Natural gas futures climbed Tuesday as storage deficits continue to help the bulls make their case ahead of a belated start to the injection season. Spot prices strengthened throughout most regions to bounce back from widespread losses the day before; the NGI National Spot Gas Average added 7 cents to $2.38/MMBtu.
The June natural gas contract settled 3.9 cents higher Tuesday at $2.802 after trading as low as $2.759. July settled at $2.837, up 3.7 cents.
June tested resistance in the $2.800-2.850 area Tuesday, settling just below the recent March 13 front-month high of $2.811, Powerhouse Vice President David Thompson told NGI. This puts the market back near the top of a long-standing range of roughly $2.55-2.80.
“Does the market have enough to punch through it? If it did, you might expect to see 20-25 cents more on the price,” Thompson said. “But we’ve shown no inclination for the last three months to do that.”
With weather not expected to offer much help over the next couple weeks, “my guess is $2.85 probably caps the market” until summer cooling demand starts to show up, he said. “We’ll get hot. We’ll have AC demand, and when it happens, I would expect that first leg out of the trading range to take us into the $3.00-3.05 area.”
Analysts pointed to a year-on-five-year storage deficit exceeding 500 Bcf -- and potentially growing with this week’s Energy Information Administration (EIA) data -- to help explain the move higher.
“The main bullish catalyst seems to be the Thursday EIA print, where we have seen estimates tick down” to suggest a net injection in the upper 40s or low 50s Bcf, “quite tight with average weather this past week,” Bespoke Weather Services said. “This tightness by itself would seem to justify the bullishness that we saw Tuesday.
“However, the loosening we have observed recently, including a tick back lower in nuclear outages and record production over the weekend, make it clear that the tightness of the last few EIA prints is unlikely to remain into next week’s print (and beyond).”
NatGasWeather.com said based on expectations for comfortable temperatures for the second and third weeks of May it’s looking for storage builds in the 90-100-plus Bcf range in the weeks ahead “but still only near or slightly larger than five-year averages.
“...The focus is now on how quickly hefty deficits will be reduced,” the firm said. “We thought the markets might not see the pace as fast enough, and with prices rallying Tuesday, it seems like this could be part of the cause when considering deficits are likely to remain above 525 Bcf after the next three storage reports are accounted for.”
As for the latest weather outlook, midday data Tuesday showed “slight cooler changes over portions of the northern U.S….but most importantly, a very comfortable spring pattern remains in store through mid-May,” NatGasWeather said. “Essentially, bullish weather patterns over the past month are now neutral to bearish, and should remain so for the next three weeks.”
In terms of quantifying just how bullish weather over the past month has been, April 2018 produced record natural gas demand for the time of year, Genscape Inc. analyst Rick Margolin told clients Tuesday.
“Closing the book on April, our preliminary estimate of demand shows this April set a five-year high at an average of 69.7 Bcf/d...a 20% gain to April 2017 and about 16% above the prior five-year April average,” Margolin said. “Structural growth in the residential/commercial sector was accentuated by what may be determined to be the coldest April on record.”
Lower 48 population-weighted heating degree days (HDD) “averaged about 12.3 HDD/day, 72% colder than the abnormally warm April 2017 and 37% colder than the average of the previous five Aprils.”
Turning to the spot market, points in the Northeast and Appalachia trended opposite the day before amid expectations for generally moderate demand and recent reports of a slew of shoulder season maintenance activities in the region. Transco Zone 6 non-New York eased 15 cents to $2.57 after jumping 35 cents the day before.
Genscape recently noted maintenance work expected to restrict flows on Tetco and Transco through the first part of May, which could have contributed to the large gains observed on Transco Zone 6 Monday.
In Appalachia, Dominion South gained back 8 cents to average $2.13 Tuesday after dropping 31 cents the day before.
The 713-mile, 3.25 Bcf/d Rover Pipeline LLC secured authorization from FERC Tuesday to start up the remaining facilities listed in an April 13 in-service request. Federal Energy Regulatory Commission staff cleared the pipeline to start up its Vector Delivery Meter Station, Defiance Compressor Station and the Market Segment, all part of the highly anticipated Appalachian takeaway project’s second and final phase.
Tuesday’s order comes a week after FERC authorized service for Rover’s Mainline Compressor Station 3 and part of its Mainline B.
Rover finished bringing its first phase online at the end of last year and was flowing more than 1.6 Bcf/d east-to-west across Ohio to interconnects with the Panhandle Eastern and ANR pipelines Tuesday, according to NGI’s daily Rover Tracker.
In California, the volatile SoCal Citygate eased 19 cents to average $3.41 after spiking nearly $1 day/day to start the week.
Import-constrained Southern California Gas Co. was calling for demand on its system to fall from around 2.4 Bcf/d Tuesday to around 2.2-2.3 Bcf/d by Wednesday and Thursday, versus receipts of around 2.46 Bcf/d.
Radiant Solutions was calling for below-normal temperatures in Burbank, CA, on Tuesday and Wednesday to return to normal by Thursday, then average about 7-10 degrees above-normal heading into the weekend.
Elsewhere in the region, SoCal Border Average gained 24 cents to average $2.00, while El Paso S. Mainline/N. Baja climbed 30 cents to $2.
Further upstream in West Texas, El Paso Permian tacked on 9 cents to $1.46, while Waha jumped 18 cents to $1.76.
“Waha basis faces more headwinds” with maintenance starting Tuesday on El Paso Natural Gas expected to further restrict Permian Basin outflows, Genscape analyst Joseph Bernardi said. “A two-day maintenance event beginning Tuesday on El Paso could block at least 120 MMcf/d of flows out of the Permian. The L2000 meter will have its operational capacity reduced by 121 MMcf/d, from 548 MMcf/d to 427 MMcf/d.
“This flow point in the western Permian typically runs full or close to full, so any operational capacity reductions are usually equivalent to flow cuts. This particular event is set to take place after being rescheduled several times last month.”
The maintenance coincides with restrictions this month on Permian northbound flows via Northern Natural Gas, Bernardi said.
In Canada, NOVA/AECO C continued to weaken, dropping C14 cents to C27 cents/GJ after plummeting C$1.12 Monday.
Energy GPS pointed to previously announced restrictions limiting storage injections this month to explain Monday’s sharp decline.
“The natural gas basis markets have been anticipating the battle for May AECO for more than six months,” Energy GPS said. “Back in the fall, Nova Gas Transmission posted a preliminary outage schedule for the summer 2018 injection season that indicated a large number of restrictions. The cuts in capacity throughout Alberta were expected to reduce the access to storage caverns.
“...Without the ability to inject, prices had to fall to a level where production was incentivized to shut in,” the firm said. “...The beat down of AECO gas is just beginning.” Temperatures in Calgary later this week are expected to climb, reducing provincial demand and creating “an extra .6 Bcf/d of supply on the system that will need to be rebalanced,” meaning cash prices are likely to remain depressed.