With weather forecasts showing a mid-October cold snap quickly fading, natural gas futures continued to fall from recent highs Friday as the milder outlook, combined with the latest storage data, appeared to calm market fears about potential supply issues this winter. The Nymex November gas futures contract slipped 2.2 cents to settle at $3.143. Spot gas prices also moved lower with milder weather in much of the country, save for the southern United States and up the Mid-Atlantic coast. The NGI National Avg. plunged 23.5 cents to $2.68.
On the futures front, the November contract spiked over the $3.20 level overnight Thursday but reversed lower Friday morning as traders weighed loosening balances against the continued storage deficit. The Nymex front month went on to trade in a more than 10-cent range before a minor bounce off intraday lows in the last half-hour of trading. December dropped 3.3 cents to $3.188, January slid 3.5 cents to $3.253 and February fell 2.8 cents to $3.167.
“This indicates a pricing out of some of the winter premium” built earlier in the week, said Bespoke Weather Services. Pricing appeared justified given the forecaster’s expectations that “continue to loosen next week with production returning to record highs, wind generation returning, Canadian imports remaining elevated and liquefied natural gas exports still off highs.”
On Thursday, the Energy Information Administration’s (EIA) reported 98 Bcf injection lifted storage inventories to 2,866 Bcf, 636 Bcf below year-ago levels and 607 Bcf below the five-year average. The build was 5 Bcf above Genscape Inc.’s call for a 93 Bcf build and 11 Bcf above the average of the major surveys. Compared to degree days and normal seasonality, the injection is about plus-2.5 Bcf/d loose versus the five-year average, the data and analytics firm said.
“After last week’s unseasonably strong power burn, total power generation this week was down more than 46 average gigawatt hours (AGWH),” Genscape natural gas analyst Margaret Jones said.
Collectively, nuclear and renewable generation were essentially flat week/week (w/w) as increased wind generation made up for an about 1 AGWH w/w decline in nuclear generation. Coal was down around 11 AGWH w/w, and gas generation was down around 34 AGWH for an estimated 6.8 Bcf/d less gas burn w/w.
The larger-than-expected storage injection was enough to cool the rally in near-month pricing, but recent strength in the cash market could indicate another rally before the start of winter, Mobius Risk Group said. “October spot trading over January futures remains a bullish indicator, and unless a string of triple-digit injections surprisingly materializes over the next several weeks, we would expect to see another press higher ahead of winter.”
From a weather perspective, Mobius analysts said the reference week in Thursday’s storage report “was a relatively mild week.” The current week, referencing the EIA’s Oct. 11 report, is also mild, and another injection in the 90s should be expected, they said.
Thereafter, however, current weather forecasts show demand should begin to rise seasonally. “Although the deficit to last year may see further contraction over the next four weeks it should not be enough to create a sense of comfort for market bears. Encroachment of cooler weather in to the upper Midwest and Northeast will be closely followed by market participants looking for signs of either an extended shoulder or an early start to winter,” Mobius said.
So far, the most recent weather data showed a cold shot releasing out of the Rockies and Plains, then spreading across the Midwest and portions of the Northeast Oct. 13-18 for added demand, NatGasWeather said. Both the American and European models, however, suggest the cold will gradually ease Oct. 19-22 as mild high pressure attempts to return.
“Essentially, this period might not be cold enough,” the weather forecaster said.
As for market behavior after the weekend, NatGasWeather was expecting a gap, with traders likely to wait to see the direction temperatures trend over the northern United States Oct. 19-23. If additional cool/cold fronts were to arrive out of Canada, the market would likely see it as a bullish trend. If warm high pressure were to re-strengthen to deflect colder Canadian air, then this would be likely seen as a bearish trend, it said.
“Essentially, the cold camp has a little more work to do if additional cold shots are to be expected into the northern U.S. It is possible, but more data would need to come on board with it and has yet to,” the forecaster said.
Spot Gas A Sea of Red
Spot gas prices continued to retreat Friday as the southern and eastern United States were forecast to be dominated by higher pressure through next week, according to NatGasWeather. Steep declines were seen across the country, with the Northeast plunging more than $1 in some areas, one day after southern California markets posted similar decreases.
Forecasts showed daytime highs across the southern part of the country in the 80s to lower 90s while the Ohio Valley and Mid-Atlantic, including much of the Northeast, were expected to see highs in the upper 60s to lower 80s.
Locally cooler conditions were expected to continue near the Canadian border with weak systems providing glancing blows, the weather forecaster said. The West and Plains, meanwhile, were expected to become colder than normal over the next 10 days with areas of rain and snow, dropping lows into the 20s to 40s to drive modest heating needs.
In the Northeast, points along the Transcontinental Gas Pipe Line (Transco) posted the largest day/day losses, with Transco Zone 6 non-NY tumbling $1.575 to $1.275 and Transco Zone 6-NY plummeting $1.235 to $1.525. Algonquin Citygate was down an impressive 67 cents to $2.645.
The dramatic sell-off occurred on word that Algonquin Gas Transmission’s ongoing Stony Point compressor maintenance would end Thursday (Oct. 6), nearly one week earlier than its scheduled end date of next Friday (Oct. 12). Capacity through the compressor was to be restored on Friday to 1,147 MMcf/d, and no-notice service also was to be restored.
Flows had been impacted by 500 MMcf/d during this event, according to Genscape. More bearish pressure was expected over the weekend with the restoration of the Phase I/II interconnect with Hydro Quebec, which should ease power demand.
However, Independent System Operator New England may have to compensate for lost generation from gas plants affected by Texas Eastern Gas Transmission’s (Tetco) Marietta outage, according to Genscape. “Algonquin will continue to work on the mainline throughout the rest of this month, but these events are not currently expected to be impactful unless demand spikes with cold weather finally moving into New England,” Genscape natural gas analyst Josh Garcia said.
Appalachia prices also continued to fall substantially amid ongoing maintenance on major pipelines in the region, including Tetco’s Marietta event. Texas Eastern M-3, Delivery tumbled more than $1 to $1.42, while Texas Eastern M-2, 30 Receipt was down 63 cents to $1.125.
Losses were less significant in the Southeast, although points along Transco and Tetco posted the steepest declines in the region. Spot gas in Louisiana fell anywhere from 7 cents to as much as 25 cents, with the S. LA Regional Avg. sliding 13.5 cents to $3.06.
On Monday (Oct. 8), Gulf South Pipeline Co. is set to begin pigging maintenance on the Index 249 pipeline segment in southern Louisiana. The pigging maintenance will shut in the Nine Mile power plant (Jefferson, LA) and the Nopsi city gate (St Bernard, LA).
Gulf South has delivered an average 136 MMcf/d and 16 MMcf/d to these respective locations over the past 30 days, according to Genscape analyst Dominic Eggerman. For 11 days, around 152 MMcf/d in deliveries will be cut on the Index 249 segment, and the maintenance event is schedule to wrap on Oct. 19.
Meanwhile, Tennessee Gas Pipeline (TGP) was set to perform a new station tie-in through next Saturday (Oct. 6-13) at Station 3A, affecting southbound flows into Segment 109 in South Texas. Operational capacity has been restricted to 500 MMcf/d for months because of multiple maintenance events and a force majeure, which was lifted on Oct. 1, but was to be cut back to 500 MMcf/d for this event, Genscape said.
While the operational capacity was restricted in the past, scheduled capacity often remained higher and has averaged 550 MMcf/d, with a high of 620 MMcf/d reached in the last few days when the operating capacity restriction was lifted. “The majority of flow through ‘Sta 9 to Sta 17’ delivers to NET Mexico, so it is likely nominations will get cut here if there are reductions on TGP’s end,” Genscape natural gas analyst Vanessa Witte said.
South Texas spot gas prices fell less than a dime at most pricing locations, with Tennessee Zone 0 South dropping 7.5 cents to $2.985.