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NatGas Cash Sees Broad Gains; June Adds More Than A Nickel

Physical natural gas for Wednesday delivery rose in Tuesday trading, encouraged by a strong screen as well as solid gains in Louisiana, the Southeast, and Texas. The NGI National Spot Gas Average gained 3 cents to $2.90, and few points made it to the loss column.

Futures firmed as near-term weather forecasts called for above-normal heating and cooling load. At the close June had risen 5.5 cents to $3.227 and July was higher by 5.8 cents to $3.315. June crude oil dropped 55 cents to $45.88/bbl.

Near-term temperature outlooks at major Eastern and Midwest market points called for readings below seasonal norms. AccuWeather.com predicted Philadelphia's high of 65 would rise to 68 Wednesday and Thursday, 4 degrees below normal. Boston's peak of 52 Tuesday was expected to reach 60 on Wednesday before retreating to 53 Thursday, 11 degrees less than normal. Chicago's 52 max Tuesday was predicted to reach 58 Wednesday before sliding to 57 Thursday, also 11 degrees less than its seasonal norm.

Gas at the Chicago Citygate rose 2 cents to $2.94, but deliveries to the Algonquin Citygate were quoted 3 cents lower at $3.19. Packages on Dominion South were unchanged at $2.81.

Gas at the Henry Hub was also unchanged at $3.03 but deliveries to El Paso Permian gained 6 cents to $2.67.

Packages priced at Northern Natural Demarcation added 5 cents to $2.82, deliveries to Opal came in 5 cents higher at $2.73, and gas at the PG&E Citygate changed hands at $3.32, up 5 cents.

Indications of lower production didn't hurt the cause of higher prices. "[Tuesday's] estimate for Lower 48 production is showing a preliminary drop of more than 1.3 Bcf/d day-overday," said industry consultant Genscape in a report. "Spring Rock's Daily Pipe Flow Data is showing today's estimate at just under 70.4 Bcf/d, down from yesterday's 71.7 Bcf/d. As always, the top day estimate is subject to revisions - particularly during maintenance season.

"Today's estimate for Northeast production is down more than 0.7 Bcf/d day over day, followed by drops in excess of 0.2 Bcf/d in the Rockies and San Juan, and drops around 0.12 - 0.17 Bcf/d in Texas and the Midcon, respectively.

"Northeast declines appear heavily concentrated in Northeast PA, where the estimate is showing a nearly 0.54 Bcf/d day over day drop. On the pipe sample, the drop is led by Stagecoach, specifically a 123 MMcf/d day over day drop in receipts from the Cherry Rd gathering system.

"The drop in the San Juan estimate is almost entirely due to a cessation of El Paso receipts from Enterprise's Val Verde processing plant in New Mexico. Today's volumes are at zero, down from 264 MMcf/d yesterday and a prior 30-day average of 239 MMcf/d.

"Rockies volumes are down 210 MMcf/d day over day. The bulk of the declines are out of the Green River area, led by a 116 MMcf/d day over day in REX receipts from the Lost Creek/Sweetwater gathering system."

Futures opened 3 cents higher Tuesday morning at $3.20 as near-term weather forecasts called for greater energy demand, yet traders ultimately see weaker prices.

Overnight weather models came in cooler. In its morning report to clients WSI Corp. said, "[Tuesday's] six-10 day period forecast is cooler than yesterday's forecast across the northern states and warmer over the southern states during the majority of the period. Continental United States gas-weighted heating degree days “are up 2.6 to 25.6. [Population-weighted cooling degree days] are up 1.1 to 15.6.

"The track and progression of low pressure near the East Coast and over the western U.S. could cause the forecast swing in either direction. A slower progression like the ECMWF [European Centre for Medium-Range Weather Forecasts] offers a cooler risk over the East."

Estimates of heating load near-term are coming in greater than normal. The National Weather Service (NWS) forecast above-normal accumulations of heating degree days (HDD) across major energy markets for the week ending May 13. NWS said New England would see 88 HDDs, or 12 more than normal, and New York, New Jersey and Pennsylvania would have 86 HDDs, or 26 more than the normal seasonal tally. The greater Midwest from Ohio to Wisconsin was anticipated to experience 78 HDDs, or 13 more than normal.

Analysts see other fundamental factors largely offsetting each other without a significant impact on storage. "In the absence of significant weather guidance, the market is forced to rely on significant shifts from non-weather items such as production, power demand and exports," said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients.

"But here also, offsets are being seen and significant adjustments to month-end storage levels are not being required. A reduction from the 303 Bcf storage surplus of around 20 Bcf has likely been priced in, and an outlier such as a build of less than 45 Bcf or greater than 60 Bcf will likely be required to spark a price move much larger than 6-7 cents. Meanwhile, the physical trade is looking heavy with Henry Hub drifting lower back toward the $3 area. These discounts against the nearby screen are contributing to an expanded front June-July switch into new wide territory of almost 9 cents. This is a bearish portent, in our opinion, that is reinforcing our forecasts for an ultimate price decline to the $3.05 area.”

Longer term, some see strengthening in the second half of 2017 and beyond.

"But while we are in agreement with spring price softening, we see sentiment reversing again come core summer," said Breanne Dougherty, analyst with Societe Generale in New York.

"What will be most critical, however, is if/when the market starts extending the price support beyond 1Q 2018. To-date, the market is seemingly attempting to employ a short-term price incentive strategy for production growth; SG believes there is a significant flaw in this strategy, believing that the health of the near-term production trajectory is most determined by the NG12 to NG18 contracts, not the front-months.

"If we are right, achieving the type of production growth the market seeks given the current shape of the Nymex curve should be very challenging. SG remains bullish relative to curve through 2018.”

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