What goes up must come down was the theme for Friday trading action as July natural gas prices quickly put the brakes on a heat-induced rally as weather outlooks began hinting of cooler weather ahead. The Nymex July natural gas futures contract traded in a less than 7-cent range on Friday, hitting its $2.991 peak early in the session and then trading closer to its $2.926 low end for the last hour until settling at $2.945, down 3 cents on the day.
Spot gas prices also moved lower, with many pricing locations posted steep declines as not even pipeline maintenance was enough to support a market facing comfortable temperatures in the days ahead. The NGI National Spot Gas Average fell 14 cents to $2.50.
After several weather model runs in a row continuously increased the amount of heat projected for the end of June and early July, a minor flip in the trend was bound to happen soon, NatGas Weather said. Weather data overnight Thursday turned slightly cooler for the South and Gulf Coast region in the medium term, but still with intense heat overall for the majority of the country.
By midday Friday, weather models flipped again, this time with one of the models being a touch hotter compared to Thursday night, with heat building into the last week of June and through the first week of July, the forecaster said. “We see the coming pattern as plenty hot enough to impress and see [Friday’s] decline having more to do with other factors,” such as the last two Energy Information Administration (EIA) storage reports implying a looser supply/demand balance.
The forecaster said while the pattern was bullish overall, “early July storage builds need to come in notably lighter than five-year averages with the coming heat, or it will suggest strong production is going to become problematic for the bullish case at some point down the road.”
The EIA reported a 91 Bcf storage injection for the week ending June 15, which came in far above market consensus of 85 Bcf. It was the second week in a row that the EIA caught the market off guard with bearish storage data.
In recent years, misses of 6-8 Bcf have become common and often are quickly reversed, EBW Analytics said. “Two consecutive misses, however, suggest that current production may be as much as 1 Bcf/d above estimates using pipeline scrape reports.” If next week's storage report (for the week ending June 22) continues the trend, downward price pressure could intensify, EBW said.
Genscape Inc. on Friday reported that western production has rebounded, led by recovery of volumes at the Echo Springs Plant in Wyoming and the McMahon Plant in northern British Columbia following planned and unplanned outages, respectively.
Total Rockies production was estimated to be close to 10.2 Bcf/d on Friday, about 0.5 Bcf/d above the previous week’s average, according to Genscape. Volumes out of the Echo Springs Plant in southwestern Wyoming dropped off by more than 200 MMcf/d in the previous week, but had rebounded to be almost even with prior averages. This processing plant delivers to Colorado Interstate Gas, Rockies Express Pipeline, Southern Star Central Gas Pipeline and Wyoming Interstate Co.
Genscape confirmed with the operator that the decrease was the result of planned maintenance, and the drop was consistent with an annual pattern of several days of notable declines in receipts during the spring-summer timeframe.
After posting a month-long 337 MMcf/d average and then falling to as low as 105 MMcf/d, receipts have come back up to 318 MMcf/d in the initial cycles for Friday’s gas day, Genscape natural gas analyst Joe Bernardi said.
Another unplanned outage at the Fort Nelson plant in British Columbia, however, is affecting about 150 MMcf/d of gas moving onto Westcoast Pipeline. There is currently no announced end date for that outage.
NatGasWeather said it expects production will eventually gain the upper hand, although it is still not expected to begin reducing deficits for at least another five to six EIA weekly storage reports. It sees the markets soon becoming focused on how effectively coming July heat will be countered by strong production and how much lighter-than-normal builds come in.
“It would be a bad sign going forward” if widespread heat and much greater-than-normal cooling degree days failed to result in notably smaller-than-normal builds,” the forecaster said.
Meanwhile, Thursday’s reported 91 Bcf injection implied flat year-over-year (y/y) demand growth for the first time this year, according to Mobius Risk Group. The report for the week ending June 15 is expected to show the same.
If the flat year-on-year trend continues throughout injection season, end-of-injection-season storage levels should be near 3,600 Bcf, the firm said. If the y/y demand growth witnessed earlier this year re-emerges and continues for the rest of the summer, then “end-of-October inventory levels would be closer to 3,400 Bcf, which would, in turn, support higher prices heading into the winter,” Mobius said.
Spot Gas Falls On (Temporarily) Comfortable Temps
Spot gas prices moved mostly lower as seasonal weather was on tap across much of the country for the next several days. A weather system was tracking across the northern and east-central United States with showers, thunderstorms and cooling, where temperatures are expected to bring comfortable conditions through the weekend. A majority of the nation’s energy demand the next several days is forecast to come from the hot southern and western United States, where highs are expected to reach the 90s to 100s from California to Florida, NatGasWeather said.
There is still expected to be a weather system cut across the north-central United States early in the coming week for locally comfortable conditions, although with the rest of the country becoming quite hot as high pressure expands. Late into the week and for the first week of July, the ridge becomes focused over the east-central United States, where hotter trends have shown up, the forecaster said.
“We expect the weather data to show the hot upper ridge dominating most of the country going into mid-July, but likely with a minor shift of the heat dome over the west-central United States instead of the east-central United States, which isn't quite as hot and bullish as the pattern June 30-July 4, but it's certainly not bearish,” NatGasWeather said.
Some of the steepest declines occurred in the Permian Basin, where a three-day planned maintenance on El Paso Natural Gas (EPNG) was set to kick off Saturday, cutting roughly 150 MMcf/d of flows on the South Mainline. EPNG is performing pipeline remediation work on its Line 1103, which will necessitate an operating capacity of 678 MMcf/d at the “EL PASO” meter. This location, which is just downstream of the Cornudas constraint point exiting the Permian, has flowed an average of 824 MMcf/d in the past month, Gencape’s Bernardi said.
Given the restricted flows, El Paso-Permian spot gas plunged 40 cents to $1.71. Waha tumbled 33 cents to $1.78.
On the West Coast, prices were mixed as cooler weather on tap through the end of June combined with planned maintenance scheduled to begin Monday (June 29) in the region. Pacific Gas & Electric (PG&E)-to-Southern California Gas (SoCalGas) deliveries are expected to be cut by 300 MMcf/d for three days as part of a planned line inspection retrofit.
The maintenance event will reduce SoCalGas capacity to receive gas from PG&E to 45 MMcf/d lasting through and including Wednesday (June 27). The current 30-day average scheduled capacity is 349 MMcf/d, so the work would cut 304 MMcf/d based on that average, Bernardi said.
SoCalGas will likely need to rely somewhat on increased storage withdrawals in response to the supply limitation, and there is potential for more price increases and volatility in SoCal Citygate basis price, he said.
In Friday trading for gas delivery through Monday, spot gas at SoCal Citygate plummeted 98 cents to $2.53. PG&E Citygate spot gas slipped just 4 cents to $3.06, while Malin fell 36 cents to $1.91.
Prices also moved substantially lower in the Rockies, where Opal tumbled 28 cents to $1.98 and Northwest Wyoming Pool dropped 27 cents to $1.90. In the Midcontinent, it was the same story as NGPL-Midcontinent fell 29 cents to $1.97 and OGT slid 17 cents to $1.80.
The losses in the Rockies and Midcontinent come ahead of maintenance set to begin Tuesday on Trailblazer Pipeline, which will restrict flows to zero through Segment 20 for three days. The segment has averaged just above 800 MMcf/d in the past month, Genscape said.
In the East, smaller losses were seen in the region as some pipeline work was set to begin there as well. Beginning Saturday (June 23), Millennium planned to begin restricting volumes through the Corning-Empire (meter 640167) to about 90 MMcf/d. This event would constrain deliveries onto Empire Pipeline by 55 MMcf/d (deliveries at the meter averaged around 145 MMcf/d during the last seven days), Genscape said.
Millennium posted a critical notice Thursday evening stating the need to restrict flows through Corning-Empire, citing ongoing maintenance at the Corning compressor station, which was a planned event that began June 19, Genscape natural gas analyst Allison Hurley said.
Algonquin Citygate spot gas fell 6 cents to $2.41, while Transco zone 6-NY climbed 8 cents to $2.69. Over in the Appalachia supply region, Columbia Gas slipped 6 cents to $2.79.