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September Natural Gas Treads Water, Production Holds Its Own Against Hot Weather Forecasts

September natural gas prices held relatively steady Monday as traders grappled with cooler weather on tap for the week but much hotter temperatures to close out August. The Nymex September gas futures contract settled at $2.941, down a half-cent on the day.

Spot gas prices, meanwhile, were mixed as a series of weather systems was expected to keep weather conditions comfortable across the northern United States throughout the week, while pipeline maintenance and pockets of continued heat lent support to several markets. The NGI National Spot Gas Avg. ultimately rose 7 cents to $2.88.

On the futures front, the prompt month was lower from the start of Monday’s session as traders pointed to stronger production over the weekend and the cooler weather on tap this week. September dropped to an intraday low of $2.903 before rebounding later in the morning, as traders may have come to the realization that a hotter weather forecast for the end to the month also may mean that hefty storage deficits would likely remain in place for a little while longer.

The Nymex October contract fell 1.7 cents to $2.932, while winter 2018-2019 (November-March) strip dropped 2.2 cents to $3.057.

The latest weather data showed an upper high pressure expanding to dominate most of the country except the far northern United States during the last week of August, according to NatGasWeather. There were earlier weather model differences, with the European model hotter than the rest, but the latest data showed the Global Forecasting System (GFS) model trending hotter to be more aligned with the European model.

Overall, the pattern is “neutral to a touch bearish this week” because of the weather systems sweeping across the eastern half of the country, the weather forecaster said. Things turn “at least somewhat bullish the last several days of August into the first week of September” as stronger-than-normal high pressure sets up over the eastern two-thirds of the country, “suggesting hefty deficits should still not be expected to improve until after August, and likely not until mid-September,” NatGasWeather said.

Weak weather systems may expose flaws in the hot ridge over time, but the European and GFS models continue to look hot enough to satisfy, it said.

Weather forecasts are repeating a pattern seen with increasing frequency in recent years: week after week, outlooks are shifting significantly warmer than originally expected, EBW Analytics said. This pattern was repeated last Friday (Aug. 17), with a further warmer shift in weeks 2-4. Meanwhile, the latest hotter turn for the end of August/first half of September added a whopping 7.9 cooling degree days (CDD).

“This summer, these shifts have pushed summer air conditioning demand to record levels, preventing the storage deficit from declining and pushing gas prices much higher than they would have been if these hotter shifts had not  occurred,” EBW CEO Andy Weissman said.

This week, the picture is slightly more complex, which could result in continued range-bound trading for natural gas. “If the pattern persists this fall, though, space heating demand could be much lower than normal, pushing gas prices back down,” he said.

Heat, Pipe Work Drive Up Spot Gas

Spot gas prices were mixed but mostly higher across much of the United States even as weather systems with showers and thunderstorms kept a lid on temperatures that had much of the country under scorching conditions during the past week. The weather systems were forecast to sweep across the Midwest and eastern United States in the next several days, leaving high temperatures at comfortable levels in the 70s and 80s and making for a swing to lighter national demand, NatGasWeather said. Another weather system is expected to sweep across the Great Lakes/Ohio Valley on Friday and Saturday, with another round of showers and cooling and where data has been cooler trending.

Hot high pressure is expected to quickly expand across the eastern half of the country late this weekend through the middle of next week, however, and this where the GFS data has been hotter to add several CDDs, the weather forecaster said. Daytime highs are forecast to reach the mid-80s to 90s once again across the Midwest, Mid-Atlantic and Northeast, setting the stage for strong late summer demand, which is aided by hot and humid conditions over the South and Southeast.

Meanwhile, the West also continues to experience sweltering weather conditions, even farther north in the Pacific Northwest. In fact, Genscape Inc. said Pacific Northwest demand so far this month has been on pace to set an August record high, and current weather forecasts indicate no retreat in sight.

“The region has been consuming an average 1.76 Bcf/d, nearly 100 MMcf/d above last August’s record, which came on the back of one of the hottest Augusts recorded,” Genscape senior natural gas analyst Rick Margolin said.

This August has been even hotter, with daily population-weighted average temperatures running close to 72 degrees this month, the warmest since at least 2008, he said. AccuWeather is forecasting strong potential for record high temperatures to be set along the region’s coastal areas around Seattle and Portland, OR, along with notably above normal temperatures on the eastern side of the Cascades, according to Genscape.

At forecast temperatures, the data and analytics company estimated that regional demand would crest 2.1 Bcf/d, which would be a summer-to-date record and near the region’s single-day summer record of 2.18 Bcf/d established last October. “To meet this demand, imports have been coming in well over 2 Bcf/d of late, about 0.2 Bcf/d over the summer-to-date average,” Margolin said.

As such, Malin next-day gas climbed a nickel to $2.76, while PG&E Citygate tacked on 4 cents to $3.41. SoCal Citygate was up more than $1 to $6.04.

In the Rockies, Northwest Sumas picked up 6 cents to reach $2.65, while CIG held steady at $2.46.

Spot gas prices in the Northeast were on the rise in some areas as Millennium Pipeline was originally scheduled to conduct a new tie-in at Huguenot on Tuesday that was to affect the Wagoner East pipe segment in Orange county, NY, until Sept. 18, according to Genscape.

Later in the day, however, Millennium sent an update to its customers, notifying them the maintenance start date has been pushed back to Aug. 28. For the first two days (now Aug. 28 and 29) and last two days (Sept. 24 and 25) of this period, Millennium estimated restrictions of up to 37%. For the remaining days, segment restrictions will vary between 15% and 35% of flows.

Thirty-day average flows (excluding prior maintenance) through the Wagoner East Compressor Station have been 766 MMcf/d, maxing out at 806 MMcf/d, Genscape natural gas analyst Dominic Eggerman said. This tie-in can be expected to reduced flows by 224 MMcf/d during the first and last two days, and from 34-207 MMcf/d otherwise. A previous maintenance event on the upstream Wagoner West segment reduced operational capacity on Wagoner East to 485 MMcf/d from Aug. 3-6. Flows through Wagoner East were reduced by 291 MMcf/d (to around 485 MMcf/d) during this time.

The impact of the forthcoming tie-in is expected to be of similar magnitude, Eggerman said. Flow reductions on the Ramapo interconnect on Algonquin Gas Transmission (AGT) have correlated with past reductions on Wagoner East. “Therefore we can expect similar restricted gas flows” to Algonquin from Millennium starting on Tuesday, he said.

Additionally, upstream flows at Stagecoach East in Broome County, NY, experienced similar reductions in flow (194 MMcf/d) during the Wagoner West maintenance. Maintenance events last week on AGT at the Stony Point compressor station in Rockland county, NY, have also affected flows on Millennium in a similar fashion, according to Eggerman.

Meanwhile, weather forecasts for the New England region indicate hotter-than-average temperatures starting on Wednesday (Aug. 22). Thirty-year averages show temperatures cooling off into September, “but this September, there is an upside risk for heat,” he said.

Given the pipeline limitations that were expected to begin Tuesday, Transco zone 6 NY next-day gas jumped 13 cents to $3.01, while Transco zone 6 non-NY rose 8 cents to $3.00. Algonquin City-gate, however, slipped a penny to $2.90.

Elsewhere across the country, Midcontinent spot prices rose a penny on average, while Midwest prices also shifted only slightly on the day. In West Texas/southeastern New Mexico, next-day gas at Waha jumped 17 cents to $2.09, while El Paso-Permian was up more than a dime to $2.12.

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