After punching their ballots in favor of a bullish outlook for natural gas prices Monday, futures traders more or less stood pat Tuesday awaiting indications of how the heating season’s first real cold stretch will impact balances. The December contract traded a few pennies to either side of even before settling 1.2 cents lower at $3.555/MMBtu. January added 0.08 cents to settle at $3.583, while February added 2.9 cents to $3.436.
In the spot market, prices strengthened across most of the Lower 48 with cooler temperatures slated to sweep through as the week progresses, while the shockwaves of last month’s pipeline rupture in British Columbia (BC) continued to ripple through physical markets in Western Canada and the Pacific Northwest. The NGI Spot Gas National Avg. gained 14.5 cents to $3.325.
Looking at the futures, Bespoke Weather Services noted indications in the latest guidance for more moderate temperatures developing in the long-range.
“Whether the December natural gas contract breaks up to $3.60 or down to $3.45 will come down almost entirely to weather trends over the next few days,” Bespoke told clients Tuesday. “We saw colder trends through the next 10 days as models continue to increase the intensity of two major cold shots moving through. However, we also saw higher confidence across guidance that the pattern breaks in the 11-15 day time period,” giving way to a pattern that could see warmth spread across the country’s northern tier.
“This fits climate guidance too, meaning that confidence is increasing that after these two cold shots the pattern moderates and heating demand may be able to fall back below average into the final third of the month,” the firm said. “Significant model differences and noise keep our sentiment from turning bearish just yet; we need to see more consistency to fully believe these trends…” Given the spread action Tuesday, “any colder trends can quickly shoot prices higher.”
The risks posed by historically lean storage inventories entering the heating season proved enough to keep prices elevated Tuesday, even with some indications of moderating temperatures later this month.
Forecasts over the weekend showing intensifying cold -- expected to begin elevating heating demand later this week and extending through the second week of November -- added 100 Bcf or more of projected near-term natural gas demand, a major shakeup for the storage outlook, according to EBW Analytics Group CEO Andy Weissman.
“Over the past few months, the market has become increasingly comfortable with mid-November storage between 3,250 and 3,300 Bcf -- enough to provide a margin of safety if this coming winter is close to historical norms and production increases during the winter months are consistent with current expectations,” EBW CEO Andy Weissman said.
“If the huge shift in the models that occurred over this past weekend materializes, however, reducing mid-November storage by 100-150 Bcf, this margin of safety will be gone.”
According to the Energy Information Administration’s (EIA) latest Short-Term Energy Outlook, released Tuesday, total U.S. dry natural gas production climbed to 86.9 Bcf/d in October, up 0.7 Bcf/d sequentially. For the year, EIA expects production to average a record-high 83.2 Bcf/d, with production expected to climb in 2019 to average 89.6 Bcf/d.
Meanwhile, the growth in Lower 48 production has masked an increase in exports, driven partly by new volumes flowing to Cheniere Energy Inc.’s liquefied natural gas (LNG) terminals, including the first train of the Corpus Christi Liquefaction Project near start up in South Texas, according to Energy Aspects.
“Feedgas is ramping up into Corpus Christi Train 1, which is expected to export its first cargo soon, as is also the case with Sabine Pass Train 5” from the Cheniere facility in Louisiana, the global consulting firm said in a recent note. “In addition, there appears to be some moderate ramp-up in Mexican net trade as well...If LNG feedgas flows maintain a rate near recent highs, feedgas volumes would be up nearly 1 Bcf/d month/month (m/m) in November. Another 0.1 Bcf/d m/m or so rise is possible from flows to Mexico too.
“...Once heating loads pick up, the additional uplift from net trade will have a bigger impact on balances,” Energy Aspects said. “...For price, it once more appears that trading will be a tug of war between residential/commercial demand and production, much like this summer was between cooling load and production.”
Midwest, Northeast Gain Ahead of Cold
Day-ahead prices strengthened Tuesday across a large piece of the Lower 48, including at Midwest and East Coast population centers, which are anticipating colder temperatures later this week.
“It will be quite warm over the West, South, and East the next few days with highs mainly in the 60s to 80s for lighter than normal national demand, even with heavy showers impacting the East and South,” NatGasWeather said Tuesday. “It’s Wednesday through Friday when the major pattern change takes place as a strong cold blast advances into the central U.S., then across the Great Lakes and east-central U.S., including into portions of Texas and the South.
“With lows behind the cold front dropping into the teens to 30s, locally single digits near the Canadian border, national demand will rapidly increase. It’s not going to be until late in the week or early this weekend for the cool front to push through the East for further increases in national demand,” according to the forecaster. “Cold will reload this weekend over southern Canada and the northern Plains, then making a strong advance early next week, pushing deep into the southern Plains and Texas, then across the Great Lakes, Tennessee Valley and East, including the Southeast.”
After surging 44.0 cents on Monday, Chicago Citygate tacked on another 15.0 cents to average $3.710 Tuesday. Algonquin Citygate jumped 27.0 cents to $3.535.
NGPL was scheduled to kick off a two-day maintenance event Tuesday for a tool run on Segment 13 of its Amarillo Mainline in Iowa, expected to limit 634 MMcf/d of flows headed for Chicago, according to Genscape Inc. analyst Matthew McDowell.
“To make up for the flow reduction on the Amarillo line, NGPL has increased flow into the Chicago Market Zone via the Gulf Coast Mainline,” McDowell said. “...Genscape proprietary monitors have observed increased withdrawal activity at Loudoun, Herscher and North Lansing within the last two weeks as several maintenance events have restricted northbound flow on the Amarillo and Gulf Coast mainlines. North Lansing has been withdrawing approximately 400 MMcf/d since Nov. 1. This gas is believed to head north along the Gulf Coast Mainline to the Chicago area to compensate for flow restrictions.”
In Appalachia, prices strengthened as well, with points across the region enjoying a plus-$3 handle as takeaway capacity out of the region continues to trend upward. Dominion South added 12.5 cents to $3.200.
Following previous in-service authorizations issued to the project, FERC on Tuesday gave Nexus Gas Transmission LLC the nod to start up its Wadsworth Compressor Station in Medina County, OH. Last month, the greenfield 1.5 Bcf/d Nexus received authorization to begin flowing the first volumes east-to-west across Ohio on its 257.5 mile, 36-inch diameter mainline, and the Federal Energy Regulatory Commission later cleared the project’s Clyde Compressor Station in Sandusky County, OH, for service.
Meanwhile, after some delay, FERC has also allowed Rover Pipeline LLC to begin flowing volumes on its Sherwood and CGT laterals. The operator has been putting the Sherwood line, which connects the 3.25 Bcf/d east-to-west Appalachian takeaway pipeline to producing areas in West Virginia, to good use with volumes rerouted from Columbia Gas (TCO) and Dominion Energy Transmission Inc. (DTI), according to Genscape.
“On Saturday, flows to Rover from the Sherwood plant reported at 514 MMcf/d and have stayed at or slightly above that level since,” Genscape analyst Colette Breshears said. “It’s possible that the rerouting of that Sherwood gas will allow West Virginia production to swell into the space left on TCO/DTI,” but it may depend on how much gas Rover capacity holder Antero Resources Corp. “chooses to route. The Columbia Gas/TCO lateral is a delivery-only point that will allow Antero to deliver up to 400 MMcf/d.
“This seems somewhat contrary to expected flows north on Rover, but may allow Antero to skip constraint points on the TCO system to access new capacity added by Leach XPress earlier this year or capacity being added by Mountaineer XPress later this year.”
Elsewhere, Northwest Sumas day-ahead prices more than doubled on average Tuesday, adding $5.590 to $9.670 amid ongoing flow constraints following a pipeline rupture last month on Enbridge Inc.’s Westcoast Transmission system in BC. Conversely, Westcoast Station 2 prices saw a vicious move in the opposite direction, plunging further into the negatives to average an unprecedented minus C$1.205/GJ, a new all-time low for the location.
“Though Westcoast continues repair work on the T-South System that is increasing upstream capacity, downstream flow capacity remains limited, with additional cuts” expected to start Wednesday, Genscape’s McDowell said. “On Sunday, Westcoast posted notice that operational capacity at Station 4B will be increased to pre-explosion levels.
“However, capacity downstream at Huntingdon remains restricted below 1 Bcf/d, and will be further limited” on Wednesday, according to McDowell. “A tool run by Westcoast from Station 8B to Station 9 near Huntingdon will limit flow by an additional 150 MMcf/d on Wednesday. This tool run is part of Westcoast’s ongoing T-South System inspections to ensure operating integrity. These events are part of a program to incrementally increase capacity through Huntingdon to 1.2-1.3 Bcf/d by the end of November.”