- Natural gas bears continue to slaughter futures prices
- Spot gas remains weak as most of U.S. enjoying mild temperatures
- Storm system churning in far southern Gulf of Mexico
The slaying that natural gas prices received last week worsened Monday as the front end of the futures strip shed another a nickel or so, extending the July Nymex contract’s losing streak to three days and a total of around 22 cents. Spot gas prices also remained mostly weak despite heat and humidity blanketing much of the southern United States. With comfortable temperatures in the northern part of the country and stormy conditions out West, the NGI Spot Gas National Avg. climbed just one cent to $1.87/MMBtu.
“Decisively cooler” weather outlooks for the middle of June kept natural gas bears in firm control to start the week, with both American and European weather models overnight Sunday showing a deeper trough into the eastern half of the nation, with a warmer upper level ridge out West, according to Bespoke Weather Services.
“This is very typical of what one would expect in an El Niño pattern, and while we still are not able to say with certainty that El Niño is here to stay, it is definitely still showing itself in the projected pattern for now,” Bespoke chief meteorologist Brian Lovern said.
The July Nymex gas futures contract plunged as low as $2.382 before going on to settle at $2.403, down 5.1 cents on the day. August dropped 5.7 cents to $2.403, and September tumbled 5.8 cents to $2.392.
There is still a little warmth for the current week, with national cooling degree days near to slightly above normal. However, much of the country is expected to see a solidly cooler pattern into next week, according to Bespoke. Although Week 3 carries lower confidence, the pattern at the start of that week still does not look promising for bringing any notable heat back into the eastern half of the country, the firm said.
The latest midday weather data did add a little more demand to the 15-day forecast, but not enough to flip weather sentiment from solidly bearish to anything else, according to NatGasWeather. The data was a little hotter early next week across the Southwest and Texas, a little cooler to lose demand late next week, but then hotter again around July 17-18. This is “around the time we are expecting better chances of more intense heat to start showing up in some of the weather maps.”
Meanwhile, a tropical disturbance is churning in the far south Gulf of Mexico that could strengthen into a weak tropical storm, but, if anything, would have bearish impacts on the market. In recent years, hurricanes and tropical storms that have made landfall in the United States have typically constituted bearish scenarios for the natural gas market due to demand destruction associated with power outages and moderation of summer heat by heavy rains and clouds, according to Genscape Inc.
Additionally, “storms may affect shipping and thereby cause delays in liquefied natural gas (LNG) exports, which could consequently cause liquefaction suspensions, depending on storage inventory levels at the time of shipping delays,” Genscape LNG analyst Allison Hurley said.
Nevertheless, the market cannot rule out large impacts to offshore production in the Gulf of Mexico (GOM), which was highlighted in early October 2017 when Tropical Storm Nate punched GOM production down to a five year low of around 204 MMcf/d. That was the lowest since the impacts from Hurricane Isaac in August of 2012, which dropped GOM production to a low of about 160 MMcf/d, according to Genscape’s pipeline production data.
The Atlantic hurricane season officially kicked off Saturday and extends through Nov. 30, but it’s not unheard of to see hurricane formation outside this timeframe. The National Oceanic and Atmospheric Administration predicted a near-normal hurricane season, with a likely range of nine to 15 named storms this season, of which four to eight could become hurricanes, including two to four major hurricanes (ie. Category 3 or greater).
Spot gas prices fell Monday as most areas outside of Texas and the Southeast were set to enjoy rather nice weather on Tuesday.
“There’s not much demand across the northern half of the country, where temperatures will be quite comfortable during the first half of June with highs mostly in the 70s and 80s,” NatGasWeather said.
The mild weather pattern was seen limiting the impact of a string of pipeline maintenance activities set for this week. In Appalachia, Columbia Gas Transmission (TCO) declared a force majeure on Saturday that required an immediate pressure reduction, cutting more than 1 Bcf/d of westbound flow through “LXPSEG” in Ohio, according to Genscape.
“This event is due to a necessary inspection downstream of the Summerfield Compressor Station, and no timeline has been given by TCO specifying when full service will return,” Genscape analyst Anthony Ferrara said.
Total capacity at the “LXPSEG” throughput meter is cut completely to 0 Bcf/d, which has averaged 1.04 Bcf/d and maxed at 1.10 Bcf/d of westbound flow during the past 14 days, according to Genscape. Furthermore, capacity at the “MXPSEG” throughput meter is limited to 1.95 Bcf/d, “but this restriction should not be impactful because the limit is still greater than the 14-day maximum of 1.87 Bcf/d. TCO also noted that it would be working with upstream operators to reduce physical receipt volumes,” Ferrara said.
With comfortable temperatures forecast for the region, Columbia Gas next-day prices fell 4 cents to $2.16, on par with other declines in Appalachia.
Over in New York, a three-day maintenance event at two points on Empire Pipeline in southwestern New York also little effect on prices. Transco Zone 6 NY spot gas slipped 3.5 cents to $2.11 despite the potential loss of up to 150 MMcf/d of receipts.
Elsewhere in the Northeast, the 680 MW Pilgrim Nuclear Power Station in Plymouth, MA, retired June 1, presenting short and long-term opportunities for gas burns, according to Genscape. This plant has provided baseload generation to the New England electric grid operator’s power stack, which proved crucial as gas generation in the region is supply constrained.
“Replacing Pilgrim’s generation one to one with gas would take roughly 95 MMcf/d, assuming a 6.5 Btu/kilowatt hour heat rate,” Genscape analyst Joe Bernardi said.
Bridgeport Harbor’s 488.5 MW expansion was also required to be fully operational by June 1. Iroquois Pipeline’s Stratford meter already feeds the other Bridgeport Harbor units, and it has seen a recent uptick in demand to reach a new max of around 120 MMcf/d, according to Genscape.
Alternative supply may also be brought on from Tennessee Gas Pipeline. “Additionally, the quick start 333 MW gas-burning Canal Unit 3 recently cleared the power forward capacity market, and its capacity supply obligation began on June 1, but it will likely run as a peaker during times of high power prices,” Bernardi said.
Although Canal and Bridgeport Harbor can help fill the gap left by Pilgrim’s retirement, “come winter, the loss of Pilgrim will bring further volatility to the already constrained New England gas market that sees an increasing reliance on gas.”
Interestingly, even with little in the way of demand in the region, Algonquin Citygate and other New England pricing hubs posted small gains Monday.
Spot gas in the country’s midsection was slaughtered as losses of up to 67 cents were seen, although prices remained in positive territory.
However, West Texas next-day gas continued to trade below zero despite region-wide gains. Waha jumped 33 cents but still averaged at minus 11.5 cents.
A three-day planned maintenance event beginning Tuesday will cut about 125 MMcf/d of San Juan flows on Transwestern Pipeline. The La Plata Compressor Station will undergo planned annual maintenance, reducing its operational capacity to zero and cutting flows at three individual points, according to Genscape. These are: the interconnect with Northwest Pipeline (NWPL) at La Plata; receipts at the Williams Field Services Ignacio gas plant; and receipts at the BP plc Florida River gas plant.
“Together, these locations posted a daily average receipt of 125 MMcf/d in May. The interconnect with NWPL has bidirectional capability, but almost always functions as a receipt point. Past iterations of this annual work have not corresponded with significant basis price movement,” Genscape’s Bernardi said.