- Natural gas futures trading action lackluster until fresh news comes along
- Market can’t ignore low storage, but production ramp-up expected soon
- Pipeline maintenance events drive up prices as heat blankets key regions
- Southern California Gas cancels two-day work planned for this week
September natural gas prices were about as exciting as a paint-drying viewing party Monday as traders still had last week’s low storage injection fresh on their minds even as weather guidance was expected to turn cooler as the week progresses. Spot gas prices were mostly higher as hot weather returned to key demand regions early in the week. The NGI National Spot Gas Average rose 22 cents to $3.19.
As for futures, the Nymex September contract settled at $2.86, up seven-tenths of a cent on the day, after trading in a tight 5-cent band throughout the day. The rest of the strip was in positive territory throughout much of the the day, although gains there were equally as modest. Bespoke Weather Services said the much stronger strip seems to skew short-term risk slightly higher to start the week, “as this market is trading much differently than it has the last month.”
The September contract climbed 5.8 cents following the Energy Information Administration’s storage report last Thursday (Aug. 2), and then rose another 3.7 cents Friday.
Yet even with the strong strip and massive storage deficit -- which stood 688 Bcf below year-ago levels and 565 Bcf below the five-year average as of July 27 -- the weather forecaster sees risks that weather guidance cools through the week just as power burns are showing significant weather-adjusted loosening as well. “Throw in production that is likely to grow, and we see the fundamental picture as likely to deteriorate through the week even as sentiment appears more bullish now,” Bespoke Chief Meteorologist Jacob Meisel said.
He sees $2.80 and potentially $2.75 in play moving through the week, even as any pullbacks may struggle to sustain early in the week.
As for weather details, demand is expected to be strong the next few days as hot high pressure rules the southern and eastern United States, bringing high temperatures in the mid-90s across major cities such as New York City, Washington DC and Boston, NatGasWeather said. A weather system is currently tracking into the north-central United States with showers and thunderstorms. This system is expected to open the door for several additional weather systems to develop and sweep across the central and eastern part of the country during the second half of the week into next week, including pushing deep into the southern United States and Texas with heavy showers.
“With highs only reaching the upper 70s to mid-80s under the influence of these coming series of systems, national demand will ease to slightly lighter than normal,” NatGasWeather said.
Where the data has been a touch cooler is for the Aug. 13-17 week, with weather forecasters seeing better chances of weather systems getting trapped between high pressure over the West and high pressure over the East Coast, leading to less impressive heat in between. The pattern August 18-23 is favored to bring very warm to hot conditions across most of the country as high pressure dominates most regions in a neutral pattern, although conditions would be considered slightly bullish with any hotter trends on future guidance, the weather forecaster said.
With prices staying flat on Monday, this suggests “either a technical pause or the markets requiring hotter trends if another leg higher is to be justified,” the firm said.
ICAP Technical Analysis’ Brian LaRose said given that natural gas prices surged higher to end the July 30-Aug. 3 week, the door is open for an extended period of sideways to higher price action. He sees $2.879-$2.885 as the first obstacle the bulls will be facing to start the week. “Punch through, and $2.92-$2.94 becomes the next stop. Fail to get through $2.879-$2.885, and a pull-back becomes possible,” he said.
Meanwhile, an early survey of 13 market participants by The Desk showed expectations for this week’s storage report (for the week ending Aug. 3) clustering around an injection in the mid-40s Bcf to low 50s Bcf. The median was for a 50 Bcf build, while the average was an 48.8 Bcf build. As of July 27, inventories stood at 2,308 Bcf.
Last year, some 29 Bcf was injected into storage inventories during the similar week, and the five-year average stands at 53 Bcf.
A quick “back-of-the-envelope calculation regarding current inventory, market expectations for the next three weeks and weather-adjusted changes through end of October show the potential for a sub-3.2 Tcf end-of-injection season trajectory, Mobius Risk Group said. An average injection over the next three weeks of 50 Bcf or less would support this path, and “unless mid-September through mid-October injections consistently top the 100 Bcf mark, it may be difficult to breach the 3.3 Tcf barrier.
“In Q1, market expectations were 3.5 Tcf or higher, and since that time production has continued to grow yet inventory projections have steadily fallen,” Mobius analysts said.
Several Pipes Prepare for Maintenance; SoCalGas Cancels Its Work
Natural gas pipelines in Appalachia and the Rockies were expected to undergo maintenance beginning Tuesday, restricting flows at a time when one of those regions is in the midst of a heat wave that is expected to send temperatures well above average.
First up is Columbia Gas Transmission, which will be performing modernization and tie-in pipeline work on several points along its line. The modernization work on the TM-7 line will last through Aug. 12 and is estimated to have a high impact for firm and non-firm nominations through Clendenin to Waynesburg, Smithfield to Adaline, and Smithfield, according to Genscape Inc. No prior events on the TM-7 line have had similar impacts to these locations.
The pipeline work on the VB-5 line will last through Aug. 21 and is stated to have a high impact to firm and non-firm nominations through Loudoun MA28, however prior events on Line VB-5 have not shown to affect nominations through Loudon considerably, Genscape natural gas analyst Vanessa Witte said.
Next-day gas at Columbia Gas rose a nickel to $2.74, while spot gas at Dominion South picked up 4 cents to reach $2.60.
Meanwhile, Texas Eastern Gas Transmission (Tetco) is scheduled to kick off maintenance that will sharply cut M3 flows, although the work will coincide with the conclusion of maintenance in the M2 service zone that should restore previously curtailed flow volumes. Starting Wednesday, Tetco will rerun previous maintenance on its southern 36-inch Line 1 in Pennsylvania, which may cut as much as 380 MMcf/d of flow, Genscape said.
Originally performed in April, Tetco will rerun cleaners from Aug. 8-10 and rerun calipers and in-line inspection tools on Aug. 14. Operational capacity from the Bedford to Heidlersburg compressor stations will be reduced by as much as 600 MMcf/d during these tool runs, and flows through these compressors will be impacted by as much as 380 MMcf/d compared to 30-day averages, although throughput has trended downwards in the last month, Genscape said.
“This maintenance creates bullish pressure on M3 prices as supply to major demand markets is cut,” Genscape natural gas analyst Josh Garcia said, noting that temperatures in the Northeast are expected to be slightly warmer than 30-year averages for the week.
Indeed, next-day gas at Texas Eastern M-3, Delivery shot up 11 cents to $2.77.
Elsewhere in M2, Tetco completed the unplanned outage on its Somerset, OH, compressor station that was previously declared on Aug. 2. Scheduled capacity flows from the Sarahsville compressor station to the Lebanon compressor station on the westbound 24-inch line in M2 were cut as much as 150 MMcf/d after collectively averaging 676 MMcf/d during the prior 30 days, Garcia said.
As of the Aug. 6 evening cycle, flows through these compressors had almost fully recovered. Flows from Midcon into the Midwest have also dropped with the restoration of service, as nominations through Batesville have fallen to 8 MMcf/d after reaching as much as 110 MMcf/d during the outage, he said.
Texas Eastern M-2, 30 Receipt spot gas edged up 4 cents to $2.60, in line with much of Appalachia.
Over in the Rockies, Wyoming Interstate Company (WIC) is expected to start on Tuesday a four-day maintenance that will cut its flows by about 100 MMcf/d, “although there is potential for reroutes of upstream production,” Genscape said. WIC’s Segment 428 will have its operating capacity reduced to zero for a compressor station emergency shutdown test and unit inspection that is expected to last through this coming Friday.
Past flow cuts at this segment have seen upstream production volumes – coming online at WIC’s Creston point – reroute onto Colorado Interstate Gas and Southern Star Central Gas Pipeline. “When this annual maintenance was performed last August, damage was discovered at WIC’s compressor station and the outage was extended by an extra seven days,” Genscape natural gas analyst Joe Bernardi said.
Next-day gas prices across the Rockies were much stronger given the potential impact of the pipeline work. Northwest Wyoming Pool climbed 13 cents to $2.65, Kern River shot up 11 cents to $2.70 and Opal rose 9 cents to $2.69.
Meanwhile, California gas prices continued to strengthen as hot weather was forecast to return to the state after a brief weekend retreat. The soaring temperatures, and ongoing pipeline import and storage restrictions, were enough to prompt Southern California Gas (SoCalGas) to cancel (for now) its planned work at the T401 compressor station that had been scheduled for Tuesday and Wednesday. This work would have cut nearly 300 MMcf/d of imports through the North Wheeler Ridge Zone, largely at SoCalGas’ interconnect with Pacific Gas & Electric, according to Genscape. SoCalGas has not announced a new date for this work.
Still, highs across the Los Angeles Basin are forecast to hit the mid-90s through at least Thursday, some 10 degrees above normal. Unlike the last heat wave, however, SoCalGas may not have to compete as intensely for flowing supply with upstream markets, where temperatures are forecast to be closer to normal. “In fact, several upstream pipelines have posted high linepack notices, presumably from shippers overscheduling with weekend temperatures not getting quite as hot as expected,” Bernardi said.
SoCal Citygate next-day gas climbed $3.50 to $26.55, while PG&E Citygate rose 7 cents to $3.37.