- Natural gas futures rally comes to a grinding halt after major pipeline gets FERC OK to enter service, EIA delivers bearish storage news
- Nymex November gas futures contract shed 6.5 cents after Energy Information Administration reports 98 Bcf injection, well above market consensus
- Mid-October weather trends colder once again, while western United States braces for first major snow storm
- Spot gas prices retreat as milder temperatures move into key demand markets
The approved in-service of a major natural gas pipeline and a bearish storage report stopped a three-day price rally in its tracks. The Nymex November gas futures contract fell 6.5 cents on Thursday to settle at $3.165. Spot gas prices also weakened as milder weather was set to move into key demand regions. The NGI National Spot Gas Avg. ultimately fell 4 cents to $2.915.
On the futures front, the Nymex front month opened flat to Wednesday’s settle at $3.23 as the market treaded water after weather forecasts reflected a minor pullback in gas-weighted degree days. Then, news came that FERC had given the green light for the Atlantic Sunrise pipeline project to enter service. Still, it was the Energy Information Administration’s (EIA) storage inventory report that the market was waiting for, as last week’s bullish report caught the market off guard.
On Thursday, the EIA flipped the script as it reported a 98 Bcf build into storage inventories for the week ending Sept. 28, beating some low-ball estimates by more than 20 Bcf but still coming in within the larger range of expectations.
The Nymex November contract traded about 4 cents lower just ahead of the EIA’s 10:30 a.m. ET release, but then fell another couple of cents to around $3.17 as the print hit the screen. By around 11 a.m., the prompt month had bounced back a bit to trade at $3.181 before going on to settle at $3.165. December dropped 7.6 cents to $3.221, and January fell 8.2 cents to $3.288.
The EIA’s reported injection was a full 10 Bcf above Bespoke Weather Services’ estimate. “This comes after a 14 Bcf smaller injection last week, and in this regard, we see what may be an implicit revision following last week’s very tight print.”
Before the report’s release, Wood Mackenzie natural gas analyst Gabe Harris said that during the spring (except in June and May), the market saw a string of 90+ Bcf storage injections. He estimated that power demand for gas has dropped back down below those levels. That, coupled with around 3 Bcf/d of production growth since then, led him to wonder how legitimate recent production estimates are if an injection in the high 90s wasn’t reported.
With the 98 Bcf build, storage inventories grew to 2,866 Bcf, 636 Bcf below year-ago levels and 607 Bcf below the five-year average. Broken down by region, the EIA reported a 36 Bcf injection in the Midwest, a 34 Bcf build in the East and a 22 build in the South Central. Some 8 Bcf was injected into salt dome storage, while 14 Bcf was injected into non-salt facilities.
“This eases some of the storage concerns that played a role in the recent run-up in price, especially with a larger salt build,” Bespoke said.
Even with Thursday’s build, however, salt dome storage remains at a 120 Bcf deficit to year-ago levels and a 107 Bcf deficit to the five-year average. But Harris questioned whether it was necessary for inventories to recover to historical highs given the rampant production growth in the United States.
“The long-haul pipes from these high deliverable facilities” to the Northeast and Midwest “are not crucial anymore with production going through the roof,” he said.
Another market observer agreed, saying that salts play less of a role in balancing winter demand today as Northeast production has the ability to ramp up and down daily to match price/demand. “I've see production in 2017 jump by almost 1.2 Bcf/d in a matter of three days ... as demand and cash prices rocketed higher.”
Instead, salts are needed just to balance supply/demand in the Southeast quarter of the country as little wind there and plenty of coal retirements have left the Southeast “as one of the best places” for natural gas demand growth, Harris said.
On the weather front, the latest mid-day American model was colder trending with a weather system across the central and northern United States during Oct. 11-18. Until then, the southern and eastern part of the country were expected to remain warmer than normal through next week, with daytime highs reaching the 80s to lower 90s across the southern United States and reaching the upper 60s to lower 80s over the Ohio Valley and Mid-Atlantic, including much of the Northeast, according to NatGasWeather.
Locally cooler conditions were forecast to continue near the Canadian border as weak systems provide glancing blows, the forecaster said. Meanwhile, the West and Plains were due to become colder than normal over the next 10 days as weather systems bring areas of rain and snow, with overnight lows dropping into 20s to 40s in most states, NatGasWeather said.
But most importantly, “and what the markets will be watching closely,” is just how much colder-than-normal air will spread out of the Plains and across the Great Lakes and Northeast Oct. 13-17, and where the overnight and midday American weather models have been colder to add several heating degree days.
“It will be of interest to see if the colder mid-day GFS is able to rally prices, which it has yet to, or whether the nat gas markets see prices getting too hot and needing to take a breather,” the weather forecaster said.
Spot Gas Crumbles Out West
Spot gas prices were generally lower Thursday as temperatures across much of the country were expected to ease. The cooler weather on tap for the West sent prices tumbling by more than $1 in Southern California and around 20 cents on average in the Rockies.
A far as details, a storm is set to tap into a plunge of fresh cold air and unleash the first widespread snowstorm of the season from parts of Utah and Colorado to Montana, Wyoming and the Dakotas from Sunday to Tuesday, according to AccuWeather.
Small-scale storms have brought accumulating snow in recent weeks to parts of the northern High Plains and Rockies, including the Black Hills of South Dakota and the Bighorn Mountains of Wyoming and Montana. This storm, however, has the potential to span more than 500 miles, the forecaster said.
“While the exact orientation of the swath of heaviest snow will depend on the track of the storm, there is the potential for some of the high country in the region to receive a foot of snow. At this time, the most likely swath of heavy snow is forecast from the Wasatch Range and parts of the central and northern Rockies to the northern High Plains,” AccuWeather senior meteorologist Alex Sosnowski said.
It is possible the storm comes together farther south, which may bring heavy snow to the Rockies in central Colorado, including the chance of snow in Denver. A more southward shift with the storm may cause less or no snow to fall on parts of Montana, northern Wyoming and the Dakotas, he said.
Regardless of the storm’s actual path, spot gas prices were lower across the board as temperatures retreated from recent highs. SoCal Citygate next-day gas plunged $1.13 to $3.29, while Malin dropped 14 cents to $2.775.
Northeast and Appalachia pricing hubs also were down by the double-digits, although several maintenance events planned on Texas Eastern Gas Transmission (Tetco) led to increased volatility at points along that pipe.
From Thursday (Oct. 5) until Oct. 14, Tetco is scheduled to conduct an outage at its Marietta, PA, compressor station in its M3 zone. During this outage, capacity through the Marietta compressor will be reduced to zero.
Flows through the Marietta compressor have averaged 1,372 MMcf/d over the last two weeks but have reached 1,500 MMcf/d since the beginning of October due to power demand, according to Genscape Inc.
This maintenance event also occurred in May 2017, and flows through the compressor were indeed reduced to zero. The vast majority of demand, however, was able to be serviced by rerouted gas from the northern M3 line, Genscape natural gas analyst Josh Garcia said.
Capacity at the Lower Chanceford interconnect with Transcontinental Gas Pipe Line will be reduced to 878 MMcf/d, but deliveries have only maxed at 902 MMcf/d over the last two weeks, he said. Capacity between Marietta and Lambertville, NJ, will be reduced to 341 MMcf/d, affecting more than 30 citygates, power plants and interconnects that have reached an aggregate max of 709 MMcf/d within the last few weeks.
Tetco is also set to begin maintenance on Oct. 5 between its White Castle and New Roads compressors in Louisiana that will reduce capacity through its St. Francisville compressor to 910 MMcf/d, impacting flows by as much as 196 MMcf/d based versus the previous two-week max, Genscape said.
Additionally, this weekend, the pipeline will begin work on its 26-inch diameter line 3 between its Somerset and Summerfield (Sarahsville) compressors in its M2 zone. Capacity through Summerfield will be reduced to 614 MMcf/d between Saturday (Oct. 6) and Oct. 9, then reduced to zero from Wednesday (Oct. 10) to Oct. 17. “Flows through this compressor have averaged 661 MMcf/d over the last two weeks, all of which is threatened to shut in. This is one of M2’s three main export paths, and the majority of this gas feeds Midwest demand along the Lebanon lateral,” Garcia said.