October natural gas prices climbed for a second day Tuesday as weather models turned slightly warmer in the medium range. Meanwhile, Hurricane Florence had her eyes on the Carolinas as the storm was expected to make landfall near the coast later this week, potentially leading to widespread power outages and flooding.
The Nymex October gas futures contract climbed 2.4 cents to settle Tuesday at $2.828 even as cold risks remained in long-range outlooks. Spot gas prices, meanwhile, also increased as a hotter weather forecast to return to the Northeast beginning Wednesday and continuing through Friday. The NGI National Spot Gas Avg. was exactly flat at $2.62.
As for futures action, the Nymex October contract opened the session marginally above Monday’s settle at $2.807, and then dropped as low as $2.785 before recovering later in the session to settle within a penny of its intraday high. November and December each posted gains of slightly less than 2 cents, settling Tuesday at $2.827 and $2.913, respectively.
“This strip has struggled to prove supportive the last couple of weeks, and weak winter contracts seem to cap upside around $2.85 today even with any cash strength,” Bespoke Weather Services said before market close.
As for weather, forecasts have not changed significantly, although more heat was seen lingering through the medium range to boost cooling demand as gas-weighted degree days increased slightly overnight Monday, Bespoke said. Long-range cold risks remained as well, “though cold across portions of the South appeared enough to limit cooling demand there and offset some of the heating demand additions in the North,” Bespoke chief meteorologist Jacob Meisel said.
Meanwhile, in the medium-range, cooler weather has become increasingly limited to just the far northern tier, letting cooling demand run far above average as heat briefly builds into the South and Southeast, he said. Bespoke continues to see cold risks dominating into week 3, “which could get heating demand briefly elevated,” but the weather forecaster also is concerned that a warmer pattern develops into the second week of October.
“Risks are still quite mixed though with significant Florence demand destruction expected in the next few days,” Meisel said.
Indeed, all eyes were on Hurricane Florence, which as of 3 p.m. ET Tuesday, was about 370 miles south-southwest of Bermuda and 845 miles east-southeast of Cape Fear, NC, with maximum sustained winds of 130 mph, according to the National Hurricane Center. Florence was moving to the west-northwest at 17 mph.
The hurricane was “getting better organized and increasing in size,” with a “life-threatening storm surge possible” along the North and South Carolina coasts, said the NHC.
“On the forecast track, the center of Florence will move over the southwestern Atlantic Ocean between Bermuda and the Bahamas through Wednesday, and approach the coast of North Carolina or South Carolina in the hurricane watch area Thursday and Friday,” said forecasters.
A hurricane watch was in effect Tuesday afternoon from Edisto Beach, SC, to the North Carolina-Virginia border and Albemarle and Pamlico sounds.
“Florence is expected to produce total rainfall accumulations of 15-20 inches with isolated maximum amounts to 30 inches near the storm's track over portions of the Carolinas and Mid-Atlantic states from late this week into early next week,” said the NHC. “This rainfall could produce catastrophic flash flooding and significant river flooding.”
The continued strengthening of Florence could prove to be a more important issue, according to EBW Analytics. Florence is likely to make landfall later this week and “spend significant time hovering over the Southeast and Mid-Atlantic States and widespread power outages and damage to transmission lines are likely,” EBW CEO Andy Weissman said.
“Depending upon the strength of Florence, demand destruction could be high, possibly 10 Bcf or more. This does not yet appear to be priced into the natural gas market. If it occurs, however, prices could slide further soon.”
As of early Tuesday, Genscape Inc. had not seen any storm-related impacts as the demand sample for North Carolina remained flat to levels from the past week at around 1.75 Bcf/d, with little notable change in population-weighted temperatures. South Carolina sample demand was sitting at 618 MMcf/d, just slightly below the last week’s average. Virginia demand sample was showing a bit of an uptick following the conclusion of the weekend that featured cooler-than-normal temperatures, Genscape said.
Beyond the coming week, NatGasWeather forecasters said there’s likely to be a glancing blow of cooler air across the northern United States around Sept. 19-20, but the overnight data had backed off with it. Overall, the firm said light demand is expected for the second half of the month as it continues to wait for stronger cooling to push across the Canadian border.
What will be of “considerable interest” is whether storage builds during the second half of the month are able to exceed 90-100 Bcf “to finally begin the process of improving hefty deficits,” it said.
An early view by The Desk of natural gas storage injection estimates by 16 market participants showed an injection range of 58-75 Bcf for this coming Thursday’s report, with an average build of 68 Bcf and a median of 70 Bcf. Last year, 87 Bcf was injected into Lower 48 gas stocks, while the five-year average stands at 74 Bcf.
As of Aug. 31, inventories stood at 2,568 Bcf, 20% below last year and about 19% below the five-year average, according to the Energy Information Administration.
As Nymex pricing has alternated between treading water and gasping for air, regional markets have shown a disconnect with market commentary that is centered around price-crushing production growth and the invasion of Appalachian supply, according to Mobius Risk Group. Apathy toward upside price risk suggests fundamental data like extremely low Canadian imports, pending feedgas deliveries to Cheniere Energy Corp.’s Sabine Pass Train 5, strong weather-adjusted power burn (Southeastern U.S.) and likely declines in year/year nuclear output in October are considered minor relative to production growth expectations, the Houston-based firm said. Weekly storage data indicates the aforementioned factors are highly relevant, “but this backward-looking metric is currently being dismissed as well.
“It will be interesting to see if market bears are able to hold on to positions between now and late September,” Mobius said noting that the end of a quarter and an expanding year/year storage deficit may combine to drive a better bid in the market. “Neither of these is a guarantee that the worst is over” for those with long exposure, however, since weather driven demand will sequentially decline for the next few weeks.
Spot Gas Up Ahead Of Warmer Weather
Spot gas prices across most of the United States moved higher Tuesday as high pressure is expected to strengthen across much of the country Wednesday-Saturday, with highs of 80s to near 90 degrees becoming widespread over most regions except the Northwest, according to NatGasWeather. It is expected to be quite comfortable over portions of Southeast this weekend because of heavy rains from Florence, but still with national demand increasing compared from lower levels earlier in the week from daytime temperatures in the 90s over the rest of the southern United States, the forecaster said.
The latest Global Forecasting System weather model also flipped back a little hotter for the end of the Sept. 17-21 week, with a hotter ridge forecast over the southern and eastern United States, while also showing the cool shot near the Canadian border around Sept. 19-20 to be less impressive, NatGasWeather said.
“The data continues to advertise an exceptionally comfortable pattern Sept. 20-30 with very light demand and where comfortable trends have held,” it said.
Overall, the coming pattern is mostly warmer than normal with most of the nation’s temperature-driven natural gas demand occurring over the southern United States, where highs of 80s to lower 90s are expected to continue through the end of the month. Demand still is expected to gradually fizzle as the northern United States sets up in a “very comfortable temperature regime” for late summer/early fall as heating degree days run below normal, NatGasWeather said.
Day/day changes in spot gas prices remained fairly small given despite the approaching heat wave for most of the country. On the West Coast, the SoCal Border Avg. rose 6 cents to $2.47, while Malin held steady at $2.37. El Paso S. Mainline/N. Baja jumped 13 cents to $2.52.
The Midwest was the only region that saw widespread day/day losses -- albeit small ones -- as the region is still experiencing cooler weather and softer demand resulting from tropical system Gordon. Chicago Citygate next-day gas fell 2 cents to $2.65, while Michigan Consolidated shed 3 cents to $2.80. Emerson, meanwhile, rose 4 cents to $2.62.
Midcontinent regional prices posted some of the largest day/day gains, but a steep drop occurred at Enable East, which plunged 12 cents to $2.60, as Enable Gas Transmission was scheduled to begin Wednesday pigging maintenance and cleaning on Line AD (mainline), Line AD-607 (Bradley Lateral) and Line 2-AD-24 that is expected to end Sept. 20.
For the first phase on Wednesday, receipt points were to be limited to 291 MMcf/d on the Bradley Lateral. Enable’s noted impacted points include the Bradley and Wex gas processing plants just east of Amber Junction in Grady, OK.
Scheduled flows from these points have averaged 239 MMcf/d to Bradley and 63 MMcf/d to Wex in the last 60 days (302 MMcf/d total), according to Genscape. Evening nominations, however, showed receipts from the Bradley plant have dropped to 148 MMcf/d for Tuesday.
During the second phase on Thursday, Enable plans to withdraw gas from the Chiles Dome Storage in Coal County, OK, for two to three hours. Enable has not noted any restrictions to capacity or flows, so this event would likely be nonimpactful, Genscape natural gas analyst Dominic Eggerman said.