A notable decline in natural gas production did nothing to deter bears who took back control of the market on Tuesday. With weather models remaining at odds over the intensity and duration of an expected heat wave later this month, the July Nymex gas futures contract fell 5.8 cents to settle at $2.328. August dropped 6.2 cents to $2.311.
The majority of cash markets also retreated Tuesday as several storms were set to move across the country, keeping temperatures at comfortable levels in much of the country. However, most decreases were small as temperatures in some parts of the United States were expected to get progressively warmer throughout the week, with increases seen in those areas. The NGI Spot Gas National Avg. rose just 2 cents to $2.05.
After a rather peaceful start to the week, futures action revved up a notch Tuesday despite little shifting overnight in long-range weather forecasts. However, it could be the lack of significant change in weather data that had market bears back on the prowl, as the European weather model continued to lag the American data in the intensity of a coming heat wave.
“The European model still shows a warmer U.S. pattern arriving, but there's enough of a difference between it and the Global Forecast System (GFS) to give the markets pause before believing the hottest scenario,” NatGasWeather said.
The GFS model run, which has increased heat in the last several runs, was again slightly hotter overnight Monday for this weekend into early next week, but then a little cooler late next week into the first couple days of July.
For now, the European model has failed to reflect that same level of heat. However, it continues to show a little more of a northward shift in the 11- to 15-day heat threat, according to Bespoke Weather Services. “We do continue to see notable difference in the modeling for the start of July,” with the American ensemble data still quicker to bring the heat ridge back into the West, while the European data keeps the slightly hotter look all the way out at day 15.
Bespoke continues to favor the European model, at least due to timing. “The move back hotter in the West and cooler East may show up again, but we would favor it more after the first week or so of July, based on how the pattern has been cycling. Weakening of the Madden-Julian Oscillation could make these cycles a little more difficult to time, however,” Bespoke chief meteorologist Brian Lovern said.
With traders not fully convinced of the intensity and duration of the coming heat wave, Tuesday’s rather substantial day/day production decline was essentially a nonevent for the market. Genscape Inc. estimated that Tuesday’s Lower 48 production volumes had fallen to slightly under 87 Bcf/d, a nearly 1.9 Bcf/d day/day drop. However, the firm noted that it continues to see notable revisions to top-day nominations.
“Today’s drop slams the breaks on a seven-day growth run,” Genscape senior natural gas analyst Rick Margolin said Tuesday.
Prior to Tuesday’s estimate, production the previous seven days had been averaging nearly 0.5 Bcf/d higher than the seven days before that. Declines were heavily concentrated in the East (down 0.89 Bcf/d day/day) and Rockies (down 0.88 Bcf/d).
More than half of the East declines were out of northeastern Pennsylvania (NEPA), though more than 0.25 Bcf/d of the declines are also from southwestern Pennsylvania, according to Genscape. The largest NEPA drops were on the Tennessee Gas Pipeline (TGP) system, primarily in Susquehanna County, which most likely is related to both planned and unplanned maintenance on TGP’s 300 line.
Rockies production drops were posted on both sides of the Continental Divide, Genscape said. On the western side, production from the Green River Basin area was down nearly 0.33 Bcf/d, partly in response to takeaway restrictions on the Ruby Pipeline, which is scheduled to remain under maintenance through Wednesday.
On the eastern side, Denver-Julesburg Basin production was down more than 0.31 Bcf/d, while Bakken Shale volumes were down 0.22 Bcf/d with the four-day Alliance Pipeline shutdown in effect.
While the day/day production drop was significant, the market may have viewed the decline as temporary and not indicative of any sort of long-term trend. However, with temperatures heating up and exports growing, prices could be poised for a sustained bounce in the weeks ahead.
Spot gas prices across most of the country trimmed back a bit Tuesday, with the majority of pricing hubs posting rather modest declines of less than a dime amid a mixture of weather patterns across the United States.
Most of the nation’s natural gas demand is occurring is around the periphery of the country, where highs were forecast to reach the 80s to 100s across the West and the 90s in Texas, the South and Southeast, according to NatGasWeather. It was also expected to be hot at times up the Mid-Atlantic Coast, where highs are expected to soar into the mid-80s to lower 90s, the firm said.
Meanwhile, parts of the lower Ohio Valley to the southern Plains had the greatest risk for severe storms on Wednesday, according to AccuWeather. Patches of heavy showers and storms can also occur elsewhere in the Central and Eastern states as well, including the Florida Peninsula.
"The risk of severe thunderstorms is forecast to increase substantially in the central Appalachians and mid-Atlantic corridor on Thursday," AccWeather senior meteorologist Alex Sosnowski said.
Cooling was forecast to spread across the interior West and Plains this weekend, shifting the hot ridge over the South and East for a modest surge in national demand into early next week, according to NatGasWeather. “It's late next week when the upper ridge shifts across the central United States and expands to cover much of the southern two-thirds of the country with widespread highs of 90s to 100s.”
The firm continues to expect the upper ridge will cover enough of the Midwest to bring highs near 90 degrees to Chicago. The pattern would be more intimidating if the upper ridge in late June was slightly further east, “since the core of the heat dome will be over the west-central and central United States,” the forecaster said.
Most of the heat seen across the country in recent days has been concentrated on the West Coast. However, Tuesday’s action saw prices retreat quite a bit from Monday’s sharp rally.
PG&E Citygate next-day gas plunged 21 cents to $2.69, but other California markets posted much smaller day/day losses.
The lower cash prices in the West hit West Texas markets as well. El Paso-Permian next-day gas averaged minus 8.5 cents after sliding another 9 cents on Tuesday.
Meanwhile, a two-day maintenance event on Northern Natural Gas (NNG) could spell even weaker prices ahead in the Permian Basin. NNG on Wednesday was set to begin work that could disrupt more than 150 MMcf/d of Permian outflows and could push down on Waha.
Station maintenance at NNG’s Bakersfield interconnect with Oasis Pipeline will limit this point to zero flow on Wednesday and Thursday. It has averaged a net delivery to Oasis of 163 MMcf/d in the past month, with an average net delivery of 155 MMcf/d since NNG began reporting it last May, according to Genscape.
“Deliveries at this point outweigh receipts: Average receipts in the past month have averaged just 6 MMcf/d,” Genscape analyst Joseph Bernardi said.
This Bakersfield point is one of two Oasis interconnects on NNG; both have bi-directional capacity and are in Pecos County, TX. The other point, “OASIS/NNG WAHA,” has averaged a delivery of 264 MMcf/d and a receipt of 431 MMcf/d in the past 30 days -- good for an average net NNG receipt of 167 MMcf/d, according to Genscape.
“Its posted delivery capacity is 435 MMcf/d, so theoretically another 171 MMcf/d is available for it to increase its deliveries and mitigate some or all of the flow disruption from this maintenance,” Bernardi said. “If gas cut by this maintenance is not rerouted, both recent precedents and fundamentals would suggest that downward pressure on Permian basis prices would result.”
So far in 2019, there have been two notable disruptions in net interstates-to-Oasis flows, and both have corresponded with downward movement in Permian basis prices, according to Genscape. While the first event resulted in a dramatic drop in prices, the second such period in mid-March aligned with Waha’s first dip into negative average cash territory.
Elsewhere across the country, prices across the Midcontinent were some of the only to strengthen day/day, with NGPL Midcontinent rocketing some 24 cents higher to average $1.66.
Prices across Louisiana and the Southeast slipped a few cents or so, while Northeast markets fell a little more. Tenn Zone 6 200L cash dropped 7 cents to $2.195.