Monday marked the second consecutive gain for natural gas futures, but market bulls still have their work cut out for them in trying to reach levels seen last July, when prices averaged nearly $2.80.
With weather models not convinced of any hot weather until later this month at the earliest, Monday’s modest 2-cent gain did little to move away prices from recent three-year lows, with the July Nymex contract settling at $2.357.
Spot gas prices were stronger, however, as heat blanketed the western United States and warmth lingered over Texas ahead of a projected weather system. The NGI Spot Gas National Avg. climbed 18.5 cents to $2.09.
Moving into the second week of June, both cash prices and futures have struggled to maintain strength as most regions have enjoyed rather comfortable temperatures. Furthermore, a large weather system was on tap for early this week, lowering cooling-driven demand even more. As of early Monday, the current week’s forecast plus actualized cooling degree days (CDD) estimate is 44 versus 48 for the prior week, according to Genscape Inc.
Beyond this week, the latest Global Forecast System (GFS) continued to tease hotter patterns gaining in coverage during the last 10 days of June, according to NatGasWeather. While the important European model took a small step in that direction overnight Sunday, it still lags the modestly hotter GFS for late June.
“As such, weather patterns will maintain a bearish bias but could trend to neutral after June 20-21 with only slight hotter trends,” the firm said.
On the fundamentals side, there were no major changes in the overall data early Monday, with balances still running rather tight compared to what has been seen during the last couple of months, according to Bespoke Weather Services. Weekend power burns, weather-adjusted, were not as strong as those seen during the June 1-2 weekend, likely because of higher wind, but a drop in Canadian imports has helped maintain the tightness in the daily balances.
“While we did not get a warmer weather move like we thought we may see, the totality of the data, even in a normal weather regime, still has us ‘slightly bullish’ at these price levels,” Bespoke chief meteorologist Brian Lovern said.
However, confidence remains rather low until this week’s Energy Information Administration (EIA) report, due Thursday, given the big misses the market has seen in each of the last two weeks. Ahead of last week’s report, the prompt-month Nymex contract had held above $2.40, but the bearish data sent prices to the low $2.30 range, a level they held on Friday.
It is important to consider the impact of falling comfortably below the $2.50 mark, and how long it may take to translate to tighter supply/demand balances, Mobius Risk Group said. A high-level look at unconventional drilling era history has shown that in any six-month period where this occurred, there was a subsequent fundamental response, which led to both increased demand and decreased supply.
“It is decidedly unclear how long we will stay below $2.50 this time around, however, it is worth noting that late May and early June are not ideal times to extrapolate looseness in overall Lower 48 supply/demand balances,” Mobius said.
That said, a weight is likely to remain on the front of the curve until the streak of triple-digit storage builds ends, “and it is difficult to ascertain when that is most likely to occur with weather forecasts continuing to favor a bearish pattern, and confusion regarding the accuracy of modeled estimates of daily storage data.”
For its part, NatGasWeather expects larger-than-normal storage builds to continue into late June, further improving deficits toward 200 Bcf after being 720 Bcf this past winter.
With few tools in the bulls’ shed, the July Nymex futures contract rose only 2 cents Monday to settle at $2.357. August rose 1.9 cents to $2.35, and the balance of summer (July-October) picked up 1.8 cents to reach $2.356.
Cash Rises Despite Demand Losses
Spot gas prices were higher across most of the United States on Monday, although some gains were more likely because of the rebound typically seen after the weekend rather than any significant demand driver.
In fact, gas consumed for power generation this week is expected to average around 31 Bcf/d and may have peaked last Friday (June 7) at around 33.3 Bcf/d, according to Genscape. Power demand toward the end of this gas week may drop below 30 Bcf/d for a couple of days as cooler-than-average weighted CDDs for this time of year arrive.
“The current forecast is for next week to step up cooling-driven demand again with total CDD estimates hovering around 53 for the week. U.S. gas for power demand next week is expected to be highest on Monday (June 17), possibly coming close to 35 Bcf/d,” Genscape natural gas analyst Margaret Jones said.
That’s not to say heat hasn’t arrived already in parts of the country. The West continues to see scorching temperatures, and strong high pressure was forecast to keep the West Coast and Southwest blazing this week, with highs reaching into the upper 80s to 100s and making for strong demand.
On Saturday, Pacific Gas & Electric had to proactively shut off power to about 22,000 customers in Northern California and in the Sierra Foothills amid high risk of wildfires in the area. Power was restored later that night.
Given the strong demand and pipeline import and storage restrictions in Southern California, cash prices throughout the state rose significantly Monday. PG&E Citygate next-day gas shot up 89 cents to $2.915, while SoCal Citygate jumped more than $1 from Friday.
In the Rockies, spot gas prices rose as much as 80 cents as Kern River Pipeline was scheduled to conduct its annual 12-hour Emergency Shutdown Test at its Muddy Creek B compressor station on Tuesday. Flows through the station would be limited to 1.4 Bcf/d from the 2.2 Bcf/d operational capacity, which could impact more than 300 MMcf/d of flow compared to prior month data, according to Genscape.
“An analogous event in September of 2017 saw minor dips in receipts from Northwest Pipeline, Colorado Interstate Gas and Overthrust at White River Hub, however, downstream demand was unaffected. Kern also stated in its notice that primary firm nominations are not expected to be impacted,” Genscape analyst Matthew McDowell said.
Spot gas prices in the Midwest rose only a few cents or so, while Midcontinent prices were up as much as 20 cents at ANR SW, which averaged $1.595.
The sharper increase at ANR SW is because of a further restriction of gas flows from unplanned maintenance on the ANR Pipeline. ANR has been performing the maintenance along its Southeast Mainline since the beginning of June and is scheduled to further restrict flows through Jena Southbound by up to 311 MMcf/d beginning Tuesday and continuing through Friday.
“It is worth noting that the compressor station has been operating above the restricted maintenance operational capacity posted in prior notices during this maintenance event,” Genscape analyst Anthony Ferrara said.
Over in Appalachia, Columbia Gas prices slipped 2 cents to $2.07 even as every other pricing hub in the region strengthened. Cash prices are expected to increase in the coming days, however, now that Columbia Gas Transmission has lifted the force majeure on Line LEX.
However, from Tuesday to Friday, Texas Gas Transmission (TGT) is set to perform turbine inspections at the Harrison Compressor Station in Hamilton County, Ohio. During this period, throughput at the station is to be reduced to 510 MMcf/d. Flows over the past 30 days have averaged 731 MMcf/d, therefore this maintenance may cause 221 MMcf/d to be cut southbound toward Kentucky, according to Genscape.