- Late-season cold shot boosts futures prices as traders note steep drop in production
- Analysts see price bump as temporary with milder weather set to arrive later this week
- Storage deficits expected to tighten significantly during the next few weeks
- Cash prices rise amid a slew of pipeline maintenance events across the country
Mother Nature had her own bag of April Fools tricks Monday as a late-season chill filled the air across much of the country, sending gas demand higher to start the week. With reported production coming in lower as well, the Nymex May gas futures contract rose 4.6 cents to settle at $2.708, while June climbed 3.6 cents to $2.749.
Cash prices also strengthened as the cold blast was forecast to send overnight temperatures into the 20s and 30s across the northern, central and eastern United States, making for strong national demand for the next couple days. The NGI Spot Gas National Avg. tacked on 4.5 cents to $2.39.
Weekend weather models showed a mix of changes, with a warmer six- to 10-day change outweighing a small cooler change in the 11- to 15-day time frame, according to Bespoke Weather Services. Overall, the first half of April is depicted as warmer than normal, with total gas-weighted degree days near 30 below climatology for the period. Of note, however, is a shift in the modeling, especially in the European ensembles, that poses cooler risks to the current forecast after the opening week to 10 days of the month, the firm said.
“We have seen a tendency for all of the modeling to show too much blocking in the medium range, only to have it roll forward much weaker or even non-existent, so confidence is not great on this scenario just yet, but will be monitored closely as the next few model runs roll out, as this could increase demand going forward,” Bespoke chief meteorologist Jacob Meisel said.
Midday weather data was little changed, although forecasters noted that El Niño conditions currently remain in control of seasonal expectations. If verified, this would generally favor bearish risks to weather demand moving from spring into at least early summer.
Still, there is a more than 500 Bcf storage deficit to the five-year average that needs to be refilled. “That should have put a floor under prices in the $2.60-2.65 range, as lowering prices will begin to allow balances to retighten somewhat,” Meisel said.
Early market expectations for Thursday’s Energy Information Administration (EIA) weekly storage report show the first build of the year coming in at around 10 Bcf, bearish versus the five-year average of a 23 Bcf withdrawal, according to NatGasWeather. A print at this level would improve deficits to around 520 Bcf, with the following several builds also expected to be larger than the five-year average to ease deficits towards 450 Bcf.
“To our view, the most notable build will be the one three EIA reports out as it will show just how impressive injections can be when comfortable weather patterns and very strong production work in concert,” the forecaster said.
Indeed, a swing in production was likely partly behind Monday’s rally, both in the futures market and in cash. While weekend production edged higher, Monday’s morning data showed a sizeable drop, which is very common for the first day of the month, “so should only offer temporary support at best, as the number is likely to be revised back higher,” Meisel said.
EIA data shows that dry natural gas production declined 0.14 Bcf/d in January, led by large monthly declines in Ohio (-0.28 Bcf/d) and Wyoming (-0.25 Bcf/d). Still, the monthly output declines -- due in large part to well freeze-offs -- were roughly 0.4 Bcf/d smaller than implied by pipeline flow monitors.
At the same time, EIA revised production estimates higher for November and December by a combined 0.28 Bcf/d.
Further, pipeline flows suggest that an end-of-winter bump has lifted output by 1.0 Bcf/d from the first half of March to the back half of the month, according to EBW Analytics. “These indications of higher production suggest that further downward pressure may lie ahead for Nymex natural gas this spring as rising production quickly erases the year/year storage deficit,” EBW CEO Andy Weissman said.
Spot Gas Jumps on Cold
A cold start to the week sent spot gas prices higher across most of the United States Monday as demand was set to be stronger than normal for this time of year. The late-season chill was forecast to be short lived, however, as a “very comfortable weather pattern” was expected late this week through next weekend, according to NatGasWeather.
There will still be weather systems that bring showers and powerful thunderstorms in the weeks ahead, especially across the western and far northern United States, “just with only modest amounts of cool air. As such, weather patterns will remain bearish until stronger cold shots return to the northern United States since it’s still too early in the season for widespread heat,” the forecaster said.
Cash gains were capped at less than a dime at the majority of pricing hubs, although West Texas markets put up far more substantial increases -- even as outright prices fell short of positive territory. Waha next-day gas jumped nearly 40 cents to average minus 14 cents.
El Paso Natural Gas Company (EPNG) indicated that Florida Compressor Station Unit 1C had returned to service on Sunday, effectively lifting available capacity through L2000 by 131,400 Dth to 516,100 Dth effective Timely (Cycle 1) for that gas day.
The impact of the remaining Lordsburg Unit 1C outage -- expected to return to service April 5 -- is 58,800 Dth, yielding an operational capacity of 516,100 Dth relative to the base capacity of 574,900 Dth, a pipeline notice said.
“With record production in the Permian and EPNG’s ongoing force majeure at the Caprock compressor station depressing Waha prices, the increase from 503 MMcf/d back to 570 MMcf/d with the return to service of the Lordsburg Unit 1C will continue to help alleviate maintenance-driven constraints out of the Permian,” Genscape Inc. natural gas analyst Matt McDowell said.
EPNG’s pipeline maintenance is one of several events going on across the country this week, as pipeline operators typically use the spring shoulder season to carry out any planned work.
Elsewhere across the country, Enable Gas Transmission said operational capacity at the Chandler compressor station would be limited to 796 MMcf/d beginning Tuesday and continuing until April 18. Implied flows through Chandler during the last month have averaged 1.14 Bcf/d, therefore cutting roughly 344 MMcf/d for the beginning of April, according to Genscape.
“This will limit a sizeable amount of gas from reaching Enable’s North and South Pooling Areas in Arkansas and northern Louisiana,” Genscape natural gas analyst Dominic Eggerman said.
Despite the pipeline work, prices in the region rose about a nickel on average, which was on par with most other gains seen across the country.
Gas flow restrictions in the Midcontinent had a more meaningful price impact. Southern Star next-day gas shot up 17.5 cents to $2.45 after the pipeline announced that it would limit the operational capacity of the Blackwell compressor station located in Kay County, OK, to 408 MMcf/d until April 6.
Since the pipeline tie-ins in mid-March that required similar restrictions, flows through the station have averaged 530 MMcf/d, according to Genscsape. Therefore, approximately 122 Mmcf/d of gas will be restricted en route to Southern Star’s Market Zone in Kansas and Missouri.
Pricing hubs from south Louisiana across the Southeast and up into Appalachia rose mostly between 5 and 10 cents, with benchmark Henry Hub hitting $2.715 after rising a mere 3 cents.
Columbia Gas cash prices were up more than a nickel to $2.575 as Columbia Gas Transmission (TCO) indicated it would conduct planned pipeline work on Line 1983 beginning Tuesday and lasting April 6 that could limit up to 162 MMcf/d of receipts.
Two specific points would be affected on Line 1983, which stretches from northern West Virginia up into southwestern Pennsylvania, according to Genscape. Receipts onto the pipeline from Chief 1983 would be completely shut off, and receipts from Smithfield-Mobley would be limited to 39 MMcf/d.
“Over the past month, Chief 1983 has only averaged receipts of 2 MMcf/d with a maximum of 3 MMcf/d, whereas Smithfield-Mobley has averaged 174 MMcf/d with a maximum of 199 MMcf/d. Based on these recent historical flows, this maintenance event will cut receipts on average 137 MMcf/d but up to 162 MMcf/d,” Genscape analyst Anthony Ferrara said.
Up in the Northeast, Algonquin Gas Transmission (AGT) was set to start seasonal restrictions through its Cromwell, CT, compressor station beginning Tuesday and lasting for the duration of the natural gas summer. Capacity through Cromwell, which lies roughly halfway on the AGT Mainline, would be reduced to 1.08 Bcf/d from winter levels of 1.25 Bcf/d until Nov. 14.
“Scheduled flows through Cromwell have averaged 1.02 Bcf/d and maxed at 1.17 Bcf/d over the last 14 days, meaning this event could have an immediate impact of up to roughly 90 MMcf/d compared to the 14-day max, creating mild upside for AGT Citygate and Mass Hub power prices,” Genscape analyst Josh Garcia said.
Although implied flows (the net scheduled plus no-notice imbalance of points upstream of Cromwell) are much greater than what is reported through the compressor, seasonal capacity reductions do not seem to affect no-notice nominations, as seen with last year’s seasonal outages on Stony Point and Southeast, according to Genscape.
“In the event of high demand, locations downstream of Cromwell have a variety of alternative supply options, including the Lincoln and Mendon interconnects with Tennessee Gas Pipeline, the Salem Essex interconnect with Maritimes & Northeast Pipeline and liquefied natural gas from Everett and Northeast Gateway,” Garcia said.
And with the current cold blast expected to quickly dissipate, spot gas prices at Algonquin Citygate plunged more than a quarter to $2.86. Other New England-area prices dropped similarly, although spot gas at Transco Zone 6-NY rose 7.5 cents to $2.77.