- Nymex July futures notch another day in the red as cooler weather outlooks hold for near term
- Long-term heat expected to keep natural gas storage deficits around 500 Bcf for the next month
- Southern California volatility returns as temperatures rise, pipeline restrictions remain in place
July natural gas prices fell for a second straight day Tuesday, sliding 5.1 cents to $2.90 as the latest weather outlooks held cooler trends for early next week, but then flipped to hotter trends for late in the week and into early July.
Spot gas prices also softened as heat is expected to begin dissipating Wednesday after a scorching start to the week. The NGI National Spot Gas Average fell 5 cents to $2.64.
After opening at $2.952, the Nymex July futures contract reached an intraday high of $2.955 and then dropped as low as $2.887 before recovering somewhat heading into the settle.
Weather forecasts show an upper ridge is expected to strengthen and expand across the southern and eastern United States next week, although recent data showed a weak weather system cutting through the ridge across the north-central part of the country early in the week. This is where the data has been a touch cooler, NatGasWeather said.
The forecaster then expects the ridge to expand and strengthen late next week through early July, with widespread temperatures in the upper 80s to 100s making for strong national demand and where both the American and European weather models have been a little hotter in the most recent runs, especially over the Midwest and east-central United States.
Given the impending heat, NatGasWeather said it sees no reason why storage deficits will not remain near or above 500 Bcf through the next four weeks, “but whether they can noticeably increase on heat is about to be determined. We see this as being a very good test for how successful record production will be in countering periods of strong summer heat.”
Indeed, returning production was partly behind Monday’s price retreat, with the southern United States, Appalachia and the Rockies all contributing to the rebound. In Appalachia, the market saw the return of a nominal amount of flows on Columbia Gas Transmission’s Leach Xpress, and Texas production recovered from temporary field outages.
Rockies improvement, meanwhile, should be seen as staving off temporary declines rather than contributing an outright gain, Mobius Risk Group said. “Since December of 2017, there has been little to no upward momentum in core Rockies producing region output.”
Recent price action would indicate that heat, or lack thereof, is more likely to be translated as volatility in regional spot markets but would have minor impacts on nearby Nymex pricing, Mobius said. Prompt-month and balance-of-year Nymex futures appear more likely to cue off changes in weekly inventory or expected production growth, rather than weather and corresponding demand swings,” analysts said.
Northeast Temps Ease But SoCal Warming
Turning to the spot gas markets, prices were lower as the intense heat seen across most of the country on Monday and Tuesday was expected to wane beginning Wednesday. At the same time, a weather system was forecast to track through the central United States during the next few days while merging with showers and moisture from a system over Texas, dropping highs into the 70s to lower 90s from recent highs in the 90s to 100s, NatGasWeather said.
The northern United States should remain mostly comfortable this weekend for light demand, while the nation's hot spots become California and the West with high temperatures expected to reach the upper 80s to 100s.
Given the cooler conditions around the corner for New England, Algonquin Gas Transmission on Tuesday released a notice delaying its Southeast compressor station maintenance to Thursday (June 21) from Wednesday (June 19).
The event could cut up to 300 MMcf/d of mainline flows, and the convergence of the event, cooling demand and an operational flow order currently in effect would have increased New England price volatility, Genscape Inc said. AGT Citygate (AGT) had been trading at an average discount of 46 cents to the Henry Hub throughout June before gaining 50 cents last Friday in anticipation of this week’s events.
“Less heat actualizing and the delay of the event caused AGT basis to drop 9 cents” in Monday’s trading, “but it still remained above June’s average price,” Genscape natural gas analyst Josh Garcia said.
AGT spot gas for Wednesday delivery softened further, trading 26 cents lower at $2.61.
Prices across the Northeast and Appalachia fell with the cooler weather in play. Niagara was down 15 cents to $2.57, Tennessee zone 6 200 leg was down 25 cents to $2.71 and Transco zone 6 non-NY was down 49 cents to $2.68.
Tennessee zone 4 200 leg next-day slid 14 cents to $2.56, while Dominion South slipped just 3 cents to $2.38. Columbia Gas was down a nickel to $2.77.
Columbia Gas Transmission LLC (TCO) said based on its current repair schedule for Leach XPress, which was damaged in an explosion earlier this month, it now expects to return the pipeline to service sometime in early July. TCO was able to bring back a small percentage of flows last week after it restored a segment that allowed the Stagecoach meter to return to service.
Nominations through the meter reached about 200 MMcf/d shortly thereafter, Genscape said. But the company said that after further investigation during repairs on the broader line, it would be forced to again reduce capacity to zero on Wednesday, impacting scheduled volumes at the Stagecoach meter.
Genscape on Friday (June 15) sent a reconnaissance aircraft over the site of the explosion. “We can see the site is in the process of establishing temporary erosion control procedures, and it appears that sections of the Leach XPress pipeline have been unearthed for several weld sections on both sides of the missing sections,” Genscape natural gas analyst Vanessa Witte said.
In the country’s midsection, spot gas prices were mixed but mostly higher on the day despite much cooler weather in store for Wednesday after a hot start to the week. AccuWeather showed highs in Chicago stalling in the mid-70s, about 20 degrees below highs on Tuesday. The rest of the week was expected to see similarly mild temperatures.
In Oklahoma, daytime temperatures were forecast in the mid-80s on Wednesday and then rising to the upper 80s by Friday. Much warmer weather was in store for next week, with highs projected to reach close to 100 degrees, AccuWeather forecasts showed.
Given the mixed forecasts, Chicago Citygate spot gas fell 9 cents to $2.72, while OGT edged up 2 cents to $1.81.
In the West, Southern California spot gas prices posted another sharp increase as warmer weather was in store for the region. SoCal Citygate jumped more than 40 cents to $3.41 as highs in Los Angeles were forecast by AccuWeather to extend into the mid-80s by Friday, after topping out in the low 80s on Tuesday.
Genscape noted that the impending heat moving into the market was sure to trigger heightened volatility as accessibility to in-market storage remains restricted, and constraints on import pipeline capacities remain in place.
“NGI price data has SoCal Citygate basis back in the black at 1 cent after having added 69 cents” in Monday’s trading, the company said. Genscape meteorologists expect population-weighted temperatures across the five-county area of Southern California would average near 71 degrees, with daytime highs in the upper 80s, about 6-7 degrees above normal.
So far this summer, there have been two periods where temperatures were in that range: early May and the second week of June, Genscape said. During the May event, total regional demand (SoCal plus El Paso and Mojave/Kern) touched 3 Bcf/d. During that time, basis jumped $1.07 to move from minus 15 cents to plus 92 cents in two trading days.
That came just days after an April event swung basis more than $2 in two days. In the June event, demand topped 3.2 Bcf/d and basis swung $1, moving from minus 45 cents to plus 45 cents in three days of trading.
“The SoCal price gains are re-shuffling upstream volumes: roughly 70 MMcf/d of gas that had been flowing eastward out of Opal is being redirected” from Rockies Express Pipeline over to Kern River Gas Transmission to flow southwest,” Genscape’s Joe Bernardi said.
In related news, regulators in California on Monday moved to avoid natural gas supply problems this summer in two separate actions that include expanding volumes available for withdrawal at the heavily scrutinized Aliso Canyon underground storage facility.