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Heat, Storage Lend Support as Natural Gas Futures Steady; SoCal Spikes

  • August adds 0.7 cents to $2.759, September up 0.6 cents to $2.730
  • “There may not be much interest in sending” prices “below critical support” without further production growth, says Bespoke
  • With cooling in Midwest and East, “the natural gas markets are stating they want hotter”: NatGasWeather
  • Lower 48 production ticks up to 80.3 Bcf/d as demand expected to pull back, says Genscape

Natural gas futures traded on either side of $2.75 Monday as the market continued to see production offsetting storage deficits. Near-term heat sent spot prices higher in Southern California, while Appalachian locations benefited from the return of Leach XPress capacity; the NGI National Spot Gas Average gained 7 cents to $2.75/MMBtu.

The August contract added 0.7 cents to settle at $2.759 Monday after trading as high as $2.778 and as low as $2.735. September added 0.6 cents to settle at $2.730. The winter strip lost ground, with January dropping a penny to settle at $2.989.

“This remains a market that does have some concerns about low storage levels, as demonstrated by elevated cash prices and a strong front of the strip, yet also expects production to eventually bail out any storage deficit,” Bespoke Weather Services said. “...The deterioration of the strip seems to indicate that risk is skewed even lower for natural gas prices should we lose any more” gas-weighted degree days “or not see burns re-tighten back to levels like we saw late last week, with $2.72 being a key support level we would continue to watch through the week.”

Still, Bespoke said a break of support would be a surprise, with long-range forecasts, while not as hot as June, warm enough to keep cooling demand above average nationally.

“Additionally, power burns remain quite tight,” and the Energy Information Administration storage report issued this Thursday could produce a lean build based on estimates, the firm said. “Thus there may not be much interest in sending natural gas prices below critical support without even further production growth.”

NatGasWeather said Monday forecasts had been consistent over the past few days in showing widespread heat across large portions of the country but with too much cooling in the Midwest and East to impress.

“No major change as swings in demand are still expected across the Midwest and east-central U.S. the next two weeks as weather systems train through every few days,” NatGasWeather said. “Impressive heat and regionally strong demand will continue over much of the western, central and southern U.S., focused over California, Texas and the South and where highs will reach the mid-90s to 110 degrees through the end of the month.

“But with periods of cooling into the Midwest and east-central U.S. in the weeks ahead, the natural gas markets are stating they want hotter,” the firm said. “We continue to look towards the last couple days of July into early August for the next opportunity for heat to return across the east-central U.S., but still with more data needing to come on board if the markets are to expect it.”

An uptick in production combined with a drop in heat-driven demand could put bearish pressure on Henry Hub spot prices this week, according to Genscape Inc. senior natural gas analyst Rick Margolin.

“Our SpringRock pipeline-based production estimate has Lower 48 volumes for Monday back above 80.3 Bcf/d after lurking in the upper 79s for the weekend,” Margolin said. This includes gains from Leach XPress returning to full service.

“Meanwhile, on the demand side, a swath of cooler temperatures is forecast to move into Midwest, Northeast (excluding New England) and Southeast markets, which are driving our Lower 48 supply and demand power burn forecast down to an average 36.3 Bcf/d for the coming seven days, about 2.4 Bcf/d off last week’s number,” he said. “However, notable exceptions will occur in Texas and along the West coast, where cooling demand will be buoyed by daytime highs in Seattle, San Francisco and Los Angeles running about 6-12 degrees above normal in the early part of the week.”

Prices at SoCal Citygate shot up Monday as temperatures in Southern California were expected to remain plenty hot this week. Radiant Solutions was forecasting highs in the low 90s over the next several days for Burbank, CA, with temperatures there averaging about 5 degrees above normal.

Southern California Gas Co., operating under ongoing constraints on import and storage capacity, was projecting a typical uptick in demand to start the workweek, with total system sendout estimated at 2.411 million Dth/d Monday, up from 2.155 million Dth/d on Sunday.

SoCal Citygate spiked $2.79 to average $7.91 Monday, falling just shy of the $8.28 it averaged earlier this month when a wave of triple-digit temperatures swept through the region.

Elsewhere, SoCal Border Average added 7 cents to $3.53, including a 95 cent jump at SoCal Border-Ehrenberg reported in NGI’s MidDay Alert Monday. El Paso S. Mainline/N. Baja gained 74 cents to $4.49, while further upstream in West Texas, El Paso Permian tacked on 13 cents to $2.44.

In the Pacific Northwest, restrictions on Gas Transmission Northwest (GTN) could interrupt imports from Alberta this week, according to Genscape.

“Last Thursday, GTN announced a previously unplanned maintenance event, which took effect immediately at its Kingsgate compressor station,” and which had been reducing flows by about 10 MMcf/d. The maintenance may cut an additional 150 MMcf/d for Tuesday’s gas, according to Genscape analyst Joe Bernardi.

“Operational capacity has decreased by over 330 MMcf/d” since the maintenance took effect last week, while flows have only been reduced by around 10 MMcf/d, Bernardi said. “For the first part of this maintenance, GTN has not specified an exact operational capacity requirement, only noting that non-firm flow will be subject to cuts. The pipeline has, however, stated the operational capacity at Kingsgate will be limited to 2,136 MMcf/d” Tuesday, “which would translate to a cut of 163 MMcf/d versus the pre-event 30-day average.”

Kingsgate dropped 34 cents to average $1.22 Monday, while in Canada, NOVA/AECO C tumbled C28 cents to average C$1.09/GJ.

A number of Appalachian locations gained by double digits Monday, getting an apparent lift from the return to service of Columbia Gas Transmission LLC’s (TCO) Leach XPress, a segment of which had been shut in since last month due to an explosion in West Virginia.

As of Sunday, TCO completed restoration and received approval from the Pipeline and Hazardous Materials Safety Administration to resume gas flow, according to Genscape analyst Vanessa Witte.

“Gibraltar III, Majorsville - LXP, Eureka and LXPSEG have all been restored to total capacity, while LoneOak A has been restored to non-firm capacity,” Witte said. All of the locations showed nominations effective Sunday, “with the exception of Gibraltar III. Prior to the explosion, LXPSEG flowed an average of around 1.4 Bcf/d,” and evening cycle nominations showed about 1.15 Bcf/d scheduled for Monday.

Dominion South climbed 17 cents to $2.43, while Texas Eastern M2 30 Receipt surged 24 cents to $2.48.

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