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After Pause, September Natural Gas Soars Past First Technical Hurdle; Spot Gas Mostly Lower

After what some natural gas market analysts characterized as a “technical pause” on Monday, September natural gas prices climbed 3.7 cents to settle Tuesday at $2.897. The move higher came even as the latest weather outlooks showed periods of cooler weather, wedged between periods of widespread heat. Spot gas prices began losing steam as traders eyed cooler weather around the corner. The NGI National Spot Gas Average fell 11 cents to $3.08.

As for futures action, the Nymex September contract was relatively strong right out of the gate Tuesday, edging a penny or so just ahead of the open. Like Monday’s action, the prompt month traded in a tight range of less than a nickel on Tuesday before going on to settle near the high end of its range.

With September’s move higher Tuesday, this suggested “Monday's pause was likely technical since weather patterns haven't trending hotter in the past few days and mainly due to hefty deficits that won't improve until at least after August,” NatGasWeather said. Natural gas inventories as of July 27 sat at 2,308 Bcf, 688 Bcf below year-ago levels and 565 Bcf below the five-year average.

On the weather front, the East Coast was forecast to remain hot on Wednesday, with highs again creeping into the low 90s in Boston, New York City and Washington, DC, NatGasWeather said.

A weather system, however, was tracking across the Great Lakes with showers and thunderstorms, opening the door for several additional weather systems to develop and sweep across the central and eastern United States during the second half of the week and into next week, including advancing deep into Texas and the South with heavy showers.

This is where the latest weather data has trended slightly cooler, with models indicating better chances of a weather systems getting trapped between high pressure over the west-central United States and East Coast, and leading to less impressive heat over the east-central part of the country, the forecaster said. There’s also likely to be a stalled system over the Southwest into Texas, where heavy showers are forecast to keep conditions warm but not hot.

Later this month, weather guidance shows the pattern for Aug. 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 still with the potential for weak weather systems to bring showers and regional cooling.

“We continue to view the coming pattern as neutral overall with bouts of modest cooling between periods of widespread heat,” NatGasWeather said.

Bespoke Weather Services, meanwhile, said returning production should keep risks for later this week skewed lower, with expectations for a test of $2.80 sometime this week and $2.75 in play during the next week or two.

For that to happen, though, the entire strip must break as cash prices have been strong enough to keep futures prices supported. “...so winter contracts must break for our move lower,” Bespoke said.

Given that market bulls cleared the most immediate obstacle at $2.879-2.885, their next target is $2.92-2.944, according to ICAP Technical Analysis.

“Fail to better this band of resistance, and we would be prepared for a period of sideways to lower price action,” ICAP analyst Brian LaRose said. “As a reminder, even if the bears can gain the upper hand, I would only be looking for a brief period of consolidation at this time, not fresh lows.”

As for the rebound in production, that may have to wait a bit longer as Genscape Inc. on Tuesday reported that Lower 48 production is down more than 1 Bcf/d day/day (d/d). Rockies production alone is down more than 0.7 Bcf/d. There is about 0.4 Bcf/d of volume lost from the shutdown of Enterprise Products Partner LP’s 1.8 Bcf/d Meeker Gas Plant in the northwestern Colorado portion of the Piceance Basin, with Rockies Express Pipeline receipts most impacted, it said.

Unlike other processing complexes in the Rockies, reroute options out of Meeker are limited, Genscape senior natural gas analyst Rick Margolin said. “To the north in Wyoming’s Green River Basin, we are seeing more than 0.1 Bcf/d of drops” as scheduled maintenance on the Trailblazer and Wyoming Interstate Co. pipelines were likely to compel some shut-ins.

Elsewhere, Texas production is modelled to be down nearly 0.3 Bcf/d d/d, and Northeast volumes are down a total of just 0.17 Bcf/d d/d: some gains in Pennsylvania output are offsetting a greater than 0.35 Bcf/d d/d decline in West Virginia output, where Columbia Gas Transmission (TCO) receipts from the MarkWest Sherwood processing plant are down more than 0.61 Bcf/d.

TCO noted the declines are a product of maintenance on its Line 1983, which is scheduled to run through Aug. 14. TCO also is running maintenance on a variety of lines in the area that are also scheduled to run into next week, Margolin said.

Meanwhile, the Energy Information Administration (EIA) on Tuesday released its Short-term Energy Outlook, in which it estimated that dry natural gas production, which averaged 73.6 Bcf/d last year, reached 81.8 Bcf/d last month, an 8.4 Bcf/d increase compared with July 2017.

"March through July saw the largest year-on-year increases in natural gas production on record, as drilling productivity improvements contributed to accelerated production growth," EIA said.

Dry gas production is forecast be an estimated 81.1 Bcf/d this year, up 7.5 Bcf/d compared with 2017 and a record high, with a further increase to 84.1 Bcf/d in 2019, EIA said.

Spot Gas Mostly Lower on Cooler Temps Ahead

Spot gas prices across the country were mixed but steep losses in California pushed the national average lower.

SoCal Citygate next-day gas plunged nearly $11 to $15.79, while SoCal Border Avg. tumbled $1.14 to $4.74. Other California points shifted only a few cents. The losses came as temperatures in the state were expected to ease ever so slightly throughout the remainder of the week.

Highs in Los Angeles were forecast by AccuWeather to reach a high of 94 on Wednesday, down from a forecast high of 97 on Tuesday. By the weekend, daytime temperatures were expected to top out in the mid-80s.

In the Rockies, prices were stronger in response to the drop in local supplies. Kingsgate next-day gas tacked on a few pennies to hit $2.65, while Cheyenne Hub rose a nickel to $2.34. The Rocky Mountains Regional Average was up 6 cents to $2.56.

In the Midwest, prices were mixed as pricing hubs shifted less than a nickel in either direction. Chicago Citygate spot gas slipped a couple of pennies to $2.97, while Dawn rose 4 cents to $3.14.

Small d/d changes were also seen in Appalachia, with Dominion South tacking on a couple of cents to hit $2.62 and Tennessee zone 4 Marcellus slipping a penny to $2.49.

Prices were mixed in the Northeast despite the hot weather lingering into Wednesday. In New England, Algonquin Citygate next-day gas plunged 26 cents to $3.50 as demand in the region was expected to ease slightly from what was expected to be a record-setting demand day Tuesday in the Independent System Operator New England (ISONE) footprint.

As of Monday’s three-day system demand forecast, ISONE predicted peak demand to reach 25,000 MWh, the highest level year-to-date by several hundred kilowatt hours, according to Genscape.

“Although cooling degree days are forecast to be around 10 degrees hotter than the 30-year average, humidity is the real driver of this spike in demand, with dew points hovering in the 65 to low 70s range over the last few days,” Genscape natural gas analyst Josh Garcia said.

Behind-the-meter solar usually exerts bearish pressure, but Genscape’s ISONE desk says that sunlight during this weather system actually creates bullish pressure because of the humidity. On Tuesday, ISONE’s three-day system demand forecast showed peak demand falling to 23,500 MW on Wednesday and to 22,500 MW on Thursday.

Transco zone 6 NY spot gas was down a few cents to $3.44, while Transco zone 6 non-NY jumped more than 20 cents to $3.65.

Across the northern border in Canada, TransCanada Corp. is set to kick off maintenance at its Moyie compressor station Wednesday. The work, scheduled to last through Thursday, is likely to limit Alberta/British Columbia (BC) Border capacity, which exports to the Foothills BC pipe and ultimately to the U.S. Pacific Northwest and West via the Gas Transmission Northwest pipeline, according to Genscape.

Capacity would be limited to 1,836 MMcf/d. The recent 30-day average is 2,281 MMcf/d, “and that includes slightly lower flows due to recent maintenance that has had a smaller impact on operating capacity,” Genscape natural gas analyst Joe Bernardi said. Based on that average, maintenance would cut 445 MMcf/d.

Meanwhile, Genscape meteorologists are forecasting temperatures to stay well above average in the Pacific Northwest through Thursday before falling back on Friday and this coming weekend, “so there is some potential for upward price pressure to help source alternative supply,” Bernardi said.

NOVA/AECO C next-day gas fell a nickel to C$1.22/GJ.

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