., where the solar resource is best, is largely comprised of states that are outside of centralized RTO markets.”

Gas at Malin was unchanged at $2.63 and deliveries to the SoCal Citygate shed 15 cents to $2.86. Gas priced at the SoCal Border Avg. Average fell 4 cents to $2.65 and Kern Delivery changed hands 2 cents lower at $2.64.

Natural gas futures opened trading Friday 2 cents lower as traders viewed the market as slightly overbought and little in the way of supportive weather seen on the horizon.

Traders see the market as a short-term sell and a long-term buy. "The 150 Bcf withdrawal was spot on average street expectations and hence, price-neutral," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Thursday. "The surplus versus five-year averages shrunk by a substantial 129 Bcf to 266 Bcf. But while additional shrinkage will likely be seen in next week's data, the overhang should hold above the 240-245 region.

"However, keeping pace with normal injections next month could be significantly challenged by comparatively low production levels and consensus prospects for a hot summer. Overall, we are still viewing the ability of this market to maintain more than 80% of this month's strong 15% gains in spite of little assistance from the weather factor as a bullish portent that could keep May futures elevated toward the high end of our expected $2.83-3.09 trading range.

"We still look for this market to evolve into a consolidation phase in which the $3 level per nearby futures represents somewhat of a no-man's land as far as trade entry is concerned. We are still looking to sell rallies in May futures to around the $3.16 level for short-term traders. But we still prefer to wait for an eventual decline to below the $2.90 level to start accumulating investment-type long holdings along with some deferred bull spreads."

Gas buyers for weekend power generation across the PJM footprint will have a moderate amount of renewable generation to work with to offset gas purchases early on if weekend weather forecasts prove correct.

"A gusty southerly wind will boost wind generation today through early Saturday as high as 4-5 GW," said WSI Corp. in a Friday morning report to clients. "Wind gen will subside during Sunday into early next week.

"A warm front and subsequent southwest wind ahead of a developing storm system over the central U.S. will quickly warm temps into the 50s, 60s to low 70s across the majority of the power pool today. The aforementioned storm system will track eastward and spread rain and thunderstorms into the power pool as the weekend progresses into early next week.

"Warm conditions will continue into Saturday, but some cold air associated with a backdoor cold front will bleed southward into portions of the Mid Atlantic during Sunday into Monday leading to a sharp contrast and changeable conditions."

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