- June natural gas prices slip amid continued minor changes to weather data
- Overall bearish weather pattern seen significantly improving storage deficits before hotter weather arrives
- Analysts conflicted over near-term price direction
- Pipeline maintenance, including on Sierrita Pipeline, grips cash markets as heat builds in southern United States
With the strongest demand on tap for this week and the potential for moderating temperatures in May, traders quickly reversed the previous day’s gains and sent natural gas futures slightly lower on Tuesday. The June Nymex gas contract slipped 1.8 cents to $2.575, and July fell 2.3 cents to $2.617.
Spot gas prices were mixed but mostly higher after a chilly start to the day ahead of warmer temperatures later this week. The NGI Spot Gas National Avg. ended the day relatively steady at $2.145, up a half-cent.
On the futures front, weather models continued to shift a bit overnight Monday and again midday Tuesday. American data showed more upper level ridging over the South that could elevate cooling degree days (CDD) into mid-May, and the European Ensemble showed a more “tame” pattern with less potential for heat, according to Bespoke Weather Services.
Regardless, the strongest demand remained weighted to the front end of outlooks and was likely the reason for Tuesday’s small pullback in futures.
Madden-Julian Oscillation progression suggested CDDs can remain elevated versus normal through mid-May, then may fall off later in the month, “which is when demand may begin to lag last year’s levels once again,” Bespoke chief meteorologist Brian Lovern said.
Nevertheless, fundamentals data Tuesday was slightly more bullish than what the firm saw on Monday. Tuesday’s data showed an initially large production drop, which Bespoke suspected is likely to be revised higher like usual but also likely to remain well off highs, “as we did not get the typical larger bump up in production that we often see at the end of a month.”
Power burns also look a little stronger as expected with the southern heat increasing, a trend that should continue over the next few days as heat reaches its peak. Other data, including liquefied natural gas exports, was essentially flat on the day.
NatGasWeather, meanwhile, painted a far more bearish outlook for prices. Even though weather data continued to flip back and forth a bit, the forecaster said the net result hasn’t changed, with the bearish weather likely leading to hefty storage injections for several weeks until more ominous heat builds.
“We don’t see this occurring for at least several more weeks, forcing the markets to patiently wait out very large builds, and where our data suggests the next four out of five are likely to print over 100 Bcf,” NatGasWeather said. “This should continue to provide opportunity for steady improvement in deficits from currently 369 Bcf toward 250 Bcf, starting with Thursday’s Energy Information Administration (EIA) report where deficits should improve by at least 40 Bcf.”
Already, after reaching a sizeable year/year storage deficit of 355 Bcf in early March, sharply looser supply/demand balances and bearish weather led to the complete erasure of the deficit and building of a nascent surplus. A sharp change in April, however, exaggerated the difference in year/year core fundamentals following a shift from record cold April 2018 to moderately bearish weather in April 2019, leading to a storage balance that was an astounding 12.4 Bcf/d looser year/year, according to EBW Analytics.
Looking forward, May is projected to remain 3.2 Bcf/d looser than year-ago conditions. “While still a considerable loosening versus 2018, the narrowing of bearish comparisons relative to April's enormously bearish conditions may lessen the extent of downward pressure on Nymex futures,” EBW CEO Andy Weissman said.
EBW did not view the recent weather data as enough to significantly affect prices in the near term, although it indicated that a test of resistance at $2.63 or slightly higher was possible. “The likelihood of the June contract moving significantly above the $2.63 mark, however, is low, since demand should decline further soon and EIA is expected to announce the first 100-plus Bcf injection of the season on Thursday.”
Bespoke, on the other hand, said June prices could test the $2.65 level before this week is finished, “with the assumption that cash performs and we see the burns tighten as the strongest heat arrives, though like Monday, there can be some choppiness around cash trading.”
Cash Mostly Higher
Spot gas prices were indeed choppy Tuesday as the second in a series of weather systems to hit the northern United States in recent days began exiting the region. Prices declined a bit in the Northeast as warmth built, while prices in most other areas rose slightly amid a slew of pipeline maintenance events set to kick off Tuesday.
Gulf South Pipeline was among those conducting maintenance this week after unplanned work at the North Houston compressor station in Harris County, TX, was announced on Monday, impacting 97 MMcf/d from the Clarence scheduling group. On Wednesday, Gulf South was also scheduled to begin pigging the Index 818 pipe segment in central Louisiana, which would reduce capacity at the Expansion Area 19 group by 485 MMcf/d.
“Previous maintenance events of this kind have resulted in reduced/shut-in production on the system,” Genscape Inc. natural gas analyst Dominic Eggerman said.
Spot gas prices across most of Louisiana were a few pennies higher Tuesday, except at Texas Eastern, M1, 24, which fell 4.5 cents to $2.295.
Prices across the Midcontinent and Texas also rose a few cents on the day, with slightly stronger gains seen in West Texas as Waha jumped 10.5 cents to average 16 cents. El Paso Permian, however, was down 2.5 cents to average 10.5 cents, likely from planned Sierrita Pipeline maintenance that began Tuesday and was scheduled to last through Thursday.
Sierrita stated the work would cut its receipts from El Paso Natural Gas to zero, down from an average 140 MMcf/d this month-to-date from the El Paso South Mainline in Arizona, according to Genscape. “This is the sole source of supply to Sierrita, the entirety of which (minus fuel and pipe loss) Sierrita delivers to the Sonora pipeline,” Genscape analyst Matthew McDowell said.
While there was the possibility that increased volumes from the Permian could offset these cuts, El Paso S. Mainline/N. Baja next-day gas tumbled more than a dime to $1.06.
A handful of other West Coast pricing locations also posted declines, most notably other points along the El Paso system and Transwestern San Juan, which fell 11.5 cents to average just 93 cents. PG&E Citygate, however, shot up 10.5 cents to $3.35.
Prices in Appalachia were mixed as a number of this week’s maintenance events impact the producing region. Columbia Gas Transmission (TCO) on Wednesday was set to perform planned pigging maintenance on Line LEX, spanning from West Virginia into Ohio, on various gas days through May 6 that would limit capacity at various receipt points and throughput meters.
On gas days Wednesday and Friday, flow from two Ohio receipt points, Stagecoach-LXP and Eureka, may be cut by as much as 317 MMcf/d as capacity through the two points will be limited to 249 MMcf/d.
These two points combined have averaged 495 MMcf/d and maxed at 566 MMcf/d over the past 30 days, according to Genscape. As of the timely cycle for Tuesday’s gas day, “we are already seeing combined total nominations drop off by roughly 200 MMcf/d day/day,” Genscape analyst Anthony Ferrara said.
There could also be as much as 727 MMcf/d of cuts to westbound flows through Lone Oak A MA41 and Lone Oak B MA41 on Wednesday and Friday. Flows through Lone Oak A MA41 and Lone Oak B MA41 will be limited to 98 MMcf/d and 551 MMcf/d, respectively, on Wednesday and to 122 MMcf/d and 673 MMcf/d, respectively, on Friday.
Over the past 30 days, Lone Oak A MA41 has averaged 110 MMcf/d and maxed at 169 MMcf/d whereas Lone Oak B MA41 has averaged 1,096 MMcf/d and maxed at 1,208 MMcf/d, according to Genscape. “This means there could be cuts to westbound flows of up to 727 MMcf/d on Wednesday and up to 581 MMcf/d on Friday,” Ferrara said.
On gas days Saturday and Monday, there will only be capacity restraints on one throughput meter, LXPSEG MA41, also limiting westbound flow. LXPSEG MA41 will be limited to 537 MMcf/d on Saturday and to 732 MMcf/d on Monday. Over the past 30 days, the throughput meter has averaged 1,044 MMcf/d and maxed at 1,153 MMcf/d, translating to flow cuts of up to 616 MMcf/d on Saturday and 426 MMcf/d on Monday, Ferrara said.
Despite moderating weather in the region, Columbia Gas next-day gas rose 4.5 cents to $2.34.
Similar gains were seen at Texas Eastern M-3, Delivery, which climbed to $2.385 as Texas Eastern Transmission (Tetco) was set to kick off maintenance Wednesday that is scheduled to run through June 10.
Tetco plans to conduct investigations on its 14-inch and 16-inch Line 1A valve sections 2 and 3 from Chester Junction, PA, to the end of the line in M3. During these investigations, several significant demand locations may experience lower-than-normal pressure or be completely unavailable for flow.
These locations include Valero’s Paulsboro refinery, Philadelphia Energy Solutions’ refinery and three Philadelphia Gas Works citygate meters. Together, these locations have aggregated an average of 118 MMcf/d and as much as 150 MMcf/d of demand over the last 14 days, according to Genscape.
Additionally, Tetco will conduct pipeline investigations between Eagle and Chester Junction during the same time period that may impact an additional roughly 30 MMcf/d of residential/commercial demand. However, these locations will only be impacted if further investigations are required.
Despite the gas flow restrictions, mild temperatures forecast for the Northeast over the next month should limit any price volatility, “but near-term forecasts are subject to large day-to-day revisions with unpredictable shoulder season weather,” Genscape analyst Josh Garcia said.