Lower 48 gas production returned to record highs, but continued strength in the cash market and substantial increases in heating demand projected for mid-October lifted the Nymex November natural gas futures contract up a whopping 12.4 cents Monday to settle at $3.267.
Most of the winter strip posted gains of gains of more than a nickel as the early-season chill reignited concerns about low storage inventories.
Spot gas prices were especially strong in the country’s midsection due to the cold weather in that region, but Appalachia prices surged far higher following the weekend in-service of the long-awaited Atlantic Sunrise pipeline project. The NGI National Spot Gas Avg. rose 27.5 cents to $2.955.
On the futures front, the Nymex prompt month was already about a dime higher just ahead of Monday’s open as current weather forecasts were far more bullish than what the market had expected this past Friday.
“The pattern entirely headfaked most guidance, with far more ridging across Alaska through the medium range than models indicated late last week,” Bespoke Weather Services said.
November futures traded in a 12-cent range before going on to settle near their intraday high. December ratcheted up 10.1 cents to $3.289, January rose 8 cents to $3.33 and February climbed 6.9 cents to $3.236.
The cold weather risks appeared more likely to linger through Week 2, and though risks should gradually ease through the week, a couple reinforcing shots of cold air that were previously not expected should consistently keep heating demand above average for far longer than initially looked possible, Bespoke said.
The weather forecaster expects the cold to likely break down into the end of October, but said there could be a couple days of long-range cold risks “to spook a market with very low storage levels, especially with power burns still relatively strong. We expect a quick reversal once forecasts warm (likely later this week), but the exact timing is unclear,” Bespoke chief meteorologist Jacob Meisel said.
Meanwhile, hurricane season was still in full swing despite the crisper air, and market observers were keeping an eye on Hurricane Michael, although the storm was not a factor in Monday’s rally. Michael appeared to be a relatively compact system with a predicted path toward Florida that may avoid producing areas and larger demand markets, according to Genscape Inc.
On the production front, Genscape said its daily pipeline flow estimate showed Lower 48 production setting a new record during the weekend. Sunday’s estimated volume, which is subject to revision, came in just above 84.36 Bcf/d, according to Genscape senior natural gas analyst Rick Margolin.
“Yesterday’s estimate is 0.6 Bcf/d above the prior 14-day average, with more than 0.5 Bcf/d of the growth coming out of the Northeast,” Margolin said. The recent commissioning of Atlantic Sunrise and Columbia Gas Transmission’s WB XPress contributed to the gains, “although it’s worth noting a good deal of their specific volumes are re-routes off other systems.
“Growth was surging prior to these, though, as Northeast producers have been taking advantage of all the new capacity from the last year to begin working through their inventory of drilled but uncompleted wells.”
As for the latest drilling rig report, the gas-directed rig count was flat week/week nationally, with a decline of one rig in the Eagle Ford offset by the addition of a rig in the Marcellus. During the last six weeks, the gas-directed rig count is up seven rigs (4%), according to EBW Analytics.
The relatively flat gas-directed rig count since the beginning of the year comes amid a record pace of output growth seen in 2018. “While the market looks to the weekly rig count indicators of future production growth, there's often a nine-month lag between when a rig is deployed and production flows due to the time to drill, frac, complete and tie-in new wells,” EBW CEO Andy Weissman said.
Given this timetable, production may continue to increase at a rapid rate through 1H2019, particularly with the oil-directed rig count up 93 rigs (15%) year-to-date, pointing to associated gas increases ahead, leading to oversupply conditions next year, EBW said.
As for weather during the next few months, Bespoke said it was seeing stronger signs of a move toward a more Nino-like pattern, “which is in part responsible for some of the colder trends in the medium range and sizable forecast noise.” Eventually, more Nino-like conditions can be expected to increase warm risks in November and December according to its historical analysis before cold risks then increase January into February.
“The result is an expectation that weather-driven demand gets hit earlier on in the winter, with risks it returns to at least some extent later on,” the forecaster said.
Appalachia Spot Gas Surges as Atlantic Sunrise Starts Flowing
Spot gas prices were stronger almost across the board Monday, with substantial increases seen in the West, Rockies, the Midwest and Midcontinent. But above all the rest stood Appalachia pricing hubs, which in recent weeks had languished as robust volumes were choked back due to the delay of service on key pipelines in the region.
That changed during the weekend, however, as Williams placed its Atlantic Sunrise project into service. As announced, Transcontinental Gas Pipe Line (Transco) on Oct. 6 began to schedule gas through the new Central Penn pipeline that comprised the greenfield portion of the 1.7 Bcf/d Atlantic Sunrise.
The biggest new receipt point, Zick, came online on Central Penn Line North with a vengeance, posting 851 MMcf/d on both Saturday and Sunday, according to Genscape. Eastbound volumes from Leidy through Station 515 dropped from roughly 2.40 Bcf/d to 1.90 Bcf/d as local production routed onto Central Penn Line South, which posted volumes of 1.65 Bcf/d for the weekend. This gas was delivered to the Transco mainline just north of Station 195, it said.
Daily production numbers for the region were up approximately 390 MMcf/d excluding impacts from weekend maintenance events, the data and analytics firm reported. As expected, Zone 6 exports into Zone 5 spiked to a new high of 2.40 Bcf/d after a previous year-to-date max of 1.95 Bcf/d, which pushed Transco’s null point into South Carolina.
NGI’s Appalachia regional average fell 50.5 cents between Oct. 5 and 6 due to the announcement of Atlantic Sunrise’s in-service date, “but trading closed before these volumes were flowing,” Genscape analysts Josh Garcia, Colette Breshears and Nicole McMurrer said.
On Monday, Dominion South jumped $1.47 to $2.635, and Transco Leidy Line shot up $1.54 to $2.725. The Appalachia Regional Avg. was up $1.005 to $2.805.
Outside of the producing region, spot gas prices out West were exceptionally strong as weather systems were expected to bring rain and snow to the region. Snow was expected to fall on much of Wyoming, the Colorado Rockies and into the Black Hills of South Dakota through Monday night, according to AccuWeather.
One storm system was expected to charge into the Northwest on Tuesday, bringing accumulating snow to the Bitterroot Mountains of western Montana and Idaho, areas that will be spared from the snow at the start of the week. Meanwhile, the storm unleashing snow into Monday evening across the central Rockies and northern Plains was forecast to strengthen over the nation’s midsection late Tuesday into Wednesday.
Flooding downpours and locally severe thunderstorms were expected to continue to affect locations on the storm’s southern and eastern flank, while a narrow band of heavy snow is expected to whiten areas to the north and west. Snow was forecast to ramp up on Tuesday night across the central and eastern Dakotas before spreading into northern Minnesota at midweek, AccuWeather said.
“Precipitation may begin in the form of rain in some of these areas before colder air sweeps in and causes a changeover to snow,” AccuWeather meteorologist Renee Duff said.
Drier weather was then expected to settle over the northern Plains on Thursday, “but it will remain unseasonably cold with high temperatures only in the 30s,” she said.
Given the ongoing pipeline limitations in California, SoCal Citygate jumped more than $1 to $3.825, while Malin rose 34 cents to $2.945. In the Rockies, Opal was up 43 cents to $2.965 and CIG was up 42.5 cents to $2.915.
Elsewhere across the country, weather forecasts were calling for the southern and eastern halves of the country to be dominated by warm conditions for the next several days, with highs of 80 to lower 90s across the southern United States and in the upper 60s to lower 80s over the Ohio Valley, Mid-Atlantic and portions of the Northeast.
The cold air currently over the Plains was expected to sweep over the Ohio Valley and Northeast beginning Friday into next week, bringing with it stronger-than-normal national demand as heating degree days run above average; this is also where colder trends have been observed going back to last week, NatGasWeather said.
“Most of the weather data continues to suggest cold air will gradually lose its grip Oct. 20-25 besides across the eastern U.S. where colder trends have occurred overnight and so far midday”, especially in the American weather model, the forecaster said.
Northeast spot gas prices were stronger day/day, but gains were limited to less than 20 cents at most pricing hubs. The stark exceptions were along Transco, which helped boost the Northeast Regional Avg. up more than 61 cents to $3.27.
Meanwhile, Southern Star Central Gas Pipeline was expected to begin changing out pipe Segment 400 in Oklahoma county, OK, from Oct. 9 to 15. This will reduce the operational capacities of the Edmond and West Edmond compressor stations (County, OK) to 0 MMcf/d, Genscape said.
During this time, Southern Star will also conduct emergency shutdown tests at the Edmond compressor station, however, the restrictive effects on gas flows will be overshadowed by the pipeline changeout. Aggregate flows through Segment 400 have averaged 96 MMcf/d during the past 60 days. “This event will therefore restrict approximately this amount of gas flowing northward to Oklahoma,” Genscape natural gas analyst Dominic Eggerman said.
This pipe changeout follows up from a previous pipe changeout event that began Oct. 2 in Oklahoma and Logan counties. Points south of the 400 pipe segment still will be supplied by the Natural Gas Pipeline Company of America (NGPL) interconnect in Carter County, OK. The operational capacity for this point, however, will be limited to 73 MMcf/d from Oct. 9 to 15, cutting 10 MMcf/d in deliverable gas compared to previous 60-day nominations, Eggerman said.