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Natural Gas Futures Fall Again as Milder Temps Weaken Spot Market

Natural gas futures slipped for the second straight day Tuesday as strong production numbers continue to suggest plentiful supply heading into injection season. In the spot market, milder weather for the second half of the week helped sink prices across most of the Midwest and Northeast Tuesday, while Southern California points continued higher; the NGI National Spot Gas Average dropped 17 cents to $2.68.

The May contract settled at $2.656, down 3.7 cents on the day after trading as high as $2.726 Tuesday morning. June settled at $2.694, also down 3.7 cents.

“May natural gas prices rallied initially” Tuesday morning, “testing the $2.72 resistance level twice...before reversing hard on cash weakness around 8:30 a.m. ET and continuing lower through the day,” Bespoke Weather Services said in closing comments for the day. “...The primary focus of the natural gas market remains record production levels and the recent loosening accordingly shown in” Energy Information Administration (EIA) data.

Other factors remain supportive, including an increase in nuclear outages, indicating “there may be a closer floor for prices,” the firm said. “Weather also remains incredibly supportive, with cold keeping heating demand above average into the final week of April that will help us continue pulling gas from storage later than expected.”

EIA released its Short-Term Energy and Summer Fuels Outlook Tuesday, predicting dry gas production will average 81.1 Bcf/d in 2018. The federal agency is forecasting U.S. gas consumption to increase by 4.2 Bcf/d (5.7%) in 2018 and by 0.7 Bcf/d (0.9%) in 2019, with electric power generation the leading contributor. Meanwhile, net gas exports should rise to an average of 2.2 Bcf/d in 2018 and 4.4 Bcf/d in 2019 from an average of 0.4 Bcf/d in 2017.

This comes as storage inventories ended March at almost 1.4 Tcf, which was 19% lower than the previous five-year average, EIA said.

“Based on a forecast of rising production, EIA forecasts that natural gas inventories will increase by more than the five-year average rate of growth during the injection season (April-October) to reach almost 3.8 Tcf on Oct. 31, which would be 2% lower than the previous five-year average,” researchers said.

Supporting EIA’s forecast for an increase in net exports this year, Dominion Energy on Tuesday announced the start of commercial service at its Cove Point liquefied natural gas (LNG) export terminal on the Chesapeake Bay in Maryland.

In a recent note, BTU Analytics LLC senior energy analyst Matthew Hoza highlighted LNG as a key source of potential incremental demand growth for summer 2018.

“The impact that LNG demand has already had on the U.S. natural gas market, and will continue to have, shouldn’t be understated, even as the global LNG market begins to wane, coming off peak winter demand,” Hoza said. He noted that Cove Point had been loading its second cargo, while Cheniere Energy Inc.’s Sabine Pass terminal “continues to run strong, sometimes operating above nameplate capacity.”

This summer, the start-up of both Freeport LNG and Kinder Morgan Inc.’s Elba Island export terminal “will add more than 1 Bcf/d of incremental LNG export capacity, adding to the strong deliveries off of natural gas pipelines that we are seeing to current facilities,” he said.

BTU is also projecting power burn as a potential source of demand upside this summer given weak natural gas prices and new gas-fired capacity coming online, according to Hoza.

“While BTU expects to see record power burn levels this summer, if it weren’t for some notable headwinds,” namely further renewables buildout and greater power plant efficiency, “it could have been even higher,” he said.

Turning to the spot market, a number of points throughout the Midwest and East fell by double digits as chilly conditions to start the week were forecast to make way for more spring-like temperatures in key demand markets over the next several days.

After lingering cold in the northern and eastern United States Tuesday “with morning lows of teens to 30s for strong demand...rapid warming will take place Wednesday through Friday as high pressure builds overhead, warming afternoon highs into the 60s to near 70 degrees as far north as Chicago to New York City,” NatGasWeather.com said in its latest one- to seven-day outlook.

“Most of the West will be mild to warm apart from showers into the coast,” the firm said. “During the weekend, a strong weather system will track through the central U.S. with rain, snow and colder than normal conditions as highs only reach the 30s to 50s, then tracking into the East late Sunday into Monday for another round of stronger than normal demand.”

Chicago Citygate shed 11 cents to $2.58, while further east Transco Zone 6 New York fell 4 cents to $3.17.

In Appalachia, Dominion South tumbled 18 cents to $2.31. Bucking the downtrend was Tetco M3 Delivery, which jumped 54 cents to average $3.16.

Texas Eastern Transmission Co. (Tetco) is conducting a series of market area outages this week, including maintenance restricting flows on Tetco’s M3 market zone, according to Genscape Inc. Tetco will be conducting maintenance through Thursday on its 36-inch Line 20 in M3 in New Jersey from Lambertville to Linden, limiting capacity through the Linden Compressor Station to 888 MMcf/d.

“Elsewhere in M3, Tetco will be conducting in-line inspection tool runs on the Uniontown to Bedford 36-inch Line 1 on April 11, April 13 and April 17,” the firm said. “This will limit flows from Bedford to Heidlersburg by as much as 767 MMcf/d based on 30-day max flows.”

In California, SoCal Citygate followed up Monday’s 99-cent surge by tacking on another 22 cents to finish at $3.83. SoCal Border Average climbed 9 cents to $2.40, including a 22-cent day/day increase at SoCal Border-Ehrenberg reported in NGI’s MidDay Alert.

“Gas prices took yet another spike” in Southern California Monday, “this time tracing broader regional dynamics,” Genscape said. The Southern California Gas (SoCalGas) utility “system demand did bounce about 0.4 Bcf/d from Sunday to reach a 13-day high of 2.54 Bcf/d as cooling loads are kicking in. This comes as pipeline import capacity restrictions remain in place.

“But the demand increase by itself is not commensurate with the price increase,” the firm said. “Instead, it appears SoCal Citygate had to print a higher price with upstream Desert Southwest markets’ demand for gas also on the rise. Desert Southwest demand for gas for cooling needs is not only being raised by warming temperatures, but also to replace lost nuclear generation.”

Nuclear Regulatory Commission data showed two units at the Palo Verde nuclear plant taken down recently -- one for planned maintenance, the other apparently unplanned -- totaling 2,618 MW of generating capacity, according to Genscape.

Further upstream in West Texas, points mostly mirrored the double digit declines observed across other regions, while El Paso Permian experienced a much steeper drop, tumbling 41 cents to average $1.47.

El Paso Natural Gas was expected to begin testing on its Black River Station Wednesday and Thursday, reducing operating capacity by 125 MMcf/d, according to Genscape.

“This point typically flows very close to operating capacity, so capacity reductions usually equate to flow cuts,” the firm said. “The affected L2000 line flows gas westward out of the Permian.”

In Canada, prices at NOVA/AECO C took a sharp dive Monday, dropping C$1.02 to average C86 cents/GJ. NOVA/AECO C followed that up by gaining back C38 cents to average C$1.24 in Tuesday’s trading.

“Buckle your seat belt and pull down the restraining device, as the 2Q2018 AECO roller coaster ride appears to be underway,” analysts with Tudor, Pickering, Holt & Co. (TPH) said Tuesday, attributing the declines to maintenance season restricting interruptible transportation flows “along both the eastern gate and western gate.

Intraday data on the Nova Gas Transmission system “indicates field receipts were 11.4 Bcf Monday, down from 12.1 Bcf over the weekend, with maintenance the suspected culprit behind roughly 0.7 Bcf of curtailments,” the TPH analysts said. “...What’s interesting is it appears exports were unaffected, with storage withdrawals presumably picking up the slack. We’ll wait for the official data to confirm, but if demand is being met by withdrawals, it could deliver incremental tightening to a market we believe is already tighter than appreciated.”

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