- $3 gas becoming less likely as summer heat currently forecast to wane before mid-September
- Nymex September futures contract slides 4.1 cents ahead of expiration later this week
- Traders expecting EIA storage report later this week to reflect build that is well above five-year average
- Current heat wave in eastern half of United States drives up spot gas prices
Forecasts for cooler weather in the next couple of weeks took out any bite remaining from market bulls Monday as September natural gas prices retreated once again. The Nymex September gas futures contract settled at $2.876, down 4.1 cents on the day.
Spot gas prices, however, were on the rise as summer heat that returned to the eastern half of the country late this past weekend was expected to stick around for a few days. The NGI National Spot Gas Avg. picked up 11 cents to reach $2.80.
On the futures front, the September contract was in the red from the start of trading Monday, opening about a penny lower and falling to an intraday low of $2.874 before recovering very modestly into the close. October, which takes over the prompt-month position on Thursday, settled 4.4 cents lower at $2.869.
“September natural gas prices are moving lower as long-range cool risks increased over the weekend and balances have continued to loosen,” Bespoke Weather Services said.
Strong cash prices shook off these developments, and “though they will allow the potential for prices to bounce into the September contract expiry on Wednesday, bounces are likely to fail with a very loose winter strip and weather-adjusted demand that is rather unimpressive,” Bespoke chief meteorologist Jacob Meisel said.
Long-range weather forecasts were likely to gradually cool this week as well, and although heat across the South could linger, Bespoke expects weather to gradually be less supportive. “Such developments, along with weak seasonality, put at least $2.85 in play this week with downside risk even lower” should this coming Thursday’s Energy Information Administration (EIA) storage data disappoint or balances not tighten.
September contract expirations also could have had a hand in Monday’s selloff, according to NatGasWeather, especially as weather conditions remain generally supportive for the next couple of weeks. There were minor changes in the midday data as a rather bullish pattern sets up through around Sept. 7, aided by daytime temperatures that were forecast to return to the the mid-90s along the East Coast early this week. That pattern is set to be followed by a stronger-than-normal upper ridge dominating most of the country Sept. 2-7, the forecaster said.
The latest Global Forecasting System was a little hotter trending around Sept. 6-9, slowing the weakening of the upper ridge to add a few cooling degree days, it added. However, the data still advertises a much more comfortable U.S. pattern arriving around Sept. 8-10, “just with the exact date different in each of the weather models as they try to resolve just how quickly upper high pressure will weaken,” NatGasWeather said.
The cooler weather on tap should begin to chip away at the mounting storage deficit that has worried some market observers as they look ahead to the winter season. As of Aug. 17, inventories stood at 2,435 Bcf, 684 Bcf below year-ago levels and 599 Bcf below the five-year average of 3,034 Bcf, EIA said.
As early as this Thursday, the market can expect to see a much less supportive EIA print as expectations are for an injection that “should easily in come in above the five-year average,” Bespoke said. In addition, the Aug. 20-24 week brought increased production, looser power burns and much milder weather, the forecaster said.
“Recent demand-side loosening was apparent in each of the last two EIA prints and should be confirmed in this one as well, easing concerns about storage even as we still see storage sit very far below normal levels for the time of year, which sets a floor for prices this fall,” Meisel said.
Bespoke is expecting to see a storage build in the upper 60 Bcf range on Thursday, “with risks from the low 60s to low 70s still overall.”
Meanwhile, with air conditioning demand likely to fall sharply by mid-September, Transcontinental Gas Pipe Line’s Atlantic Sunrise set to begin service soon and two supply laterals for Rover Pipeline about to come online, “bulls decided it was time to throw in the towel. The most likely scenario is that futures will continue to slide for the rest of this month and all or most of September,” EBW Analytics said.
Heat Reignites Spot Gas
Spot gas prices in much of the country strengthened Monday as New York City and other major Northeast cities were expected to see temperatures soar into the 90s the next three days to drive strong national demand. The higher East Coast temperatures were also aided by hot and humid conditions across the southern and central United States, according to NatGasWeather.
There's still expected to be a weather system track across the northern United States/Midwest on Thursday and Friday, making for a minor swing toward lighter national demand. This is expected to be short lived, however, as the hot ridge springs back over the eastern half of the country this weekend and stalling through next week, the forecaster said. The result is stronger-than-normal national demand returning as highs in the upper 80s and 90s are forecast to become widespread.
“The pattern would look quite bullish if it wasn't for the upper ridge being expected to weaken” after Sept. 7-8 as comfortable temperatures arrive across the northern half of the country with only the southern tier expected to remain relatively hot,” NatGasWeather said.
As expected, some of the sharpest gains were seen in the Northeast and Appalachia. Transco zone 6-NY next-day gas traded at $3.36, up 59 cents on the day. Tennessee zone 6 200L jumped 66 cents to $3.69, and Algonquin Citygate shot up 63 cents to $3.75.
At Columbia Gas, spot gas climbed 16 cents to $2.82, while Texas Eastern M-3 Delivery rose 21 cents to $2.87. Transco-Leidy Line was up a dime to $2.64.
In the southeast, Transco zone 5 edged up 34 cents to $3.31, while Transco zone 4 was up just 7 cents to $2.98. Prices across Louisiana were a couple of cents higher on average, while most pricing hubs in Texas ended the day in the red thanks to increasing cloud coverage in the state. The East Texas Regional Avg. dropped 2 cents to $2.87, while steeper losses were seen in West Texas/southeastern New Mexico. El Paso-Permian tumbled 16 cents to $1.48, and Transwestern fell 15 cents to $1.39. Waha was down 8 cents to $1.29.
Most pricing locations in the Rockies shifted a couple of a cents at best, while California markets were mixed. SoCal Citygate next-day gas climbed 17 cents to $4.05, while PG&E Citygate next-day gas fell 7 cents to $3.17.
Looking ahead to the fall season, Genscape Inc. said that while there may be a “decent amount” of non-gas-fired generation capacity slated to go offline this fall for maintenance, growth in wind generation and expected normal temperatures may limit any bullish uplift for gas.
Its Midwest Independent System Operator (MISO) desk’s meteorologists expect regional temperatures this fall (September through November) to be near seasonal norms, although its forecasts do come in slightly cooler than other forecasting shops, it said.
“Typically, MISO power loads in the fall have some volatility” with remnants of cooling load running into September, an October lull and then ramp-ups again in November as heating loads increase, Genscape senior natural gas analyst Rick Margolin said.
The MISO desk expects roughly 24 coal plants and nine nuclear plants to go offline at some point during the fall season for maintenance. Coal outages kick in at the start of September and ramp to an aggregate peak around 5.1 gigawatts (GW) of nameplate capacity in early October, according to Genscape.
Despite the volume of non-gas-fired capacity on outage, the potential uplift for gas will be limited by the moderate temperatures, along with peaking wind. “Not only does MISO wind seasonally increase in the fall, but MISO itself has seen notable additions in wind-generation capacity installed in recent years,” Margolin said.
As a result, Genscape’s MISO desk expects on-peak average wind output could run about 5.5 GW, assuming a roughly 33% capacity factor during the season.