- Major shift in weather models sends natural gas prices crashing through key support
- Production on the rise, leading to significant improvement in storage picture over coming weeks
- Exports to Mexico set to decline as NET Mexico starts spring maintenance
- Cash prices slide as mild weather negates slew of pipeline work going on around the country
After treading water for much of last week, natural gas futures fell significantly lower to start the week Monday after a dramatic warmer shift in weather models. The Nymex May gas futures contract dropped 7 cents to settle at $2.590/MMBtu, while June fell 7.1 cents to $2.633.
Spot gas prices also softened even as weather systems with showers and some cooling were expected to linger across the Great Lakes and East through Tuesday. With milder weather on tap by midweek, however, the NGI Spot Gas National Avg. slid 24 cents to $2.025.
After Tuesday, a warmer break was expected to follow over the Great Lakes, Ohio Valley and East, with temperatures rising to the 60s and 70s into Friday, according to NatGasWeather. Even warmer conditions were expected in the southern and western United States, where highs were forecast to reach the 70s to 90s, the forecaster said. In fact, weekend weather models trended much warmer and now favor a rather bearish U.S. pattern through the end of the month.
The Nymex May contract had already begun to show signs of weakening late last week, giving ground last Thursday despite a bullish, smaller-than-expected injection, according to EBW Analytics Group. The firm speculated that hedge funds looking to short the market held their powder dry until after Thursday's Energy Information Administration (EIA) storage report, and then aggressively went short, “recognizing that in an oversupplied market the amount of gas in storage will soon start to rise at an unsustainable rate.
“These hedge funds have reason to celebrate this morning,” EBW CEO Andy Weissman said.
That’s because weekend weather models trended much warmer for Weeks 2 and 3, eliminating the previously expected cooler weather. The change came as a result of models shifting the look of the pattern on both the upstream Pacific side as well as the downstream Atlantic side, moving more solidly toward a positive Easter Pacific Oscillation and positive North Atlantic Oscillation state, both of which make it very difficult to get any notable cool air into the pattern across the United States, according to Bespoke Weather Services.
“We now project that total gas-weighted degree days will run around 35 below the long-term normal over the next 15 days, and just over 75 lower when compared to the same dates last year,” Bespoke chief meteorologist Brian Lovern said. “Should this pattern continue, we will have to watch for the first meaningful early season cooling degree days as we get into early May, but so far, we have not seen warming that rises to that level.”
The net result of the bearish weather shift is expected to be “a series of very large injections” into supplies during the next two months, according to NatGasWeather. Estimates for Thursday’s EIA storage report point to a build in the 80s to 90s Bcf range, which is much larger than the five-year average injection of 21 Bcf and would improve deficits to near 425 Bcf from 485 Bcf. Further improvements that are likely to come would ease deficits toward 200 Bcf as May progresses, NatGasWeather said.
Meanwhile, production is also trending higher, and exports to Mexico are set to plunge as maintenance on the NET Mexico export pipeline out of South Texas this week could cut as much as 1.1 Bcf/d of exports, according to Genscape Inc. Starting Tuesday and continuing into the weekend, NET is expected to conduct maintenance on the Agua Dulce compressor, which effectively serves as a header for NET. NET in turn provides the “sole source of supply” for Mexico’s Los Ramones I pipeline.
“Genscape has a proprietary monitor that tracks near-real-time flows on NET,” senior natural gas analyst Rick Margolin said. “Those cross-border flows have been averaging a steady 1.9 Bcf/d the past 14 days.”
This maintenance has occurred annually around this time of the year, according to Genscape. During previous events, there were no significant reroutes of exports,and the Mexican market compensated for the cut to supply through demand reductions and increased liquefied natural gas (LNG) sendout.
“However, despite past events pushing supply back into South Texas’ Agua Dulce hub, there generally were not any major price disruptions within South Texas,” Margolin said.
Meanwhile, in-service of the 2.6 Bcf/d Sur de Texas pipeline was delayed last week to late June from an anticipated in-service date of mid-April, representing a bearish shift of seasonal balances close to 50 Bcf, according to EBW. Despite the delay, pipeline exports to Mexico are anticipated to push sharply higher later this near, reaching nearly 6.0 Bcf/d by late summer in the firm’s most-likely scenario.
Until then, the only factor currently working in bulls’ favor is rising LNG exports, which still remain off highs. “Essentially, more seasonal weather patterns and very strong production will now work in concert to produce very big injections in national supplies,” NatGasWeather said.
Cash Slides as Temperatures Rise
Spot gas prices were down at the majority of pricing hubs in North America as any lingering winter cold was expected to dissipate by midweek. While weather systems were still likely to continue through the rest of April, those storms will likely bring rain but little cold, according to forecasts.
With little demand to speak of, the multitude of pipeline maintenance events seen last week were set to continue in the week ahead. In New England, Algonquin Gas Transmission (AGT) was scheduled to conduct two maintenance events that will restrict capacity through its mainline at the Stony Point compressor station (CS) in Connecticut.
First, AGT will conduct pig runs from the Hudson river to the Cromwell CS on April 17, which will limit capacity through Stony Point to 1.01 Bcf/d. Then on April 20, AGT will conduct an outage on the Stony Point CS that will reduce compressor capacity to 1.29 Bcf/d.
“Flows through the compressor have averaged 1.36 Bcf/d and maxed at 1.57 Bcf/d over the last 14 days, meaning scheduled flows could be impacted by as much as around 570 MMcf/d,” Genscape analyst Josh Garcia said.
The outages should bring some bullish support to Algonquin Citygate prices, although warming weather in New England has brought down demand and prices since the winter peak. However, forecasts have been volatile, with significant day/day revisions at times, Garcia said.
The pipeline work won the battle Monday, with Algonquin Citygate next-day gas prices jumping 15 cents to $2.68, in line with other gains in the Northeast.
In Appalachia, Tennessee Zn 4 Marcellus spot gas was down 2 cents to $2.19, while losses in the Southeast were generally capped at less than a nickel.
Henry Hub fell 8 cents to $2.61, while other Louisiana points slipped as much as 9 cents.
Cash prices in the Midcontinent posted some of the largest day/day losses as OGT plunged 53.5 cents to $1.095. Southern Star plunged nearly $1 even as Southern Star Pipeline was set to conduct additional shoulder-season maintenance from April 16 to April 18 at the Blackwell CS in Kay County, OK, to install modifications for a new turbine.
“This will reduce throughput at the station to 311 MMcf/d, or 50% of normal operational capacity. Flows through the station over the past 30 days have averaged 412 MMcf/d and maxed at 491 MMcf/d, therefore up to 180 MMcf/d will be restricted from reaching Southern Star’s Market Zone in Kansas and Missouri,” Genscape’s Garcia and Dominic Eggerman said.
Midcontinent temperatures were forecast to be milder than normal during the maintenance window, adding to the bearish pressure of this event, “but forecasts around this time of year are subject to large revisions,” the analysts said.