Strong shoulder season prices in the Southeast and collapsing basis differentials in West Texas headlined the physical natural gas market during the week ended Sept. 21; the NGI Weekly National Spot Gas Average picked up 7 cents to $2.67/MMBtu.
Constraints to the north and to the west combined to clobber West Texas spot prices during the week, including a new all-time low at the Waha hub. Day-ahead prices at Waha collapsed $1.06 last Wednesday to average just 61 cents/MMBtu. That easily undercuts the lowest trade on record at the point going back to 1995, a low of 95 cents reported in December 1998, NGI historical data show.
On the week, Waha finished 77 cents lower at $1.21, while El Paso Permian tumbled 60 cents to $1.29.
In the Southeast, hot temperatures and nuclear outages in the wake of former Hurricane Florence helped drive prices higher early in the week. Weekly prices at Transco Zone 5 averaged $3.16, up 21 cents.
Further upstream, most Appalachian points finished higher on the week despite some maintenance events that helped push down prices on Friday. Dominion South added 22 cents to $2.50.
Some lingering hot temperatures helped boost Midwest spot prices on the week, as Chicago Citygate added 21 cents to $2.91.
Meanwhile, the natural gas futures market paused to reflect Friday after a furious run higher earlier in the week helped by strong physical prices, signs of early heating demand and lean stockpiles. The October Nymex futures contract finished close to even Friday at $2.977, adding 0.1 cents to finish the week more than 20 cents higher. The November contract added 1.0 cent to settle at $2.974, while January settled at $3.131, up 1.4 cents.
The October contract’s 20.9 cent run higher from Monday through Thursday (Sept. 17-20) was “startling,” said EBW Analytics Group CEO Andy Weissman.
Weissman attributed the recent gains to colder temperatures in the 15-day forecast, “which the market took as a possible sign of a cold winter. It also may have been due to a collapse in prices in the Permian Basin...accompanied by a 0.8-0.9 Bcf/d temporary drop in production.”
Where prices go from here is unclear. “The reaction to the drop in Permian production is overblown...but both technical factors and the weather forecast remain uncertain,” he said. “Technically, momentum is strong, but so is resistance near $3. If breached, the October contract could quickly reach $3.09. As usual, weather is the likely tie breaker.”
Heading into Friday’s session, overnight Global Forecast System (GFS) data “wasn’t quite as cold” for a series of weather systems expected to arrive into the northern United States late this month into the first few days of October, according to NatGasWeather.
The milder trends from the GFS held in the midday data, but the pattern was “still notably colder than normal with strong early season demand for heating,” according to the firm. “Recent weather data has been milder/warmer Oct. 4-8 as high pressure returns across much of the country with national demand easing back to light levels.”
Should models tease “stronger demand trends over the weekend,” it “could give reason to take $3 out on the Sunday/Monday open,” the firm said. “Lighter demand trends for early October could keep $3 as strong resistance.” The upcoming Energy Information Administration (EIA) storage report could prove “quite important since it will come in under the five-year average” and potentially push the year-on-five-year-average deficit back above 600 Bcf, a deficit “likely to only marginally improve in the following weeks, if at all.”
The Desk’s Early View natural gas storage survey Friday showed respondents on average expecting EIA to report a 63.4 Bcf injection for the week ending Friday (Sept. 21), which would come in below the five-year average 81 Bcf build and close to the 64 Bcf build recorded a year ago.
Meanwhile, EIA last Thursday reported an 86 Bcf weekly injection into working U.S. natural gas stocks for the week ended Sept. 14, on the high side of most estimates. The 86 Bcf figure compares to a five-year average injection of 76 Bcf and a 96 Bcf injection recorded in the year-ago period.
Total Lower 48 working gas in underground storage stood at 2,722 Bcf as of Sept. 14, about 20% below year-ago stocks of 3,394 Bcf and around 18% lower than the 3,308 Bcf five-year average, according to EIA.
By region, the Midwest posted the largest net injection at 36 Bcf, followed by a 30 Bcf build in the East. The Pacific region saw a 5 Bcf injection, while 4 Bcf was refilled in the Mountain region.
In the South Central, EIA reported an 11 Bcf injection into nonsalt. Meanwhile, the South Central’s salt inventories, after being steadily drawn down since mid-June, saw a rare 2 Bcf build for the week.
“Inventories sit at a roughly 7% deficit to five-year minimums with only eight weeks left of injection season,” analysts with Tudor, Pickering, Holt & Co. (TPH) said Friday. “Weather-adjusted, the market was less than 1.0 Bcf/d undersupplied, breaking a three-week oversupply streak. Next week, demand strength is expected to continue (particularly power generation), despite Hurricane Florence making landfall on Sept. 14, further highlighting the story of the summer: weather-related demand keeping pace with ramping supply.
“U.S. dry production is up around 0.5 Bcf/d week/week to 83.8 Bcf/d, with the Northeast adding about 2.1 Bcf/d since the end of June,” the TPH analysts added.
In the spot market Friday, most Appalachian locations saw significant weakening Friday coinciding with a slew of shoulder season maintenance events that could impact the region in the coming days and weeks. Dominion South shed 25 cents to $2.27.
Dominion Energy Transmission Inc. maintenance on its 400 Line from Monday through Thursday (Sept. 24-28) could restrict production out of Ohio, limiting receipts from Plum Run, Carroll and Harlem Springs and affecting 80 MMcf/d of deliveries east of the Gilmore compressor station, according to Genscape Inc. analyst Vanessa Witte.
Meanwhile, from Monday until Oct. 11, “Transco may begin tie-ins on the Leidy Line that could impact up to roughly 600 MMcf/d of production at the Tombs Run gathering system in Lycoming Co., PA,” Genscape analysts Josh Garcia and Robert Lance told clients Friday. “This event has been removed from Transco’s latest maintenance calendar, but as the event was more dependent on gathering system operator Regency Marcellus...this event may still go ahead.
“When Transco posts accompanying meters in its maintenance calendar, as it did for this event, it means nominations will be impacted and those meters are often shut in,” the analysts said. “The anticipated impact was also stated as a ‘meter outage.’ Transco posts follow-up notices regarding maintenances that will impact nominations” but “did not do so for this event. Tombs Run has averaged 580 MMcf/d of receipts over the last two weeks and maxed at 614 MMcf/d during the same time period.”
Garcia and Lance said the only likely reroute option for any potential volumes impacted by Leidy Line restrictions would be via Tennessee Gas Pipeline (TGP), noting that “Regency has 280 MMcf/d of capacity at the TGP Dunkleberger Tioga gathering system almost directly north of Tombs Run….Should this event materialize,” it could pressure Leidy Line producers ahead of the start-up of the remaining capacity from Transco’s Atlantic Sunrise expansion.
Speaking of TGP, Genscape’s Witte said the operator plans to conduct maintenance from Monday through Thursday (Sept. 24-28) that’s expected to reduce operational capacity northbound through TGP’s Zone 5 in New York. The maintenance affects TGP’s ‘ZN5HCTOSTA237’ location, which is scheduled to have its operating capacity reduced to 235 MMcf/d from recent flows averaging 698 MMcf/d.
“However, past events have shown scheduled capacity to remain above the maintenance-restricted operational capacity,” Witte said. “If this trend continues, this event may not prove to be impactful to Zone 5 flows.”
As of Friday, maintenance had caused a drop in deliveries to the Dominion Energy Cove Point liquefied natural gas (LNG) facility over the previous few days, according to Genscape analyst Allison Hurley. Nominations data showed Cove Point LNG deliveries “initially declined from 747 MMcf/d on Wednesday to 295 MMcf/d on Thursday. As of evening cycle, deliveries to the plant had further plummeted to 7 MMcf/d” for Friday’s gas day, Hurley said.
Cove Point had recently updated its plans to reflect multiple outage events starting Friday. On Thursday, Dominion posted a critical notice indicating Columbia Gas Transmission (Loudoun-TCO) would be out of service on Friday “and continuing through the same time frame due to the scheduled maintenance,” Hurley added.
As for the near-term weather outlook, “high pressure will dominate much of the U.S. through the weekend with highs of 80s and 90s over the southern U.S. and 70s and 80s over the northern U.S.,” NatGasWeather said Friday. “Cooler exceptions will be across the Northwest and Northern Plains where a weather systems is tracking through and also across portions of Texas and the Southern Plains.
“Weak weather systems” were expected to impact the far northern part of the country through Sunday. “High pressure will strengthen across the southeastern U.S. next week, but with stronger cool shots arriving into the Rockies and Plains, then advancing south and east.”
Elsewhere, the circumstances that led to crushed West Texas basis differentials a few days ago showed no signs of letting up Friday. Deals for weekend and Monday delivery at Waha on average dropped 12 cents to 83 cents.
Further downstream in California, SoCal Citygate dropped 48 cents to $3.47 as Southern California Gas was predicting slightly lower system demand over the weekend at around 2 million Dth/d.