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Explosion Rattles October Natural Gas Contract; Spot Gas Mostly Lower

October natural gas prices rose slightly Monday, despite cool weather to start the week and near-record production. The Nymex October gas futures contract settled 2.8 cents higher at $2.804 as strong cash prices in key markets and a pipeline explosion rattled a market that otherwise faced multiple headwinds. Spot gas prices, meanwhile, were mixed even with overall mild weather across the country. All eyes are on Hurricane Florence, which had reached Category 4 status by early afternoon Monday. The NGI National Spot Gas Avg. was up a nickel to $2.62.

On the futures front, the October contract opened Monday’s session fractionally lower than Friday’s settle and dropped as low as $2.752 before rebounding later in the morning. Overall, the prompt month traded in a range of about 6 cents before settling a penny below its intraday high. November rose 1.8 cents to $2.808, and December edged up 1.7 cents to $2.895.

With little change in weather models, and the small shifts pointing to cooler weather in the days ahead, market observers pinned Monday’s rally partly on news that an Energy Transfer Partners LP (ETP) natural gas pipeline had exploded in western Pennsylvania.

The affected system, running from Butler County through Center Township in Beaver County and into Washington County, came online earlier this month. ETP recently completed the 100-mile Revolution System pipeline, a 24- and 30-inch diameter gathering system that follows the same route to deliver more than 400 MMcf/d to the Revolution processing plant in Washington County.

Genscape Inc. said based on initial observations, the explosion was not expected to significantly impact nominations on interstate pipelines. The gathering pipeline’s processed gas would deliver tailgate volumes to Rover Pipeline’s Burgettstown lateral upon startup. Federal regulators had authorized Rover to bring the Burgettstown and Majorsville laterals into service late last month, but there have not yet been any scheduled nominations on the Burgettstown Lateral, according to Genscape.

“If the explosion is contained to the Revolution pipeline, we do not expect any significant impacts to interstate operations in the area. However, this may hinder the ability of molecules to get onto Rover's Burgettstown Lateral going forward,” the firm said.

As for weather, the latest outlooks were only slightly changed from Friday with slightly cooler trends for late this week and the Sept. 15-16 weekend, according to NatGasWeather. Of most importance for the East Coast this week was Hurricane Florence, which as of Monday afternoon was over the central Atlantic Ocean and expected to strengthen over the coming days as it tracked toward the southeastern Atlantic Coast.

The storm intensified rapidly Monday, reaching Category 4 status in a little more than 12 hours, and it could reach Category 5 status at its peak, Radiant Solutions said. Florence is expected to make landfall as a major hurricane over the Carolinas late Thursday or early Friday, and it could be one of the strongest hurricanes ever to make landfall in the Carolinas, the forecaster said.

“The exact location of landfall remains a point of uncertainty, but the storm is likely to bring life-threatening winds and storm surge to coastal areas of the Carolinas,” Radiant said in a midday update. “The focus then shifts inland as the storm is expected to stall, promoting a potentially catastrophic inland flooding scenario with several days of heavy rain forecast across portions of the Atlantic Coastal Plain and Piedmont.”

“Hurricane Florence poses a number of significant threats in the East,” Radiant senior meteorologist Steve Silver said. “The storm will bring major wind and surge impacts with the potential for widespread power outages, significant property damage, and loss of life. That said, given the anomalous pattern that looks to keep Florence stalled overhead, its inland flooding impact may ultimately be what this storm is remembered for.”

Meanwhile, two additional hurricanes are churning across the eastern Atlantic, and Invest 95L may develop in the Gulf of Mexico, Radiant said. Helene poses no threat to land at this time, but Isaac may impact the Lesser Antilles later this week. Invest 95L is not expected to develop into a strong tropical cyclone, “but regardless of development, it is expected to bring heavy rain to Texas heading into the weekend,” the forecaster said.

Despite the robust level of activity in the tropics this week, hurricanes and other tropical systems are viewed by the natural gas market as demand destructors, as most U.S. gas production is now onshore.

Genscape said the Carolinas mostly escaped last year’s hurricane season unscathed, but previous storms have had demand-destructive impacts. The last major hurricanes to hit the region were in 2016 with hurricanes Hermine (Aug. 28-Sept. 3) and Matthew (Sept. 28-Oct. 9).

“In the aftermath of Matthew, we estimated the storm had lopped off about 1 Bcf/d of Southeast/Mid-Atlantic regional demand, about 2% versus pre-storm levels,” Genscape senior natural gas analyst Rick Margolin said.

Meanwhile, the remnants of Tropical Storm Gordon were still having an impact. Cooler temperatures and rains from the storm have contributed to Energy Information Administration Midwest region power burns falling below the 3 Bcf/d mark, with burns not forecast to recover until end of week at earliest, he said.

Looking ahead, weather forecasts were a touch warmer around Sept. 16-18, although the pattern still looks “exceptionally comfortable” across most of the country Sept. 19-25, but with the potential for the first cool shot of the season arriving across the Midwest and Northeast around Sept. 20, according to NatGasWeather.

Overall, it viewed the weather data as little changed as the coming pattern would require light demand as the market moves deeper in the shoulder season, and “where weekly storage builds should finally come in larger than five-year averages to gradually improve hefty deficits,” it said.

Indeed, storage inventories remain at stout deficits to historical levels, and although injections are set to increase as summer heat fades, signs are now pointing to the market tightening back up in the coming weeks, Bespoke Weather Services said.

“We should see injection size still increase with weather easing off, and there are certainly bearish risks with the number on Thursday, but we still see low storage levels helping keep the front of the strip bid,” Bespoke chief meteorologist Jacob Meisel said.

As for technical indicators, those were mixed as the October contract successfully bounced off support at the $2.75 level. “Spreads remain quite bearish as the winter strip has proven unable to rally here, and money managers remain net long even after this recent decline in prices,” Meisel said.

The summer 2019 strip (April-October) is a bit more supportive, however, and seasonality is far less bearish than it was last week, he said, “making a bounce up toward resistance in the $2.85 level increasingly likely this week.”

Beyond September, EBW Analytics said if long-term forecasts shift and begin to call for a colder-than-normal onset to winter, “there could be a time, later in the injection season or early this coming winter, in which natural gas prices start to rebound strongly.”

In addition, although the market is broadly betting on supply growth to supplement storage this winter, a leaner inventory buffer could produce sharp price spikes in a cold-weather scenario, EBW said.

The analytics company also reported that as of last Friday, eight liquefied natural gas (LNG) tankers, oil tankers and an liquefied petroleum gas tanker were stalled in the Sabine Pass Channel, blocking access to Cheniere's Sabine Pass LNG export terminal in Louisiana. Passage was blocked in order to inspect and repair a 24-inch dredge pipeline pulled up by a ship pin last week.

“If completion of repairs takes an extended period, operation of Sabine Pass could be significantly affected, further reducing gas use at the facility,” EBW CEO Andy Weissman said.

Northeast, Appalachia Spot Gas Rises

Spot gas prices were generally lower on Monday, but the Northeast and Appalachia moved against the pack as it rebounded from dramatic declines in Friday trading.

The overall downtrend across the country stemmed from a weather system with showers and thunderstorms that was tracking across the Ohio Valley and Northeast Monday, although warming was expected for the rest of the week. The South was forecast to see a slow moving, weak weather system produce showers, while a cooler system was expected to impact the Northwest, according to NatGasWeather.

Temperatures were forecast to remain hot over the Southwest and Southeast, with daytime highs reaching the upper 80s to 90s in most areas and the 100s over Southwest deserts. As the week progresses, warm high pressure was expected to strengthen over most of the country with 80s to near 90 degrees becoming widespread except in the Northwest, the forecaster said.

In Texas, daily prices were mixed but mostly lower as heavy rains and lower temperatures were forecast to continue throughout the week. East Texas points shed no more than a few cents at most hubs, but Maypearl was down a dime to $2.55 and Tolar Hub was down 8 cents to $2.58. Houston Ship Channel slipped just 2 cents to $2.83.

West Texas pricing points fell more sharply, with El Paso-Permian dropping 13 cents to $1.95 and Oneok WesTex sliding 6 cents to $1.96. Waha shed 2 cents $2.05.

Spot gas prices in the Midcontinent and Midwest were mostly lower as well, although losses were limited to a few cents at most point. The Midcontinent Regional Avg. actually increased 2 cents to $2.34 because of a more than 10-cent gain at Southern Star, which traded at $2.28.

The Rockies saw similarly small losses in the region, although Opal fell a nickel to average $2.33.

Louisiana pricing hubs also were mixed, although swings were limited to less than a nickel at most points. Henry Hub climbed a penny to $2.85, while Texas Eastern W. LA rose 5 cents to $2.79. Transco zone 3 also jumped 6 cents to $2.85.

Other points along Transco in the Southeast also increased, with zone 4 edging up 6 cents to $2.86 and zone 5 rising a nickel to $2.96.

In Appalachia, Columbia Gas shot up a dime to $2.63, while Dominion South rose 8 cents to $2.37. Tennessee zone 4 Marcellus was up 15 cents to $2.31.

The Northeast posted the country’s sharpest increases by far. Algonquin Citygate next-day gas jumped 26 cents to $2.83, Iroquois zone 2 climbed 28 cents to $2.92 and Tennessee zone 6 200L rose 14 cents to $2.74. Transco zone 6 NY put up the most substantial increase in the country as it jumped nearly 50 cents to $2.99.

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