Improving West Texas basis differentials helped offset declining East Coast premiums as natural gas spot prices were decidedly mixed for the week ended Sept. 7; the NGI Weekly National Spot Gas Average fell a nickel to $2.71/MMBtu.
As cooler temperatures swept through toward the end of the week to ease late summer heat in the region, locations along the East Coast that had traded at a premium saw discounts. Transco Zone 6 New York fell 20 cents week/week (w/w) to $2.91, while Algonquin Citygate shed 51 cents to $3.01.
The losses extended further upstream into Appalachia, where Dominion South fell 13 cents to $2.49. Appalachian locations are poised to see much narrower basis differentialsthis shoulder season, though a slight delay to the start of Atlantic Sunrise could prove frustrating in the near-term for producers anxious to fill the new takeaway capacity.
Speaking of basis differentials, after day-ahead prices traded as much as $1.69 back of Henry Hub on average a week earlier, Waha prices surged during the week ended Sept. 7. Weekly spot prices at Waha jumped 79 cents to $2.06 to lead the way for the region. El Paso Permian added 51 cents to $2.01.
The strengthening basis for West Texas comes amid recent indications of slower drilling and completions activityin the Permian, according to Patrick Rau, NGI's Director of Strategy & Research.
Another potential factor, according to Rau, is now that the calendar has turned to September, utilities and the like should start injecting more gas in the South Central region, which could open the door for more Permian production to find a home. As of Aug. 24, storage in the South Central region stood at 800 Bcf, down 262 Bcf from last year and a full 229 Bcf below the previous five-year average.
Friday was a slow day for natural gas futures, bringing to a close a week that essentially solidified the general direction for prices expected in the coming weeks amid record production and cooler weather. The Nymex October futures contract ended the day four-tenths of a cent higher at $2.776, capping off a rough week for natural gas bulls that saw slide 14 cents from Aug. 31-Sept. 7.
On the futures front, the Nymex October contract opened Friday’s session about a half-cent higher at $2.777 but quickly retreated as weather forecasts for the medium range trended slightly less impressive, keeping gas-weighted degree days (GWDD) right around the five-year average through the next couple of weeks, Bespoke Weather Services said.
“We see GWDDs struggle to get as elevated with the core of the heat outside of the South,” but long-range forecasts trended “a touch more supportive with the first real introduction of heating demand,” Bespoke chief meteorologist Jacob Meisel said.
This is a trend that could at least temporarily continue, although models were still relatively quick to show warmth returning during week 3, and a more Nino-like pattern into October would pose broader warm risks by November, Bespoke said. “Still, we increasingly would expect to add some heating demand this weekend, which would be supportive.”
As for details, daytime temperatures were forecast to be be mainly in the upper 60s to low 80s through the early part of the week, with limited coverage of 90-degree temperatures forecast beyond the West, NatGasWeather said. The milder conditions could see national demand during the next several days dropping to the lightest levels since last spring.
This sort of forecast in September often brings about an increase in sell-side interest, according to Mobius Risk Group. The firm pointed to an increase in Commodity Futures Trading Commission Swap Data Repository activity, which showed that producers have been more active this week, and October’s move lower “could be attributed to the insatiable appetite for de-risking natural gas price exposure,” analysts said.
Mobius also noted that the cooler trends showing up in weather outlooks were in the Midcontinent and Northeast, where ‘normals’ are falling fast and cooling demand can abruptly shift to heating demand.
“The takeaway here is not to be gathered up by a herd which is not forward looking enough with temperature implications regarding natural gas demand,” the Houston-based firm said.
Indeed, many market observers have been pinning their hopes on record production quickly refilling lagging storage inventories once summer heat fades.
The Energy Information Administration (EIA) reported a 63 Bcf build into Lower 48 gas stocks for the week ended Aug. 31, a number that fell in line with estimates.
Nymex natural gas futures, which were coming off a steep decline over the previous two sessions, registered a muted reaction to the news, trading either side of $2.780/MMBtu.
The 63 Bcf injection from EIA compares to a five-year average 65 Bcf build and a 60 Bcf build recorded in the year-ago period. The figure falls between major surveys that had pointed to a build in the low 60s Bcf; Intercontinental Exchange (ICE) EIA Financial Weekly Index futures settled at 64 Bcf a day earlier.
Total working gas in underground storage as of Aug. 31 stood at 2,568 Bcf, 590 Bcf below the five-year average and 643 Bcf lower than year-ago levels, according to EIA.
By region, the South Central posted a net withdrawal for the week, thanks to 5 Bcf pulled from salt, offsetting 4 Bcf injected into nonsalt. The Midwest posted the largest net injection at 32 Bcf, followed by the East, which saw a build of 22 Bcf. The Mountain and Pacific regions each injected 5 Bcf, according to EIA.
“Compared to degree days and normal seasonality, the 63 Bcf injection is about 1.8 Bcf/d loose versus the five-year average,” Genscape Inc. senior natural gas analyst Rick Margolin said. “...While there is still a massive year-on-year deficit, the deficit has actually narrowed to its tightest level since mid-February.”
Genscape’s natural gas supply and demand forecast still showed “the current forward curve prices for oil and gas and near-term weather are driving end-of-season inventories toward a level that barely cracks 3.3 Tcf, which would be the lowest start-of-winter inventory since at least 2005.”
Intercontinental Exchange EIA End of Storage Index futures settled Thursday at 3,360 Bcf, down from 3,366 Bcf the previous week.
EBW Analytics Group CEO Andy Weissman said the last two EIA reports, both missing to the high side of major survey averages, “suggest that production may be growing more rapidly than the pipeline scrape data suggests.”
With only eight weeks remaining in the refill season, Jefferies LLC expects inventories to enter November at around 3.4 Tcf, 9% below average, but estimated that production would need to average roughly 7.0 Bcf/d higher year/year for storage to reach the five-year average (around 1.7 Tcf) by the end of March, assuming five-year average withdrawals.
“This level of production would imply a winter average of just 83.3 Bcf/d, just 1.4 Bcf/d higher than the August average and roughly in line with the new recent daily high,” analysts said.
Looking ahead, the cumulative effect of the next two storage reports should be an inventory expansion of 15-30 Bcf, according to Mobius. “Anything outside of those bounds would likely be cause for a material price change,” it said.
Meanwhile, the natural gas market, which typically has a week to digest storage data in preparation for the subsequent data release, will see a disruption to that schedule over the next few days as the EIA is set to release a revised inventory history covering the past eight weeks. The EIA first announced its upcoming revisions last month.
Regardless, with summer drawing to a close, storage builds will undoubtedly increase. “Although this is as reliable as the sun rising in the West, market participants are often on edge with the looming potential for triple-digit late September/early October injections,” Mobius said.
Meanwhile, Bespoke said power burns have been gradually tightening at these lower price levels, and though EIA data for the week ending Aug. 31 will likely be looser again (thanks in part to the Labor Day holiday), “we are approaching the time of year where we tend to see a seasonal bottom.”
The forecaster said with some signs of support, it would expect any short-term move below $2.75 to be temporary. “Without weather in the coming couple months, the bias is lower but short term, we are neutral,” Meisel said.
Spot Gas Slumps; Cooler Weather Arrives
Spot gas prices declined Friday as national demand was expected to continue fizzling through the weekend as numerous weak weather systems were forecast to produce areas of heavy showers and thunderstorms, especially across the southern and east-central United States, where several inches of rainfall were expected, according to NatGasWeather. The NGI National Spot Gas Avg.fell 10 cents to $2.57.
Spot prices fell across North America for the three-day period into Monday as weather systems bringing showers and thunderstorms were expected to send temperatures back to more comfortable levels in the upper 60s to low 80s.
Several regions posted decreases of around a nickel, but much steeper losses were seen in Appalachia, the Northeast and in the West.
In Appalachia, Columbia Gasplunged 17 cents to $2.53, while Tennessee zone 4 Marcellustumbled a quarter to $2.16. Texas Eastern M-3, Deliverywas down 21 cents to $2.36, and Dominion Southwas down 17 cents to $2.29.
Transcontinental Gas Pipe Line (aka Transco) on Thursday told FERC that its Atlantic Sunrise expansion project “is no longer expected to be mechanically complete” by the Monday (Sept. 10) in-service date it had previously requested. In a filing to the Federal Energy Regulatory Commission, Transco said installation of Central Penn Line South had not progressed at the rate forecast.
Transco said it is re-evaluating the construction schedule and will continue to provide weekly updates to FERC. The filing did not contain a revised projected date as to when the project would be mechanically complete.
Spot gas trading in the Rockies netted losses of around a dime on average, although Kingsgate continued to post more substantial declines stemming from Thursday’s force majeure on TransCanada Corp.’s Gas Transmission Northwest (GTN) system, which remained in effect on Friday. In a website notice to customers, GTN indicated it would make “every effort” to schedule all firm primary transportation beginning Saturday (Sept. 8) and did not anticipate cuts to firm services. GTN planned to issue another update on Thursday (Sept. 13).
The force majeure was limited gas flows past Kingsgate in Boundary County, ID, to 2,210 MMcf/d because of "unforeseen and uncontrollable" repairs at Station 3. The previous 30-day average flow was 2,305 MMcf/d, translating to a cut of 95 MMcf/d, according to Genscape.
“Similar capacity drops for other unplanned outages earlier this summer corresponded with downward pressure on the Kingsgate basis hub and slight upward pressure at Malin,” Genscape natural gas analyst Joe Bernardi said.
“Demand on GTN has been running slightly higher than the five-year average in the past two and a half months. The next several days should see a slight reduction in recent demand levels due to very mild temperatures.” Temperatures were expected to decrease into slight heating degree day territory over the weekend, he said.
All Eyes On Florence
Looking ahead to the week and the latter part of September, high pressure remained on track to build back across most of the country as the Sept. 10-14 week progresses, with daytime highs of 80s to near 90 becoming widespread for a swing to slightly stronger demand, according to NatGasWeather. It could be a touch cooler over portions of the South as a weak weather system provides showers and slight cooling, “but overall it’s a very warm U.S. pattern, just with less coverage of 90s compared to recent weeks as we advance deeper into the shoulder season,” the forecaster said.
Also of interest, tropical system Florence over the central Atlantic Ocean is forecast to approach the United States during the middle of the week and needs close watching “as its likely to approach the Mid-Atlantic Coast as a strong cyclone, but with clouds, showers and comfortable temperatures.
AccuWeather meteorologists said Florence was a relatively small tropical system, and small tropical systems are vulnerable to both ideal and poor environmental conditions. After forming near the Cabo Verde Islands earlier this month, Florence became the first Category 4 hurricane of the 2018 Atlantic season as it entered a zone of low wind shear and sufficiently warm waters during the week. A zone of strong wind shear caused Florence to weaken to a tropical storm as of Friday, although additional fluctuations in strength were anticipated, AccuWeather said.
"An area of high pressure over the central Atlantic will bridge westward and join with an existing high pressure near the U.S. East Coast over the next several days," according to AccuWeather hurricane expert Dan Kottlowski.
If the high pressure area weakens during the coming week, then Florence may be able to curve north-northeast out to sea with impacts to the United States limited to an “indirect nature,” he said. If the high pressure area remains strong, however, then Florence may complete a 3,500-mile long journey over the Atlantic and be guided right into the East Coast somewhere from the Carolinas to southern New England Wednesday or Thursday.
“Depending on the strength of Florence at that time, such a landfall could have severe consequences in terms of wind damage, coastal storm surge and inland flooding from torrential rainfall,” AccuWeather senior meteorologist Alex Sosnowski said.
Around Sept. 20, there is potential for the first decent cool shots of the fall season into the Midwest or East, according to NatGasWeather. These cool shots still have more to prove and are “still a bit early in the season to be accompanied by any truly cold air,” the forecaster said.