July natural gas prices retreated Monday as returning production and slightly cooler weather outlooks for the end of June and early July weighed heavily on the market.
The Nymex July futures contract tumbled 7.1 cents to settle at $2.951. Spot gas prices, meanwhile, were mostly higher as intense heat blankets much of the United States for the next day or so. The NGI National Spot Gas Average rose 7 cents to $2.69.
Nymex July futures were about a penny lower just ahead of market open Monday morning, but then steadily dropped from there, reaching an intraday low of $2.945 and then trading near that level for the last hour of trading.
The initial decline stemmed from early-morning weather models that suffered a modest loss in cooling degree days (CDD) in weeks 1 and 2, according to EBW Analytics. This was only the second time in the past week and a half that forecasts have shedded CDDs, the company noted.
The midday weather data largely maintained that trend, with outlooks remaining hot through the weekend, but then slightly cooler for June 25-July 1, NatGasWeather. “All the weather models continue to show the hot upper ridge strengthening and expanding, just a touch less impressive with it this round.”
The weather forecaster expects the hot ridge to dominate most of the country through the first week of July, and likely through the second week, for periods of strong national demand. “We expect this should be quite telling to how record production will impact build sizes compared to last year during heatwaves,” NatGasWeather said.
Genscape Inc. said Lower 48 production had bounced back to close to 78.9 Bcf/d for Monday. The company’s production group estimated last week had volumes dipping to a low of 77.4 Bcf/d, primarily due to processing outages in the Denver-Julesburg Basin and the restoration of about 0.2 Bcf/d of flows from the Gulf of Mexico.
As for demand, temperatures in the Northeast and New England are expected to remain well above normal, but slowly cool to normal by mid-week. In New England, the forecast called for 12.8 CDDs on Monday and 11.2 CDDs on Tuesday, versus normal at 3 CDDs.
This should contribute to a bit of Algonquin volatility: an operational flow order is in effect for the market as the heat coincides with planned maintenance beginning Tuesday that would reduce flows through Algonquin Gas Transmission’s Southeast compressor station by 0.3 Bcf/d, Genscape senior natural gas analyst Rick Margolin said.
Demand across the rest of the country should remain strong through the middle of the week before also backing down to normal temperatures. Southeast and Midwest temperatures are all forecast to recede toward seasonal norms by Wednesday.
“Of interest, though, is a pretty notable upward revision to California toward end of week; any/all semblance of heat in that market is sure to drive volatility given ongoing constraints on storage and import pipeline capacity,” Margolin said.
From a Lower 48 perspective, Genscape is forecasting demand this week to average about 67.3 Bcf/d, about 0.6 Bcf/d more than last week, with power burns running just shy of 32.7 Bcf/d, a roughly 2.6 Bcf/d increase week/week.
Despite Monday’s price drop, Bespoke Weather Services said it sees forecasts as being hot enough to keep resistance in the $2.87-2.92 range firm through the week. If anything, hotter forecasts through the week put another resistance test in play, and with enough heat, “we could see a quick resistance break should burns begin to tighten too.
“However, we still see any resistance breaks as opportunities to gain short exposure, as seasonality is turning quite bearish and balances are unimpressive enough that any weather spikes are likely temporary,” Bespoke chief meteorologist Jacob Meisel said.
Temperatures, Spot Gas Heat Up
Spot gas markets were mostly higher Monday as hot conditions blanketed most of the southern and eastern United States, with high temperatures in the 90s across much of the Atlantic Coast, including major Northeast cities, NatGasWeather said. “This is helping drive strong national demand, aided by highs of 90s to 100s across the southern U.S.”
Demand is expected to ease beginning midweek as heavy showers and cooling pushes across the central and southern United States, easing highs into the 70s to lower 90s, 8-15 degrees lower than recent highs, the forecaster said. The northern part of the country is expected to see weather return to more seasonal levels late this week through the weekend for light demand, while the nation's hot spots will soon become California and the Southeast as high pressure brings temperatures into the 90s and 100s.
Farther north, markets in the Pacific Northwest got a boost from maintenance that is expected to begin Tuesday on Northwest Pipeline (NWPL). Planned work at the Willard compressor in southern Washington will require operating capacity to be set to zero for the duration of the maintenance, which is planned to last through Saturday (June 23).
“This station has flowed an average of 164 MMcf/d in the past month. Cutting these flows will likely require rerouting some gas to flow west through NWPL’s Plymouth North Constraint point,” Genscape natural gas analyst Joe Bernardi said.
Meanwhile, maintenance on Southern Star Central Gas Pipeline was expected to wrap up on Wednesday (June 20), according to an update posted on the pipeline’s website. Southern Star on Friday (June 15) declared a force majeure on its line segment 130 due to a pipeline explosion in Harvey County, KS.
Line segment 130 lies in Southern Star’s production zone, and roughly 200 MMcf/d of production-related receipts have been cut along LS 130, primarily from the Linn-Jayhawk gas processing plant location, Genscape said.
While there is a Natural Gas Pipeline Company of America interconnect with an operating capacity of around 100 MMcf/d that would otherwise be able to take half of the gas from the Linn plant, current nominations at this interconnect have remained at zero since June 13, Genscape natural gas analyst Allison Hurley said.
The current restrictions sent Southern Star next-day gas down 6 cents to $2.34.
Meanwhile, Genscape reported that Train 3 at Cheniere’s Sabine Pass liquefied natural gas facility in Cameron Parish, LA, had returned to full capacity, with nominations for Monday back up to 2.95 Bcf/d, right in line with the 14-day average registered right before the train’s shutdown.
Genscape cameras detected the restart of Sabine Pass Train 3 well before pipeline nominations data gave such indication, it said. Train 3 had been shut down since May 16 for an assumed maintenance with no clear end date provided. The shutdown cut roughly 0.7 Bcf/d of deliveries.
At around 7 p.m. last Tuesday, June 12, Genscape proprietary monitors detected the first signs of a resumption of activity at Train 3 by picking up heat signatures from flaring. “Those signals were the only concrete evidence startup was resuming; pipeline nominations did not give sign of a restart until June 14,” Genscape said.
Despite the increased demand from Sabine Pass, Benchmark Henry Hub spot gas dipped a penny to $2.97 amid increasing cloud coverage and rain in the region. Other points in the region shifted modestly as well.
In the Northeast, where temperatures are expected to remain close to 10 degrees above average through Tuesday, next-day gas prices increased. Interestingly, however, Algonquin Citygate spot gas tumbled a dime to $2.87 despite a one-day maintenance event Tuesday 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 nonotice, Genscape said. When looking strictly at flows through the Southeast compressor station itself (i.e. without no-notice), this restriction would represent a 265 MMcf/d cut, compared to reported month-to-date flows.
“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, Genscape natural gas analyst Josh Garcia said.