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‘Uneventful’ Day Sees Natural Gas Futures Finish a Penny Higher; Cash Mixed

Natural gas futures contemplated a move lower Tuesday before recovering to break a front-month losing streak that had lasted for five straight trading sessions. Spot prices were mixed, with generally small moves save for a few points along the East Coast and in the West; the NGI National Spot Gas Average added 6 cents to $2.84/MMBtu.

After trading as low as $2.695 shortly after the open, the March contract gained steadily through the day to settle 1.2 cents higher at $2.759. April settled at $2.723, down a fraction of a penny.

Calling Tuesday an “uneventful trading day,” Bespoke Weather Services said afternoon weather data “did little to support prices, which appeared poised to rally” if there were signs of additional heating demand in the forecast.

“With record production and few bullish catalysts we struggle to see how prices would move much higher just yet, keeping our sentiment neutral as model guidance, if anything, ticked a bit more bearish this afternoon,” Bespoke said in an afternoon note to clients. “It is clear that this market is searching for a bottom, as we saw prices move higher with no clear morning catalyst, and into the settle” the March/April spread “widened rather sizably.

“Even now post-settle we see March/April having moved out more than a cent, which is a bit surprising given recent gas-weighted degree day losses,” the firm added. “These are all signs that this market is looking for a reason to rally but does not yet have it, and we do see risks that prices” fall to $2.58-2.62 over the next few days “if we continue to see sizable warmth” in the outlook.

Predictions have been rolling in for Thursday’s Energy Information Administration (EIA) storage report, showing a withdrawal in the triple digits.

Stephen Smith Energy Associates in a revised estimate Tuesday predicted a withdrawal of 121 Bcf for the week ending Feb. 2. That would compare with a seasonally normal weekly withdrawal of 153 Bcf based on 2006-2010 norms, according to the firm.

PointLogic Energy in a note to clients Monday estimated a 116 Bcf withdrawal for the period, 17 Bcf larger than the prior week’s pull based on colder weather in the East and Midwest.

Intercontinental Exchange futures settled Monday at -120 Bcf for this week’s storage report.

Meanwhile, the EIA on Tuesday increased its estimate for 2018 Henry Hub prices to average $3.20, up 32 cents from an estimate issued last month that had 2018 prices averaging $2.88.

"January saw the two largest withdrawals on record: 359 Bcf for the week ending Jan. 5 and 288 Bcf for the week ending Jan. 19. The cold weather had a significant effect on the South Central region...withdrawals in that region comprised between 42% and 43% of total U.S. withdrawals in both of the record-breaking weeks because of increased natural gas-fired electricity generation for heating," EIA said in its latest Short-Term Energy Outlook.

Those large inventory draws put upward pressure mainly on the near months of the futures curve, EIA said.

"The difference between the prices of the front-month natural gas contract and the contract for delivery 13 months in the future (1st-13th spread) increased from -33 cents/MMBtu on Dec. 26, 2017, to 38 cents/MMBtu on Jan. 24, 2018. The change in the 1st–13th spread implies a reversal of the expectations of market conditions.”

With storage levels in the South Central currently sitting at lower than normal levels, there could be competition for production from the Haynesville Shale and Appalachian Basin to reach the region as injection season ramps up, according to a note Tuesday from BTU Analytics LLC.

“As of the withdrawal for the week ending Jan. 26, the South Central storage total was at 719 Bcf, 30% below last year and 24% below the five-year average,” wrote BTU CEO Andrew Bradford. “The storage at the salt fields in the South Central for the same period is at 169 Bcf, 50% behind last year and right at the five-year minimum.

“...The challenge for Haynesville supply, as well as Appalachian supplies flowing from north to south on interstates in Louisiana -- including ANR, Tennessee Gas Pipeline (TGP), Trunkline, Gulf South, Texas Gas Transmission, and Columbia Gulf -- is that flows along the pipeline corridor to reach the large salt dome storage fields located along the Gulf Coast are nearing corridor capacity at times this winter,” Bradford said.

BTU estimated total north-to-south capacity on Louisiana interstates at around 6 Bcf/d.

“As winter demand wanes in the Upper Midwest and Northeast, increasingly new incremental production volumes from Appalachia and the Haynesville will be looking for a home,” Bradford said. He pointed to the potential for basis differentials at the Perryville Hub to widen as flows approached full capacity through the corridor.

In the spot market Tuesday, prices in Louisiana continued to slide, including a 7-cent drop at the Perryville Hub, which averaged $2.66, a 9 cent discount to Henry Hub.

The Rover Pipeline flowed a little above 1.6 Bcf/d east-to-west from the Appalachian Basin Tuesday to interconnects with ANR and Panhandle Eastern, up from around 1.2 Bcf/d late last week, according to NGI’s daily Rover Tracker.

FERC on Tuesday cleared Rover to restart horizontal directional drilling underneath the Tuscarawas River in Stark County, OH, ending the latest regulatory setback for the nearly completed 3.25 Bcf/d, 713-mile mega project. In multiple filings, Rover provided the Federal Energy Regulatory Commission with a revised plan in response to a Jan. 24 order suspending work because of concerns about potential environmental impacts.

Northeast spot prices were mixed Tuesday, with Algonquin Citygate, Dracut and Portland Natural Gas Transmission System all gaining more than a dollar. Other points in the region saw declines, including Iroquois Zone 2, which dropped 26 cents to $3.19.

Weather Underground was calling for temperatures to remain cold in Boston this week, including lows in the 20s Wednesday getting down into the teens on Thursday. The forecaster also was calling for a mix of rain and snow in the area Wednesday.

Genscape Inc. noted that TGP announced an emergent repair on Sunday at Station 261 near Agawam, MA, with repairs expected to be completed by Thursday.

“Flows along this segment have averaged 941 MMcf/d over the past seven days, with a single day maximum of 989 MMcf/d. Since the outage was announced, flows along this segment fell 117 MMcf/d from the previous day,” Genscape said.

Genscape said its forecasters were expecting heating demand near seasonal norms during the outage. “Should this outage persist longer than anticipated or colder-than-expected temperatures roll in, this could potentially impact Zone 6 basis prices, due to the outage’s upstream proximity to Boston’s demand market.”

Tenn Zone 6 200L gained 93 cents Tuesday to average $8.99 after gaining $1.31 in Monday’s trading.

Prices in the West continued to climb Tuesday while still generally trading at a wide discount to Henry Hub.

Southern Border, PG&E added 18 cents to trade at $2.21, while El Paso S. Mainline/N. Baja jumped 21 cents to $2.33. In West Texas, El Paso Permian added 14 cents to $2.06.

Genscape was forecasting a slight increase in demand in the California and Nevada region to just above 5.8 Bcf/d over the next several days, versus a recent seven-day average of 5.6 Bcf/d.

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