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Volatile Week for Natural Gas Leaves Most Markets in the Black

Persistent warmth, natural gas pipeline maintenance events and an unusually high level of nuclear generation outages lifted gas prices across most of the country from Oct. 1-5, with some pricing locations posting gains of more than $1 on some days. Milder weather that moved in later in the week, however, trimmed overall gains. The NGI Weekly National Avg. rose 14 cents to $2.80.

Some of the largest movers of the week occurred along Texas Eastern Gas Transmission (Tetco) as the pipeline’s Marietta compressor station was in the midst of an outage, and a new maintenance event was set to begin over the weekend.

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.

Tetco also began maintenance Friday between its White Castle and New Roads compressors in Louisiana that reduced 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 was set to 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 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,” Genscape natural gas analyst Josh Garcia said.

Texas Eastern M-2, 30 Receipt plunged 36.5 cents to $1.515, while Texas Eastern M-2, Delivery rose 34 cents to $3.25.

Rockies prices also jumped considerably from Oct. 1-5 as lingering warmth began moving out of the region midweek, paving the way for far different weather conditions next week.

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.

Kingsgate prices shot up 60.5 cents to $2.515, while Cheyenne Hub rose 36.5 cents to $2.555.

On the flip side, Appalachia prices fell dramatically on news of FERC’s approval for the start-up of the long-awaited Atlantic Sunriseproject, which was expected to unleash regional production by opening another avenue for producers to reach East Coast markets by way of the Transco mainline. The pipeline expansion was set to begin flowing Oct. 6.

Dominion South prices plunged 43.5 cents to $1.525, and Transco-Leidy Line slid 44.5 cents to $1.545.

Futures Rally Comes to Late-Week Halt

On the Nymex natural gas futures front, the November contract surged more than 22 cents in the first three days of trading only to give back 8.7 cents on Thursday and Friday. The prompt month settled Friday at $3.143.

In recent days, upward momentum for natural gas has been very strong, based in part on estimates that mid-November storage inventories might reach just 3,250-3,275 Bcf, according to EBW Analytics. “Yesterday, however, the market was hit with a triple whammy,” CEO Andy Weissman said.

First, the Federal Regulatory Energy Commission authorized the start of service for Atlantic Sunrise. Second, the Energy Information Administration (EIA) reported a blockbuster 98 Bcf injection, which was 10-13 Bcf above expectations. Third, 58% of the European weather model runs showed an Alaska bridge breaking down by day 15, creating the potential for end-of-season storage to move back to the 3,325-3,350 Bcf range, Weissman said.

Indeed, after three straight days of gains, traders began selling off the futures curve as word spread about the FERC’s approval for Williams to start flowing gas on its 1.7 Bcf/d Atlantic Sunrise project. The company has indicated it plans to place the project into full service on Saturday (Oct. 6).

FERC’s approval for the Atlantic Sunrise startup has significant market implications, Weissman said. “Unusually heavy rains in the Southeast over the last few weeks, including torrential rains from Hurricane Florence, have made restoration efforts far more difficult than normal. Prior to yesterday's action, fears had been growing FERC might not approve startup until these restoration efforts were over, which is expected to take several more weeks.”

The nod to begin service significantly increases expected supply this month and lays the groundwork for further increases in November, he said. Further, with FERC's review of Atlantic Sunrise over, “startup of Nexus (whose restoration efforts are not nearly as challenging) is likely to be approved soon, most likely within the next few days.”

The improving supply picture was evident in the latest storage data as well. The EIA’s reported 98 Bcf injection lifted inventories to 2,866 Bcf, which is still 636 Bcf below year-ago levels and 607 Bcf below the five-year average.

From a weather perspective, the reference period for Thursday’s report “was a relatively mild week,” according to Mobius Risk Group. The current week, referencing next Thursday’s EIA report, is also mild and another injection in the 90s should be expected, the Houston-based firm said.

EBW also projected another 90+ injection for next week, followed by a 100+ injection the following week, based on the conclusion that production is at the high end of recent pipeline scrapes. If storage builds come in near currently projected levels, “this could throw additional cold water on the recent bullish surge,” Weissman said.

But Mobius analysts cautioned that weather demand should begin to rise seasonally in the next couple of weeks, according to current weather forecasts. “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 into 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.”

The latest weather models increased heating demand from Oct. 12-18 with a modest cold shot starting in the Midwest and gradually progressing into the East. Data also indicates the cold snap will quickly break down by Oct. 19 and 20, with clear signs that Week 3 should hold warmer-than-average weather, according to Bespoke Weather Services.

“Building cold across the Great Plains will eventually get displaced into the South and only gradually weaken as it moves into the East, resulting in a few days with heating demand nationally above average,” Bespoke chief meteorologist Jacob Meisel said. The cold, however, struggles to get a reinforcing shot, with risks building for a Gulf of Alaska vortex that could really warm the pattern.

Looking ahead to the core of the winter season, Barclays Commodities said the market will balance “on a knife's edge” in almost any weather scenario this winter, and volatility is likely to increase markedly. In fact, price risks are heavily skewed to the upside based on five weather scenarios the firm ran. It estimates a 30-cent downside risk in a 10% warmer-than-normal winter versus a 61-cent potential upside in a 10% colder-than-normal winter.

"The demise of volatility has been greatly overstated," Barclays analysts said.

To be sure, while storage concerns have been front and center, there are other non-storage factors that could wreak havoc on the market this winter, Barclays said. Power demand is expected to increase by 0.8 Bcf/d, while economic growth and new gas-intensive projects bolster industrial demand by a similar amount.

New connections to power plants in Mexico are forecast to push net exports to that country by 0.8 Bcf/d. Liquefied natural gas exports are set to expand 1 Bcf/d as exports are scheduled to start up at Corpus Christi, Sabine Pass Train 5 and Elba Island in 4Q2018/1Q2019. In total, demand is forecast to grow by about 1.5 Bcf/d this winter, according to Barclays.

On the other hand, gas production is climbing at a record-breaking pace of about 9 Bcf/d year/year, and further gains are expected in the coming months. The firm expects production growth to total nearly 7 Bcf/d year/year.

It cautioned, however, that if production growth falls short of its forecast by 2 Bcf/d, for example, the resulting higher call on storage withdrawals would trim its end-March storage forecast to 1.2 Tcf, "which would put considerable upward pressure on prices."

Even though the firm remains bearish versus Nymex futures, it raised its 4Q2018 and 2019 price forecasts to $2.95 and $2.72, respectively, to reflect lower storage inventories. It projects end-of-October gas stocks to sit at 3.25 Tcf.

Spot Gas Lower Ahead of Cooler Weekend

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.

The move lower on Friday came 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.

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