After a solid run following supportive storage data, natural gas futures prices fluctuated in and out of positive territory Friday as traders digested slightly cooler long-range weather outlooks. The August Nymex gas futures contract rose as much as $2.364 before going on to settle at $2.308, down 1.6 cents on the day. September also slipped 1.6 cents to $2.282.
Spot gas prices were mostly higher Friday as warmer weather was on tap to start the holiday week. Gains were mostly capped at around a dime, but the West put up much stronger increases despite overwhelmingly mild conditions in that region. The NGI Spot Gas National Avg. added 3.0 cents to $1.945.
With heat continuing to build across much of the country, demand is projected to climb after what has been a rather mild summer so far. High pressure was forecast to bring warm to hot conditions over all but the far northern United States, including highs near 90 degrees in New York City, according to NatGasWeather. Temperatures were then set to ease a bit early into the week as a weather system raced through, although forecasts showed it remaining hot over Texas and the South.
“Where demand will be quite impressive and has been hotter trending is across the Southeast and up the Mid-Atlantic Coast, where highs into the mid-90s are expected into the foreseeable future,” NatGasWeather said.
The pattern would have a solid bullish lean if it wasn't for much of the data for July 7-11 still favoring modest cooling across the northern United States and where the overnight data was a little cooler trending. The slight pullback in demand was something Bespoke Weather Services noted was a risk once beyond the first week of July, at least cooling the pattern back toward normal.
“We do still have some rather impressive heat to go through in the near term across the Midwest and East, and down into the Southeast” as the first week of July expected to be easily the hottest the firm has seen so far, Bespoke chief meteorologist Brian Lovern said.
Daytime highs in the 90s were expected to be widespread, though the hottest days are currently forecast around the Fourth of July holiday period, mitigating some of the impact the market might otherwise see if the best heat was on a typical day, according to Bespoke. “The El Niño state has definitely weakened, and it is no coincidence that has occurred as the pattern shifts hotter, just as we saw in May.”
The firm does not expect the El Niño to completely die off, however, which supports Bespoke’s view that the near-term above-normal heat should not “lock in.”
However, NatGasWeather cautioned that the weather data has found ways to add demand through hotter trends in recent weeks, which was certainly possible over the weekend break. Also of interest, some of the weather data continued to tease heat attempting to build back northward July 13-15, “although more evidence would be needed to expect it.”
The current heat wave is expected to drive up demand and could make for an even tighter market than what the latest storage data reflected. The Energy Information Administration (EIA) reported a 98 Bcf injection into inventories for the week ending June 21. Although the build came in well above the year-ago and five-year average, it was still the tightest stat of the summer so far, according to several analysts.
Genscape Inc., which had projected a 100 Bcf injection, said the build, when compared to degree days and normal seasonality, was close to neutral versus the five-year average (only about 0.2 Bcf/d loose).
Including the most recent report, the last three EIA-reported injections have averaged about 1.0 Bcf/d loose. Compared to the first three weeks of summer (ending the week of April 18), the recent 1.0 Bcf/d of looseness is almost 4 Bcf/d tighter than early season prints.
“During that time, production growth has been minimal while net exports have increased,” Genscape senior natural gas analyst Eric Fell said.
Gas delivered to liquefied natural gas (LNG) facilities is up around 1.3 Bcf/d, and exports to Mexico are up around 0.5 Bcf/d, according to Genscape. Since the beginning of summer, gas prices have also fallen nearly 30 cents, to an average of $2.37 over the last three weeks from $2.66 at the beginning of the season, NGI price data show.
“This price change plays a large role in increasing gas demand in the power stack relative to coal,” Fell said. “If prices stay in the $2.30 range or lower, and if LNG exports do not back off soon, we have the potential to see some stats in July that actually appear a bit tighter than the five-year average.”
While exports to Mexico are already stronger than they were at the beginning of summer, a significant boost was expected in June once the Sur de Texas-Tuxpan pipeline was brought into service.
However, as the pipeline continued the commissioning process, flows stopped because of a spat between Mexico's Comision Federal de Electricidad (CFE) and Infraestructura Energética Nova (IEnova). IEnova indicated days ago that it had received an arbitration request from the CFE over issues related to force majeure clauses in the pipeline’s contract. The arbitration request, however, in “no way impedes the CFE from filing the certification of acceptance” which would allow for the delivery of gas to CFE, IEnova stated.
The $2 billion pipeline was developed by IEnova in conjunction with TC Energy Corp.
Last Wednesday, Genscape alerted clients of heightened risks to the delayed in-service of new Mexican pipes that are seen as key to increasing U.S. exports, namely the Sur de Texas-Tuxpan, Wahalajara and Samalayuca-Sasabe projects.
“The announcement raises serious concerns the already delayed in-service dates for these systems could get pushed back even further,” Genscape senior natural gas analyst Rick Margolin said. “These systems are viewed as essential to enable Mexico to replace expensive LNG imports with lower cost U.S. gas and address serious gas supply issues throughout the country.”
From a U.S. perspective, these projects offer debottlenecking opportunities out of constrained production areas, according to Genscape. The firm, for now, has not changed its forecast for Mexican supply/demand or U.S. pipeline exports to Mexico, “though we have already generally been regarded as being on the conservative side of border flows.”
Genscape had not expected flows to the Sur de Texas-Tuxpan pipeline to ramp up to commercial levels until the end of July.
Tudor, Pickering, Holt & Associates Inc. (TPH) was modeling 0.7 Bcf/d of incremental Mexican exports by the end of June, “meaning every week this drags on, another 5 Bcf is added to storage versus its base-case assumptions.
Without any clarity on the issue, it's too early to make a call but for illustrative purposes, if flows remain idle over the next two months, another roughly 50 Bcf would be added to storage” and TPH’s projected end-of-August inventories would move to 2% below the five-year average versus 4% below.
“This would serve as another blow to an already challenged gas macro outlook,” TPH said.
The clouds cleared and the sun was set to continue blazing over most of the United States for the early part of the week, with the hottest weather still a couple of days out, according to forecasts.
Highs in the 90s were expected to stretch over a significant portion of the country, including from Chicago to New York City. Although there was expected to some minor cooling across the Northeast on Monday, temperatures were expected to hold near 90 over the southern Great Lakes and Ohio Valley, according to NatGasWeather.
Texas and the South could also see some minor cooling on Monday thanks to some thunderstorms set to stall over the area. “Where conditions will be most uncomfortable is across the Southeast and up the Mid-Atlantic Coast, where highs into the mid-90s are expected to drive regionally strong demand,” NatGasWeather said.
The generally hot weather pattern lifted cash prices across most of the county. Interestingly, the most pronounced gains occurred in the far milder West, which was the only region expected to see below-average temperatures.
The typically volatile SoCal Citygate jumped 56.5 cents to $2.335, although most other market hubs in California rose less than a dime.
Points along El Paso Natural Gas in the Rockies shot up more than 20 cents as maintenance continued on a portion of the system in San Juan. El Paso Bondad rocketed 30.5 cents higher to $1.725.
With gas flows unable to move out of San Juan, backing up flows in the West Texas portion of the Permian Basin, pricing continued to soften there. Waha fell 15.5 cents to average minus 16 cents, although some deals were seen as low as minus 42 cents.
The shifting gas flows were reflected in pricing in parts of the Midcontinent as well. OGT spot gas plunged 18.0 cents to $1.65.
Dramatic price shifts were harder to come by in most other areas of the United States. Midwest cash rose less than a nickel across the region, while only slightly stronger gains were seen at a handful of points in Louisiana and across the Southeast.
Prices also hardly budged in Appalachia and the Northeast, as an expected storm was set to offer a brief reprieve from the heat. Algonquin Citygate rose only 2.0 cents to $2.120.
Meanwhile, PSEG Power LLC has indicated that its 485 MW Bridgeport Harbor Station 5 was online. Genscape noted elevated nominations at Iroquois Gas Transmission’s Stratford meter as early as May 31, which serves Bridgeport Harbor’s other units.
“Since then, it has nominated a new max of 153 MMcf/d on June 25, roughly 50 MMcf/d higher than its previous max,” Genscape analyst Josh Garcia said.
The new unit is expected to help alleviate some of the lost generation from the 680 MW Pilgrim Nuclear Station in Plymouth, MA, which retired on June 1.