With robust production numbers helping to curb traders’ enthusiasm for a much hotter July outlook, natural gas futures eased lower Monday.
Meanwhile, in what appeared to be a true-up of sorts given recent gains in the futures market and a warmer six- to 10-day forecast, cash prices rallied from coast to coast as spot traders returned from a long July Fourth holiday weekend; the NGI Spot Gas National Avg. climbed 20.0 cents to $2.040/MMBtu.
Holding onto nearly all of Friday’s 12.8-cent surge, the August Nymex futures contract gave back 1.5 cents to settle at $2.403 Monday after going as high as $2.467 and as low as $2.369. September slid 0.5 cents to $2.384, while October was unchanged at $2.415.
The midday Global Forecast System data maintained hotter trends into early next week but dropped 4-5 cooling degree days (CDD) around the middle of July compared to 24 hours earlier, according to NatGasWeather.
“However, the data was already exceptionally hot and near the hottest over the past 40 years over this stretch in terms of national CDDs, so giving back a few CDDs was to be expected,” the forecaster said. “...Where the pattern remains hottest is July 13-20 as upper high pressure strengthens out of the southern U.S. and across the central and northern U.S., where highs into the 90s are likely from Minneapolis to Chicago for strong national demand, aided by 90s to 100s across the southern U.S. and Plains.”
This could drive weekly Energy Information Administration storage injection totals below five-year average levels, breaking the trend of above-average injections observed throughout the refill season, according to NatGasWeather. Monday’s selling “could imply major market players are still having issues with production being too strong versus demand, even with strong heat.”
Forecasts heading into Monday’s trading suggested the Week 2 outlook period could rank in the top five hottest weeks since 1950, which in turn could push power burns to record highs, EBW Analytics Group CEO Andy Weissman said.
“With the net short position held by speculative investors at its highest level of the past three years, this shift in the weather forecast is likely to trigger a significant further price increase this week. The magnitude and duration of the increase, though, will depend heavily on whether temperatures moderate again later in the month.”
Based on the weekend weather trends, which added 13 cooling degree days to the forecast compared to Friday’s estimate, power burns could soon reach a new summer high, according to Genscape Inc.
“Current weather forecasts suggest next week may see the highest cooling load demand for natural gas so far this season,” Genscape analyst Margaret Jones said. “Current Genscape estimates suggest gas demand for power generation this week will average 38.3 Bcf/d, but next week gas demand for power is expected to swell to 41.2 Bcf/d as hotter weather moves in, peaking next Tuesday and Wednesday.”
This comes as production set a new record daily high over the weekend, according to the analytics firm. Genscape estimates showed Lower 48 production climbing to 90.5 Bcf/d on Saturday (July 6), with that figure staying above the 90 Bcf/d mark every day since Wednesday (July 3). Production over the weekend averaged 1.5 Bcf/d more than the prior 30-day average.
“Texas volumes are running more than 0.55 Bcf/d higher, while the East, Permian, Rockies and Gulf regions are each posting increases of more than 0.3 Bcf/d above the prior 30-day average,” Genscape senior natural gas analyst Rick Margolin said. “Only the Midcon and West are showing declines.”
Setting a baseline for double-digit spot price gains at most locations across the Lower 48 Monday, benchmark Henry Hub gained 11.0 cents to average $2.345.
On the maintenance front, the Pine Prairie Energy Center storage facility in Louisiana was scheduled to perform work on its header system resulting in an outage affecting receipts from Columbia Gulf Transmission for Wednesday’s gas day, according to a notice to shippers.
“This interconnect has averaged 507 MMcf/d in receipts to Pine Prairie over the last two weeks,” Genscape analyst Josh Garcia said. “No other points will be affected by this outage, and normal service is expected to resume Thursday (July 11). This event will likely impact injections into storage as well as limit the gas available for Pine Prairie’s deliveries to other pipes. Injections into Pine Prairie have averaged 262 MMcf/d over the last month, and inventory levels are 4.2 Bcf higher year/year and are right at the previous five-year average.”
Also in Louisiana, ANR was expected to continue planned maintenance work on its Southeast Mainline, restricting flows through Jena Southbound by as much as 122 MMcf/d between Tuesday (July 9) and July 16, leaving 1,060 MMcf/d of available capacity, according to Genscape analyst Anthony Ferrara.
“Over the past 14 days, flows through Jena Southbound have averaged 1,098 MMcf/d and maxed at 1,182 MMcf/d,” Ferrara said.
Elsewhere, prices throughout the Northeast, Appalachia and Southeast gained around 10-20 cents. Transco Zone 5 picked up 15.5 cents to $2.405.
Countering hotter temperatures across the southern United States, cooler temperatures in the northern parts of the country to start the week, including highs in the 70s and 80s, were expected to dampen national demand totals into Tuesday, according to NatGasWeather.
After that, “hot high pressure over the southern U.S. will expand to include the northern U.S. mid-week, with highs of upper 80s to near 90 degrees returning from Chicago to New York City,” the forecaster said. “A weak system will provide cooling across portions of the northern U.S. late in the week, while a second system brings heavy showers across the Southeast/Florida for minor cooling. Overall, demand will increase above normal.”
In the Midwest, gains at Chicago Citygate tracked closely with those at Henry Hub, with the location adding 11.5 cents to average $2.125. In the Midcontinent, Southern Star picked up 16.0 cents to $1.745.
Southern Star was expected to perform maintenance Tuesday and Wednesday at its Blackwell Compressor Station, potentially restricting 96 MMcf/d of flows bound for its Market Zone, according to Genscape.
“This will reduce operational capacity through the station to 420 MMcf/d,” Genscape analyst Dominic Eggerman said. “Eastward flows through Blackwell to Southern Star’s Market Zone have averaged 516 MMcf/d over the past 30 days. This maintenance will therefore cause 96 MMcf/d of gas flows to be restricted.”
In the West, California spot prices saw some of the largest day/day gains Monday as Radiant Solutions called for temperatures in the region to heat up by the end of the week, including highs in the 90s in Burbank, CA, by Thursday.
Southern California Gas (SoCalGas) last week found its natural gas distribution/transmission system intact and mostly unaffected by earthquakes registering 7.1 and 6.4 magnitude along with numerous large aftershocks that struck a relatively sparsely populated part of the high desert over the Fourth of July weekend, 125 miles northeast of Los Angeles in eastern Kern County.
On Saturday, SoCalGas spokesperson Vanessa Skillman said the utility’s crews were continuing to "assess the situation and the status of our infrastructure." The sizable temblor was felt by millions, but it did relatively little damage to transmission and distribution infrastructure in the broad area. Ultimately, no injuries or fatalities were reported in the aftermath.
The first major quake struck on the morning of July Fourth in the Searles Valley, east of the population center of Ridgecrest about 100 miles east of Bakersfield in the Central Valley. 7.1-magnitude quake followed one day later on Friday evening.
"Based on preliminary information from SoCalGas personnel across the service territory, there were no significant impacts to the gas system," Skillman said.
Pacific Gas and Electric Co. (PG&E) provides natural gas and electric utility services to the population centers nearest the quake epicenter in Ridgecrest and Trona, and as of Sunday night, PG&E was reporting no major impacts from the quakes.
In Canada, NOVA/AECO C added C32.0 cents to average C$1.140/GJ.
Recent maintenance impacting flows in the Upstream of James River area of Nova Gas Transmission Limited (NGTL) has helped to “prop up AECO spot pricing” by reducing supply, according to analysts with Tudor, Pickering, Holt & Co. (TPH).
This week “we’re expecting a small uptick in intra-Alberta demand as the Calgary Stampede gets underway; the 10-day long festivities have historically boosted intra-Alberta demand by nearly 9% as the beer coolers work overtime (although the dreary weather forecast is likely to eat into this),” the TPH analysts said.