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Heat Reignites September Natural Gas; Spot Gas Slips on Cooler Weather

  • Nymex September gas futures climb 3.8 cents as forecasts show heat returning for the end of August/early September
  • End-of-season storage inventories look less likely to reach 3.4 Tcf, but futures prices indicate market is confident in growing production to reduce deficit
  • Hurricane Lane strengthening in the Pacific, but nearest gas infrastructure well out of storm’s projected path
  • Spot gas prices slip as cooler weather was set to arrive during the weekend, limiting the impact of several pipeline maintenance events scheduled to start Monday

September natural gas prices posted an unusually sharp increase ahead of the weekend as weather forecasts that earlier in the week had shown signs of cooling dramatically changed course and now call for an amplified ridge that is expected to return quite a bit of heat to key demand regions before the end of the month. The Nymex September gas futures contract climbed 3.8 cents to settle at $2.946.

Spot gas prices moved lower as typical light weekend demand weighed on the market. Not even a string of pipeline work set to begin Monday had much impact on prices. The NGI National Spot Gas Average fell 7 cents to $2.81.

The Nymex front month was showing signs of strength even at Friday’s open, trading up a couple of cents as overnight Thursday weather models came in significantly warmer, lessening “the trough through next week that should deliver the first colder shot of the season and then more amplified with a ridge across the East that will help return quite a bit of heat,” according to Bespoke Weather Services.

“Forecasts do still cool rapidly into next week with at least one broad cold shot, though not quite to the intensity that was previously imagined, and it is quickly replaced by strong heat from the Midwest to the Northeast that should pull” gas-weighted degree days back solidly above average, Bespoke chief meteorologist Jacob Meisel said.

Indeed, numerous weather systems with showers and cooling were lined up to potentially impact the northern, central and east-central United States through the weekend and into the week (Aug. 20-24) for a swing back to lighter national demand as temperatures were forecast to reach the 70s and 80s, according to NatGasWeather.

These weather systems are also expected to delay the rebuilding of hot high pressure across the northern and eastern United States until late in the week, but then are favored to last into early September. This is “where the overnight data was hotter,” it said.

The midday weather data maintained the hotter trends, although it backed off slightly. The forecaster, however, cautioned that there are ways in which weak weather systems expose flaws in the ridge in time and will need watching.

Aside from the Nymex September contract, solid increases were seen through the winter months as low storage inventories remain a concern for the market. The October contract was up 3.6 cents to $2.949, while the winter strip was up 3.4 cents to $3.08.

On Thursday, the Energy Information Administration (EIA) reported a 33 Bcf build into gas stocks for the week ending Aug. 10. The reported injection was slightly higher than expectations, so the market responded by sending balance of the year (September-December) prices down 3.35 cents on average and winter (November-March) prices down 3 cents on average. But the market’s reaction to the EIA appeared to disregard the expanding storage deficit to both year-ago levels and the five-year average.

With 12 weeks remaining in the traditional injection season, it appears that 3.4 Tcf is moving out of reach, Mobius Risk Group said. “While not impossible, an injection of 83 Bcf per week through early November is unlikely since the next three weeks are forecast to be sub-60 Bcf on average. Of course, mild late September and October weather could alter this trend.”

Meanwhile, the weak futures curve also reflects the market’s confidence in production, which continues to hover around record levels and is expected to ramp up further once infrastructure comes online later this year.

For example, the calendar year 2019 slipped 1.5 cents Thursday to $2.817, a dime below the 12-month high and 14 cents from the 12-month low, according to Mobius.

“Bullish market commentary is anything but commonplace at present,” and sentiment regarding calendar 2019 is “confoundingly dismal” as more than 3 Bcf/d of liquefied natural gas (LNG) export capacity is staged to be operational next year, Mobius said.

“The Corpus Christi terminal is months away from start up, with Freeport and Cameron also expected to be complete during 2019,” Mobius analysts said. The Corpus terminal in South Texas late Thursday was authorized to begin feed gas injections, with commercial export beginning possibly by the end of the year.

While production growth is “unquestionably capable” of delivering more supply than LNG export demand, “a view this simplistic does not consider the impact of steady increases in Mexican exports (0.6 Bcf/d year/year in the past 60 days) and increases in baseload power consumption, plus steady industrial consumption gains,” Mobius said.

Meanwhile, Dominion Energy’s Cove Point LNG facility said in a Friday note to shippers that it will undergo planned maintenance in this fall, although each event is expected to last only a few days. A longer, 11-day outage is scheduled for next July.

Spot Gas Lower Despite Work Planned for Pipes

Spot gas prices were lower Friday as high pressure and resulting hot weather was expected to hold over the East Coast for one last day before cooling was forecast to arrive during the weekend, according to NatGasWeather. Weather systems with showers were forecast to send temperatures down to more comfortable highs in the 70s and 80s across the eastern half of the country, easing national demand.

Additional weather systems were expected into the central and then east-central United States during the week before hot high pressure begins to regain ground. The West, however, was expected to remain hot, as was the South and Southeast, the weather forecaster said.

Meanwhile, far off the West Coast, the National Hurricane Center (NHC) was keeping a careful eye on Hurricane Lane, a Category 2 storm Friday afternoon and expected to strengthen into a major storm (Category 3 or higher) that evening. At 11 AM ET on Friday, the center of Hurricane Lane was near latitude 11.2 North, longitude 132.9 West and moving toward the west near 16 mph. A motion between west and west-northwest was expected during the next few days. Lane was forecast to cross into the Central Pacific basin on Saturday.

Maximum sustained winds had increased to near 100 mph with higher gusts, the NHC said.  Continued rapid strengthening was expected for the next 24 hours, but little change in strength was expected on Sunday. As of NHC’s Friday morning update, hurricane-force winds extended outward up to 15 miles from the center, and tropical storm-force winds extended outward up to 90 miles.

Infraestructura Energetica Nova’s Energia Costa Azul LNG import terminal, which is near Ensenada in the northwest Mexican state of Baja California, was among the gas infrastructure closest to the storm, but it remained well out of its current and projected path.

Aside from the weather and tropical storm activity, several pipelines were set to begin maintenance early next week that could restrict flows through portions of their lines.

Starting Monday, Midwestern Gas Transmission (MGT) plans to replace pipe on the mainline north of Simpson Sales in Simpson County, KY, which would fully restrict southbound flows through Compressor Station (CS) 2101 into Tennessee.

Flows through CS 2102 have averaged roughly 150 MMcf/d for the past 30 days, of which about 105 MMcf/d has been delivered to Tennessee Gas Pipeline (TGP) at the Portland interconnect, according to Genscape.

“It is likely deliveries to TGP at Portland will be restricted due to this event; however, TGP could instead deliver to MGT to fulfill the remaining demand south of the outage area,” Genscape natural gas analyst Vanessa Witte said.

This event could also cause flow reductions at the Scotland Rockies Express Pipeline interconnect farther north on the mainline, as this is where MGT sources the majority of its gas, Genscape said. Higher-than-average cooling degree days that are forecast for the Midwest could increase demand for northbound flow, Witte said. Per MGT’s notice, the outage is not expected to last more than 80 hours.

Tennessee zone 1 100 L spot gas traded at $2.90, down a penny on the day.

Elsewhere across the country, Texas Gas Transmission was set Monday to start planned hydro tests near Dillsboro, IN. Southbound capacity through the Harrison CS was to be restricted to around 673 MMcf/d, an 83 MMcf/d reduction in southbound operational capacity for the duration of the maintenance event, which is scheduled to end Sept. 30, according to Genscape.

Southbound flows through the Harrison CS have averaged 733 MMcf/d over the last month, Genscape natural gas analyst Allison Hurley said. Southbound flows may impact the Dillsboro and Jeffersontown compressor stations depending on scheduled deliveries going to the Lawrenceburg Power Plant, which has had average delivery nominations of 194 MMcf/d during the previous month. Genscape, however, “does not believe that this new event will be as impactful as the most recent” previous single-day June 2018 maintenance event where nominations dropped 233 MMcf/d day over day, due to a greater operational capacity restriction at Harrison CS, Genscape analyst Emily Allard said.

Indeed, Texas Gas Zone 1 held steady at $2.89.

In California, Southern California Gas Inc. (SoCalGas) has reached an agreement for a temporary extension of right-of-way (ROW) on Line 5000 (L5000)just days before the right-of-way was to expire. SoCalGas announced the Morongo Band of Mission Indians granted a temporary, 60-day extension on the ROW to give both parties more time to negotiate a longer-term agreement.

The existing agreement was set to expire on Tuesday (Aug. 21), and prospects for the extension were looking grim as negotiations had ground to a halt. The expiration of the L5000 ROW would have forced the line out of service and thereby reduced capacity through SoCalGas’ Southern Zone by several hundred MMcf/d, Genscape said.

“This would have certainly been a major contributor to SoCal Citygate volatility” because of SoCalGas’ limited access to storage in the wake of the Aliso Canyon leak placing increased reliance on flowing supply from import pipelines, but for which capacity on several import systems has also been limited to planned and unplanned maintenance, Genscape senior natural gas analyst Rick Margolin said.

The news of the ROW extension could have played a hand in sending California spot gas prices lower since the state continues to experience scorching temperatures. SoCal Citygate fell nearly $1 to $5.00, while Malin slipped 4 cents to $2.71.

In the Rockies, spot gas prices were down more than a nickel on average, with steeper declines at CIG, which tumbled 13 cents to $2.46.  Northwest Wyoming Pool fell nearly a dime to $2.59.

In the Northeast, Algonquin Citygate plunged 57 cents to $2.91, while Transco zone 6 NY dropped 17 cents to $2.88. Both points had traded above $3 on Thursday.

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