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Lingering April Cold Boosts Natural Gas Futures; Spot Prices Up in California

  • May NatGas up 1.4 cents to settle at $2.697
  • Guidance Tuesday “held colder trends across the northern U.S. this weekend into the middle of next week”: NatGasWeather
  • “Bullish weather...helping to cancel out recent loosening,” says Bespoke
  • California spot prices higher as Genscape forecasting small uptick in demand

Natural gas futures inched higher Tuesday, helped by short- and medium-term forecasts maintaining below-normal temperatures across the northern United States. In the spot market, pipeline constraints contributed to price spikes in New England, while points in California strengthened amid expectations for a small uptick in demand in the region; the NGI National Spot Gas Average climbed 20 cents to $2.74/MMBtu.

The May contract recovered some of Monday’s losses on Tuesday, settling 1.4 cents higher at $2.697. The June contract settled at $2.745, up 1.3 cents on the day.

“May natural gas prices ticked higher Tuesday after Monday’s selling as weather remained quite supportive and cash prices remained strong,” Bespoke Weather Services said. “We see bullish weather as helping to cancel out recent heating demand should be quite impressive for the time of year over the coming week.

“...In the short-term, cold will be impressive enough to keep cash prices elevated, especially as within seven days it only continues trending more intense,” the firm said. “However, once that leaves the front of the strip may lag under the pressure of continued record production and burns that are not as tight as a month ago.”

Bespoke said it would look for the market to test resistance around $2.72 or possibly $2.75 Wednesday if weather models trend colder overnight.

“Those would likely be good areas to accumulate short exposure, however, as upside above there seems quite limited given current balance” and since “there is only so much colder guidance can trend,” according to the firm.

The midday weather data Tuesday “held colder trends across the northern U.S. this weekend into the middle of next week, but still advertises a rather benign and seasonal pattern across much of the country April 12-18 for much lighter demand,” said. “...Bigger picture, the cool pattern through the middle of next week means three more draws on supplies are likely to be reported, two weeks longer than the five-year average.

“This should push deficits over 400 Bcf, with the end of the draw season just under 1,350 Bcf,” the firm said. “Again, this would be quite bullish if not for Lower 48 production near all-time highs.”

Turning to the spot market, in its one- to seven-day outlook Tuesday NatGasWeather said, “A strengthening winter storm will bring areas of rain and snow across the Midwest/Great Lakes today, with lows behind the cold front reaching the teens to 30s, locally single digits for strong demand.

“The East will be quite warm Tuesday ahead of this system with highs of 60s to 80s but will quickly cool Wednesday through Friday as the winter storm tracks through...Additional colder than normal weather systems will track across the Great Lakes and East this weekend into next week, keeping national demand stronger than normal.”

A number of New England points posted sharp increases Tuesday, with Algonquin Citygate jumping $2.42 to $7.23, while Maritimes & Northeast shot up $3.80 to average $8.05.

“Starting Wednesday, and lasting though April 18, Algonquin’s mainline compressors will be highly restricted, which will likely cause upward basis pressure and gas reroutes where possible,” Genscape Inc. said. Tennessee Gas Pipeline’s “Mendon interconnect will continue to be a critical supply source, in addition to Maritimes & Northeast’s Salem Essex interconnect (around 640 MMcf/d combined capacity).

“Genscape meteorologists are forecasting greater than normal heating degree days starting Thursday and lasting through April 13, which will increase the amount of import capacity that needs to meet residential/commercial demand before power demand can be satisfied,” the firm said. “Ultimately, this will likely push some gas generation out of the supply stack and almost definitely raise Algonquin Gas Transmission basis and power prices.”

Prices in California moved higher Tuesday as Genscape was calling for demand in the California/Nevada region to increase slightly over the next several days. Demand was expected to come in at just under 6 Bcf/d starting Wednesday and continuing through the end of the work week, up from a recent seven-day average of 5.22 Bcf/d.

Malin added 9 cents to $2.07, while SoCal Border Average jumped 18 cents to $2.19. The import-constrained SoCal Citygate moderated Tuesday but continued to trade at a premium to surrounding points, finishing 5 cents lower at $3.31.

Further upstream in West Texas, El Paso Permian added 15 cents to $1.83, while Waha retreated 8 cents to $2.00.

As “associated gas production is surging” in the Permian Basin, Waha spot prices have continued to weaken, BTU Analytics LLC senior energy analyst Matthew Hoza said last week. He noted that a series of natural gas takeaway projects have been proposed, including Gulf Coast Express, Pecos Trail, Permian-to-Katy (P2K) and the Permian Global Access Pipeline, totaling roughly 8 Bcf/d of new takeaway.

“Based on projected production, Gulf Coast Express alone won’t provide takeaway relief to the basin for very long” once it comes online, planned for October 2019. The pipeline’s capacity would likely fill up by 2020, according to Hoza.

“Projecting that capacity and demand forward gives us a capacity shortfall of 4.4 Bcf/d by 2025 and 7.2 Bcf/d by 2030,” he said. “Compare that to the additional three projects following Gulf Coast Express that have a combined capacity of approximately 6 Bcf/d. That would suggest that all of the announced projects’ takeaway will be needed by 2030. However, there is another potential solution just across our southern border.”

Permian-to-Mexico exports have shown little growth because of infrastructure delays, but “with projects in Mexico set to eventually come online over the next year, we would expect the effective export capacity across the border to increase,” Hoza said. “However, once that effective capacity comes online one of two things can happen: imported gas from the Permian can serve new demand in Mexico or exports out of the Permian can displace exports out of South Texas (Agua Dulce), thereby helping the Permian, but impacting the broader U.S. gas market.”

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