September natural gas prices fell for a third consecutive day as weather forecasts maintained a bearish trend for the second week of September -- and possibly beyond. The Nymex September gas futures contract slid 2.4 cents to $2.852, while October fell 2.4 cents to $2.845.
Spot gas prices, meanwhile, were mixed as one of the last few heat waves in current weather forecasts was expected to blanket the eastern United States for another day or so, lifting demand in one region to possible record levels. The NGI National Spot Gas Avg. ultimately climbed a nickel to $2.85.
As for futures action, the prompt month opened the session on par with Monday’s settle and briefly entered positive territory before weakening throughout much of the day. With only one more day before the September contract expires, the market was clearly carrying the weight of persistent production growth, according to Mobius Risk Group.
Heavy producer selling also likely had a hand in the steep sell-off during the last three days as solid decreases were seen in balance-of-2018 and calendar year 2019-2022 prices as well.
Meanwhile, data for Thursday’s Energy Information Administration storage report likely weighed on near-term pricing as the possibility of a 30-40 Bcf reduction in the persistent storage deficit “has become a distinct possibility,” Mobius analysts said. There has not been a reduction in the year/year storage deficit since the week ending June 29, and there has not been a double-digit reduction since June 8, the Houston-based firm said.
“This, coupled with substantial speculative length, could have caused profit taking by market bulls who are merely looking for an opportunity to reload during the low point for demand in late September/early October,” Mobius said.
An early poll by The Desk of 18 market participants showed an estimated injection range of 51 Bcf to 72 Bcf, with a median of 63.7 Bcf and an average of 63 Bcf. During the same week last year, 32 Bcf was injected into storage, while the five-year average stands at 59 Bcf.
Inventories as of Aug. 17 stood at 2,435 Bcf, about 22% below last year and about 20% below the five-year average.
As for weather, there were only minor changes to the outlooks as overnight data was consistent in keeping a bullish pattern through Sept. 7, according to NatGasWeather. Specifically, high temperatures were forecast to reach the mid-90s across the East Coast early this week before a stronger/hotter-than-normal upper ridge was forecast to dominate most of the country for the first week of September.
However, the European model was hotter trending overnight, while the Global Forecasting System model was hotter next week but then cooler afterward, the forecaster said. The data still advertised a more comfortable U.S. pattern arriving Sept. 8-10 across the northern and eastern United States, “but with continued timing differences between the weather models on exactly when cooler conditions will arrive. Overall, a bullish pattern becoming neutral to bearish after Sept. 7,” NatGasWeather said.
The milder weather that’s forecast to be just days away has combined with near-record production to put market bears firmly back in control of gas prices. But as some market observers have pointed out, there are other structural demand drivers that shouldn’t be ignored in the coming months.
Earlier this month, FERC issued Cheniere Energy Inc. authorization to allow feed gas to begin at Train 1 of the Corpus Christi Liquefaction LLC, signaling that the terminal could produce the first commissioning cargo before year's end [No. CP12-507].
And on Monday, Houston-based Cheniere asked the Federal Energy Regulatory Commission for authorization to introduce feed gas and refrigerants to continue its commissioning activities for Train 5 at the Sabine Pass LNG export terminal in Cameron Parish, LA.
“Historically, terminals do not see an immediate spike in deliveries after FERC approves feed gas,” BTU Analytics energy analyst Emily Green said.
Instead, it has taken about two months on average between approval of feed gas and when deliveries to a facility have “materially” increased, she said, noting the timelines of the first three trains at Sabine Pass as well as Dominion’s Cove Point facility, which has only one train.
Taking that timeframe and applying to the Corpus Christi facility would mean that an increase in deliveries is likely to occur between Sept. 8 and Nov. 10, with the midpoint falling in mid-October, according to BTU.
“The timing of Corpus and the three other terminals expected to come online over the next two years are critical for U.S. demand and must be considered alongside supply growth and infrastructure projects,” Green said.
FERC on Monday also approved commissioning of Train 1 at the Freeport LNG facility in Texas. This should allow for a material ramp in feed gas consumption before mid-2019, according to Mobius.
“While the market remains fixated on production growth, there is a considerable slate of demand gains staged to begin cutting in to net supply growth by the end of 2018,” Mobius analysts said.
Heat Wave Fuels Northeast Spot Gas
Spot gas prices posted another day of gains in the Northeast Tuesday as sweltering conditions returned to the densely populated region. Most other markets across the country, however, softened as the first decent cold shot of the season was moving into the country’s midsection.
Daytime temperatures in New York City and other major Northeast cities were forecast to hit the mid-90s through Thursday, driving strong national demand and being aided by hot and humid conditions across the southern and central United States, according to NatGasWeather.
In New England, Algonquin Citygates next-day gas jumped 30 cents to $4.05, resulting in a two-day increase of nearly $1. Genscape Inc. reported that after the close of Monday’s trading, New England’s 688 MW Pilgrim nuclear plant ramped down to 40% of nameplate capacity. Excessive heat warnings were declared within the region.
Aggregate nominations for Tuesday’s power burn across New England were summing up to 2,066 MMcf/d, which -- barring revisions -- would establish a new record high, topping the previous burn record of 1,788 set in 2010, according to Genscape senior natural gas analyst Rick Margolin.
“This is the major component in total regional demand from all sources topping the 3 Bcf/d mark, which has never been done in a May-October time period,” Margolin said.
Some other northeastern pricing hubs also posted stout gains, with Iroquois zone 2 picking up 33 cents to reach $3.86 and Tennessee zone 6 200L tacking on 32 cents to hit $4.01. Transco zone 6 NY, which shot up nearly 60 cents on Monday, gave back some of those gains as next-day gas plunged 21 cents to $3.15.
“The elevated demand levels should persist for a few more days” as daytime highs Tuesday around Boston were forecast to hit 97 degrees, nearly 20 degrees above normal. Daytime highs in New York City are expected to be in the mid-90s, about 13 degrees above seasonal norms, according to Genscape.
California also continued to strengthen as temperatures were on the rise. AccuWeather showed highs in Los Angeles in the low 80s for Tuesday and Wednesday and then flirting with 90 by week’s end. SoCal Citygate spot gas jumped 45 cents to $4.50, while Malin edged up just 3 cents to $2.39.
Next-day gas in the Rockies also posted another day of gains, although increases were limited to less than a nickel at most pricing locations. The Rocky Mtns. Regional Avg. was up just 3 cents to $2.29.
In West Texas/southeastern New Mexico, most pricing points recovered from Monday’s losses. El Paso-Permian climbed 8 cents to $1.56, while Oneok WesTex rose 17 cents to $1.50. Waha, meanwhile, held steady at $1.29.
Waha has seen its discount to the benchmark Henry Hub consistently widen over the last couple of months as takeaway capacity from the Permian Basin is largely filled, stranding associated gas production. On July 2, Waha sat 68 cents below Henry Hub. As of Tuesday, that discount had blown out to $1.64, NGI data show.
Elsewhere in the country, the first decent cool shot of the season was bringing showers and thunderstorms across the northern Plains and was expected to gradually advance through the Midwest and Ohio Valley during the next several days, according to NatGasWeather.
“This will be short lived, however, as the hot ridge bounces back over the eastern half of the country late this weekend through next week with stronger-than-normal demand returning” as daytime highs in the upper 80s and 90s are once again forecast to become widespread across the Great Lakes, Mid-Atlantic and Northeast. Meanwhile, hot and humid conditions were expected to remain over the southern United States, the forecaster said.
“The problem with the pattern isn't this week or next week, but the weeks after as upper high pressure weakens, feeling the effects of notably shorter days,” NatGasWeather said.