- July natural gas breezes by $3 as heat intensifies
- Heat causes concern over already low storage inventories
- New round of maintenance results in more wild swing in some gas markets
July natural gas was uncharacteristically active Friday as traders eyed increasingly hotter trends in the latest weather forecasts and the potential hotter temperatures may have on already below-normal storage inventories. The Nymex July gas futures contract settled 5.7 cents higher at $3.022.
Spot gas prices were mixed as warmer weather was expected to lift demand in key eastern regions, but maintenance events and mild conditions in other areas sent prices tumbling. The NGI National Spot Gas Average climbed 1 cent to $2.62.
Nymex July futures were strong from the start of trading, rising above $3 just before the open and climbing as high as $3.032 before easing a bit into the settle. At the forefront of Friday’s trading action were weather forecasts calling for more a very warm to hot pattern through the end of the month, with most days having greater than normal cooling degree days (CDD).
National demand was expected to increase over the weekend as hot high pressure shifted over the Great Lakes, Mid-Atlantic and East, where high temperatures of 90s were to be widespread, including in major cities from Chicago to New York City, NatGasWeather said.
“This high pressure system is where hotter trends have held all week to add numerous CDDs/Bcf in demand,” the forecaster said.
Demand is expected to soften late into the coming week week as weather conditions still looked quite comfortable across the central and northern United States with highs of 70s and 80s. Weather data also showed a weaker ridge over Texas and the South for less intense heat, NatGasWeather said. It will still be quite warm over the Southeast with upper 80s and 90s for regionally stronger demand, and likely hot over California into the Southwest as well with upper 80s to near 100.
The hot upper ridge is expected to gain strength June 25-30 across the southern and central United States, including the Southeast and up the Mid-Atlantic Coast. “Where the data could be a little hotter is across the Great Lakes and Northeast. Although, it wouldn't take much of a shift with the hot dome of high pressure further north or east for the pattern to look much more bullish,” NatGasWeather said.
Regardless, the market appeared to take latest weather outlooks to heart, with traders likely considering that storage deficits are likely to remain stalled near or slightly greater than 500 Bcf through the next two to three storage reports at least. The Energy Information Administration on Thursday reported a 96 Bcf build into storage inventories for the week ending June 8. Stocks are now at 1,913 Bcf, 785 Bcf below last year at this time and 507 Bcf below the five-year average of 2,420 Bcf.
Meanwhile, if summer heat intensifies in early July, which it has the potential to, then storage deficits could even grow, NatGasWeather said. With summer-strip prices taking out $3, the market focus would be on how long the hot late-June ridge will remain strong and whether it’s expansive enough to keep weather sentiment neutral to bullish. “Right now, there's nothing to suggest this very warm to hot U.S. pattern will end anytime soon, and if there were to be cooling, it would be minor and brief.”
All this heat has left June on track to being one of the hottest on record. Bespoke Weather Services has seen 94 CDDs through June 13. Its forecasts through June 29 call for another 151 CDDs, leading to 254 CDDs.
“Assuming the pattern on June 29 continues into June 30, we would be looking at 265 CDDs for the month of June overall,” Bespoke chief meteorologist Jacob Meisel told NGI. The record was 2010, which saw 280 CDDs. 1994 saw 272 CDDs, and 2016 saw 266 CDDs.
This would make it the fourth hottest June on a CDD basis since 1980. There are some heat risks at the tail end of Bespoke’s forecast that could lead to some CDD increases, and if anything, it would see its forecast warming.
“All it would take would be seven or eight more CDDs (easily possible) to move us into the second hottest summer since 1980, though it may be difficult to take out 2010 with some cool risks next week temporarily depressing cooling demand,” Meisel said.
More Maintenance Sends Prices Swinging
Turning to the spot gas markets, hot weather on tap for key demand regions lifted prices in most of the country. NatGasWeather said a hot upper ridge would dominate the central and southern United States, with high temperatures reaching the upper 80s to 100s making for strong demand. Heat was expected to also spread across the Midwest late Friday and Saturday and then into the East from Sunday-Tuesday with highs reaching the mid-80s to mid-90s. The West was expected to see mild conditions as rain showers pushed inland.
Indeed, SoCal Citygate spot gas plunged 66 cents to $2.30, resulting in a drop of more than $1 the past two days. Genscape Inc. natural gas analyst Joe Bernardi attributed the steep declines to nothing more than weather given the extremely mild conditions on tap for the week in California. Highs in Los Angeles were forecast by AccuWeather to stall in the low 70s on Saturday and the upper 60s by Sunday before inching back to the low 70s for Monday. Highs on Friday were forecast in the low 80s.
Malin also fell considerably as spot gas averaged $2.12, down 21 cents on the day. PG&E Citygate held up relatively well as it slipped just 4 cents to $3.01.
Meanwhile, Texas points were a mixed bag as a new round of maintenance events in the region were announced. Genscape reported that a force majeure on Tennessee Gas Pipeline (TGP) was declared Thursday at Station 1 (near Agua Dulce in South Texas) and Station 9 (near Victoria, TX) due to pipeline anomalies. The force majeure went into effect immediately and is to last until further notice. TGP stated the estimated capacity impact to be 100 MMcf/d through Station 1, and up to 225 MMcf/d through Station 9.
Nominations through the NET Mexico pipeline dropped to 439 MMcf/d on June 15 from 485 MMcf/d on June 13; a total change of only 46 MMcf/d. Similarly, nominations through Station 9 dropped 612 MMcf/d on June 15 from 666 MMcf/d on June 13, a total change of 55 MMcf/d. Nominations through Station 1 seem unaffected at the moment, Genscape natural gas analyst Vanessa Witte said.
Meanwhile, Texas Eastern Transmission plans to conduct a station outage at its Joaquin compressor station in East Texas between Tuesday (June 19) and July 7, resulting in no available capacity at this station for the duration of this outage. As much as 163 MMcf/d has flowed southwest from this compressor station in the last month, although flows did reverse in late May due to a separate maintenance event.
“Production in this area could flow into M1 on the 24” Line, but since there is little demand in Northern ETX/Southern M1, it is also likely that producers reroute to other pipes,” Genscape natural gas analyst Josh Garcia said.
Given the various restrictions in the region, El Paso-Permian spot gas plunged 28 cents to $1.60, and Waha dropped 30 cents to $1.58. Houston Ship Channel, meanwhile, rose 3 cents to $3.01, and Carthage picked up a nickel to reach $2.85.
Meanwhile, an explosion Friday morning on the Southern Star Central Gas Pipeline in Harvey County, KS, led to a force majeure on line segment 130. Southern Star spot gas had a muted reaction to the incident, increasing only a penny to $2.40.
In the East, Appalachia points shifted a few cents either direction for the most part as Columbia Gas Transmission LLC (TCO) has restored a small percentage of flows on Leach XPress about a week after issuing a force majeure in response to an explosion on June 7 in Marshall County, WV that shut down the 1.5 Bcf/d line.
The company has restored a segment allowing the Stagecoach-LXP meter to return to service. Nominations through the meter ramped to 107 MMcf/d shortly after TCO announced the repair and reached 190 MMcf/d on Friday (June 15). It’s unclear how long it will take to repair the rest of the line.
In addition to Stagecoach’s return to service, the LXPSEG meter operational capacity was listed as having “no restriction,” according to Genscape. Eureka, Gibraltar III and Majorsville production points remain at 0 capacity, as well as the LONEOAKA and TMLXP throughput meters.
Columbia Gas spot gas tacked on 3 cents to reach $2.84, while Tennessee zone 4 Marcellus slipped 2 cents to $2.10. Dominion South, meanwhile, jumped 12 cents to $2.45.
In the Northeast, Algonquin Citygate shot up 52 cents to $2.97 as Algonquin Gas Transmission said it would perform a one-day maintenance event on June on its Southeast compressor station near the New York and Connecticut border. Operating capacity will be set at 864 MMcf/d, representing a cut up to 312 MMcf/d, including no-notice, Genscape said.
“This will likely cut deliveries into Iroquois at Brookfield. Algonquin has a few options to source supply from TGP and Maritimes” downstream of the Southeast compressor station, as those interconnects are not currently full, Garcia said.