Mercados / NGI Mexico GPI

Despite Cooler Forecast, Natural Gas Futures Gain on Storage Outlook

  • September adds 2.9 cents to $2.959, October up 3.0 cents to $2.966
  • GFS model “notably cooler for the middle of next week,” drops “numerous” CDDs from outlook, says NatGasWeather
  • Storage “increasingly likely” to enter heating season “with a historically low carryout for the shale era”: Energy Aspects
  • Transwestern force majeure reducing flows through Arizona, says Genscape

Concerns over meager storage stockpiles helped the natural gas futures market shake off cooler weather trends Tuesday as prices gained modestly for the fall and winter contracts. In the spot market, most regions strengthened as Henry Hub gained in line with prompt month futures, while pricy locations in California and the Desert Southwest moderated; the NGI National Spot Gas Average finished 7 cents higher at $2.97/MMBtu.

The September Nymex futures contract recovered its losses from the prior two sessions Tuesday, adding 2.9 cents to settle at $2.959 after probing as high as $2.974. October added 3.0 cents to settle at $2.966, while January settled at $3.176, up 3.1 cents on the day.

Cooler trends in both the Global Forecast System (GFS) and European models Tuesday likely influenced the front month’s afternoon retreat after prices peaked above $2.970 around lunchtime, according to NatGasWeather.

Midday data from the GFS came in “notably cooler for the middle of next week by showing a stronger weather system into the northern and east-central U.S.” to drop “numerous” cooling degree days (CDD) from the latest outlook, the firm said. The afternoon European model also trended cooler but not as much as the GFS.

“Bigger picture, hefty deficits will be very slow to improve, so the background state is bullish, where any moderate sell-offs are likely to find buyers,” NatGasWeather said. “Prices just look like they may have lost a little momentum on cooler trends. The data still shows slightly greater than normal CDDs most days, just not as impressive over the past 24 hours.”

Energy Aspects said based on weekly balances that it estimates total August injections of around 225 Bcf, coming on the heels of total injections of less than 200 Bcf for July.

“August balances show no sign of injection rates materially accelerating, so it seems increasingly likely that the market will enter the heating season with a historically low carryout for the shale era,” the global consulting firm told clients in a recent note, adding that this would likely continue to provide support for the market.

This comes as production has been “running largely in line with late July receipts,” with maintenance and other disruptions leading to a “pause in the skyrocketing trajectory of production seen in late June and through July,” according to the firm.

“While we anticipate a month/month decline in gas use in the power sector, burns have still been incredibly strong,” Energy Aspects said. Power burns from Monday through Thursday of last week looked to total above 40 Bcf/d, “with peak volumes near 42 Bcf/d, according to our power models. Continued heat along the East and West coasts is boosting CDD counts above normal and should easily outdo depressed readings in Aug. 2017, especially toward the end of the month, which was impacted by Hurricane Harvey.”

Turning to the spot market, points in the Northeast gained as forecasts called for the mercury to rise along the Interstate 95 corridor over the next several days. Radiant Solutions called for temperatures to be around 9 degrees hotter than normal in Boston and New York City by Thursday, with highs in the upper 80s to low 90s. Philadelphia and Washington, DC, were similarly expected to see highs reach the low 90s later this week.

Algonquin Citygate surged 19 cents to $3.35, while Tennessee Zone 6 200L added 14 cents to $3.29. Further upstream in Appalachia, Dominion South added 10 cents to $2.63.

“Two weather systems will bring showers and comfortable highs of 70s and 80s to North Texas-South Plains and the east-central U.S. the next few days,” NatGasWeather said in its one- to seven-day outlook Tuesday. “The West remains hot with highs of 90s to 100s. The Southeast is also hot with highs of 90s. Late in the week, high pressure will strengthen over much of the country, including highs of 90s returning to major Northeast cities for strong demand.

“However, additional weather systems are expected into the central and then east-central U.S. this weekend into early next week with showers and cooling.”

Locations across Southern California and the Desert Southwest moderated somewhat Tuesday as Intercontinental Exchange next-day power indices showed peak prices falling to around $71-77/MWh in the SP15 and Palo Verde zones.

In the constrained Southern California market, Radiant Solutions was forecasting temperatures to remain near to slightly above normal over the next few days in Burbank, with highs in the upper 80s to low 90s. Southern California Gas Inc. (SoCalGas) was estimating total system demand of around 2.5-2.6 million Dth/d for Wednesday and Thursday, slightly less than receipts of just over 2.6 million Dth/d.

SoCal Citygate eased 9 cents but remained elevated at $8.78, while SoCal Border Average dropped 10 cents to $4.09. In Arizona/Nevada, Kern Delivery shed 54 cents to $4.08.

The Transwestern Pipeline declared a force majeure Monday that was expected to limit capacity between Station 2 in Flagstaff, AZ, and Station 1 in Kingman, AZ, until Thursday.

Genscape Inc. analyst Dan Spangler said operational capacity west of Transwestern’s Station 2 was reduced to around 924 MMcf/d for Monday’s and Tuesday’s gas days, effectively cutting flows past Flagstaff by 180 MMcf/d versus the prior 14-day average.

“The reduction is primarily affecting the downstream interconnect with PG&E on the demand side, with nominations down 100 MMcf/d from Sunday,” Spangler said. “On the supply side, the connection with the Williams Field Milagro Plant in northwest New Mexico is down around 70 MMcf/d from Sunday.”

Further upstream in the Rockies, a number of locations gained by double digits Tuesday, including Cheyenne Hub, which added 14 cents to $2.70.

Trailblazer Pipeline Co. LLC declared a force majeure Tuesday after identifying an issue at one of the two units at its Compressor Station 601 near the Colorado/Nebraska border. The operator said the repairs will require capacity through Segments 10, 20, 30 and 40 to be reduced to 825,000 Dth/d until further notice.

Trailblazer did not provide an estimated completion date for the repairs.

Most West Texas points gained as well Tuesday. El paso Permian rebounded from losses Monday, notching 13 cents to $2.03.

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