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Soft Demand, Increased Supply Post-Michael Put November NatGas in Red; Rockies Spot Gas Rises

  • Early-week rally erased as November natural gas prices slides another 6 cents
  • Post-Michael power outages, recovering production at heart of Friday’s declines
  • Bullish weather sentiment remains as mostly colder-than-normal temperatures on tap for remainder of October
  • Rockies spot gas prices increase as Canadian air blankets the region

What is usually a quiet day of trading was anything but on Friday as November natural gas prices swung in a nearly 15-cent range before settling 6.1 cents lower at $3.161. Despite bullish weather forecasts that remained intact, lower demand because of former Hurricane Michael and recovering production following the storm helped market bears regain the upper hand after an early-morning rally.

Spot gas prices, however, were mixed as Canadian imports continued to climb, while pipeline maintenance depressed other producing-region points. The NGI National Spot Gas Avg. edged up a half-cent to $2.965.

On the futures front, clearly supportive weather outlooks lifted the Nymex November gas contract up about one penny at the start of Friday’s session. The prompt month continued to gain ground as significant colder risks returned to long-range weather outlooks.

“This weather pattern remains incredibly stubborn” with the latest model guidance showing what is likely a return to “sizably colder-than-average weather later in Week 2” as the negative Eastern Pacific Oscillation ridge rebuilds.

“This is what we had been looking for on overnight guidance” following trends Thursday afternoon, but it “still marks a sizable change from early week expectations, as we had been watching for this pattern to break down,” Bespoke Weather Services chief meteorologist Jacob Meisel said.

Part of the forcing responsible for the sustained cold appears tropical in origin and looks to cycle around once, “but after that point odds of breaking down increase markedly,” the forecaster said. Accordingly, Bespoke maintained its expectations that into early November “we will struggle to maintain this cold and should finally see warmth return,” Meisel said.

Friday’s midday American weather model guidance began providing mixed signals, with a few days a touch colder and a few a touch milder, “but still a relatively bullish pattern” as a steady stream of weather systems and associated cool shots sweep across the northern, central and eastern United States through the end of the month, NatGasWeather said.

Weather aside, the market on Friday also grappled with lower demand from Michael, which made landfall Wednesday along the Florida Panhandle as a Category 4 storm. Roughly 1.5 million customers remained without power Friday morning, according to the Edison Electric Institute.

Genscape Inc.’s total demand sample from the seven most affected states fell from a 30-day peak of 16.3 Bcf/d to 12.1 Bcf/d as of Friday’s intraday cycles. The biggest losses were along the eastern Gulf Coast and in North Carolina.

“Almost all of this 4.2 Bcf/d drop in demand is comprised of losses in power burns, as roughly a million residents and businesses are without power from Mississippi to Virginia,” Genscape natural gas analyst Josh Garcia said. “However, the immediate window after hurricanes can be bullish for gas in the short term as power demand has recovered quickly in the wake of the last few hurricanes,” with startup times for gas plants faster compared to coal and nuclear plants.

The Energy Information Administration (EIA) reported that both reactors at the 1,751 MW Farley nuclear plant in Alabama were at about 55% capacity Friday morning, up from 30% Thursday morning.

Meanwhile, the Bureau of Safety and Environmental Enforcement said as of midday Friday, personnel remained evacuated from a total of nine production platforms, or 1.3% of the 687 manned platforms in the Gulf of Mexico (GOM). Personnel had returned to all of the previously evacuated non-dynamically positioned rigs, and all dynamically positioned rigs that were moved off location because of the storm were also back on location.

From operator reports, it was estimated that as of Friday afternoon, about 32.4% of current oil production in the GOM remained shut-in. It was also estimated that around 13.05% of natural gas production was offline.

Still, with milder temperatures in Michael’s wake, the market could be counting on the softer demand to boost stubbornly sagging storage inventories in the coming weeks. Even with Thursday’s reported 90 Bcf injection from the EIA, stocks remain more than 600 Bcf below historical levels weeks before the start of winter.

Meanwhile, recent infrastructure additions -- namely the 1.7 Bcf/d Atlantic Sunrise -- should pave the way for further production gains over the next month in Appalachia, while Haynesville Shale output has been made even more economic by recent price increases, and associated gas output continues to trend higher, EBW Analytics said.

The firm estimated that flowing production could jump nearly 2 Bcf/d during the next four weeks, and estimated end-of-season storage inventories at 3.196 Tcf.

“We continue to highlight the possibility of a storage glut for the 2019 injection season -- with the potential for severely depressed prices -- with prices potentially plunging sharply if cold weather does not materialize this winter,” EBW CEO Andy Weissman said.

Lingering just beyond storage adequacy concerns for the upcoming winter sits an opposite concern about too much gas for the 2019 injection season, he said. It is likely that a weather shift at some point in mid-winter will make a storage squeeze extremely unlikely, leading the market to stampede in the other direction. “If and when this occurs, natural gas futures may drop precipitously,” Weissman said.

For its part, the Intercontinental Exchange as of Thursday (Oct. 11) showed end-of-season inventories sitting at 3.215 Tcf, a decline of 53 Bcf week/week.

Spot Gas Mixed As Supply Rises, Temps Fall

Spot gas prices were mixed Friday, with most regions shifting only a few cents in either direction as gas flows into the United States continued to increase following an explosion last Tuesday on an Enbridge Inc. British Columbia (BC) pipeline. Meanwhile, Appalachia prices eased slightly amid some unexpected maintenance in the region.

There were some exceptions to the relatively quiet pre-weekend session. Rockies pricing hubs continued to strengthen as a cold reinforcing shot of Canadian air was forecast to drop into that region and across the Plains late in the weekend before it traveled across to the southern and eastern United States early in the week.

Meanwhile, Genscape reported that partial capacity for southbound flow on Westcoast Transmission -- amounting to more than 600 MMcf/d -- had been restored on Friday following the explosion near Prince George, BC, and resulting force majeure. In addition, the Pacific Northwest’s ability to offset some of the supply disruption with alternative sources was improved when, on Thursday, the Northwest Pipeline (NWPL) was able to conclude pipeline and storage facility maintenance earlier than scheduled, Genscape said.

“The 14-day average prior to the force majeure was 1,478 MMcf/d, so this is still a cut of 853 MMcf/d (cut of 58% of average flow),” Genscape natural gas analyst Joe Bernardi said.

Downstream, NWPL’s receipts at the Sumas border point have had to drop off precipitously due to the loss of flow capacity on Westcoast, though are starting to show some signs of the partial restoration of Westcoast. Evening nominations at Westcoast’s Sumas meter are up to 137 MMcf/d after hitting zero on Oct. 10, the data analytics firm said.

“NWPL has been able to partially accommodate for the lost gas by increasing storage withdrawals from its Jackson Prairie storage facility,” where planned maintenance was completed Thursday, one day ahead of schedule. NWPL was also able to finish work early at the upstream Roosevelt compressor, enabling more gas from the Rockies and/or AECO to make its way into the Pacific Northwest market, Bernardi said.

“With these changes, NGI price data showed Westcoast Station 2 basis recovered nearly the entirety” of Wednesday’s losses. However, with Westcoast flows only partially resuming, “Sumas continues to print a basis premium to attract supplemental supplies from other markets beyond BC,” he said.

On Friday, however, Westcoast Station 2 spot gas gave back some of those gains, falling 73 cents to $1.22. Northwest Sumas, meanwhile, shot up $1.59 to $5.09.

Other Rockies points gained anywhere from 7 cents to as much as 24.5 cents, although Transwestern San Juan plunged 34 cents to $2.29.

California prices also strengthened, with SoCal Citygate picking up 16 cents to $3.665 and Malin rising 17 cents to $3.085. West Texas points gained ground, and El Paso-Permian crossed the $2 threshold after jumping 13 cents to $2.07; Waha was up just pennies to $1.96.

Most of the country’s midsection fell a few cents on average, while Southeast prices barely budged.

In Appalachia, Dominion South was down nearly a nickel to $2.62, and Transco-Leidy Line was down 9 cents to $2.645. Those losses come on the heels of a force majeure declared Oct. 10 by Columbia Gas Transmission (TCO) that shut in the Waynesburg interconnect and restricted flow through Clenwayn and Lone Oak A effective as of Thursday evening cycles.

Additionally, Dominion Transmission posted “secondary firm and interruptible restrictions at the Leidy interconnects of Transco Leidy, Tetco Leidy, and Transco Leidy (NIPS)” that remained in effect Friday, Genscape said.

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