Natural gas bulls hoping for a spark from the latest forecasts came away disappointed Monday, as cooler trends combined with bearish underlying fundamentals to send the August contract falling into expiry. In the spot market, a hot start to the week for the East Coast spurred modest gains at locations throughout the region; the NGI Spot Gas National Avg. added 1.5 cents to $1.985/MMBtu.
The August Nymex futures contract rolled off the board at $2.141, down 2.8 cents on the day after going as high as $2.182 and as low as $2.120. The front-month contract in waiting, September, settled at $2.116 -- down 3.4 cents -- while October fell 3.8 cents to $2.139.
At this point in the season, moderate forecasts are “problematic” for those hoping for “any serious rally in natural gas, as the market is running out of summer for serious demand offsetting the gains in production,” analysts with Drillinginfo said Monday.
Looking at the fundamentals data from last week, Drillinginfo tallied a week/week increase in total supply of 0.47 Bcf/d, helped by the return of Gulf Coast region production shut in by Hurricane Barry. Meanwhile, moderating temperatures and lower power burns helped dropped total demand by 2.87 Bcf/d on the week, the firm said.
“...The fundamentals continue to promote a bearish bias, continuing the trend of the summer,” the Drillinginfo analysts said. “Weather forecasts, currently, have few bullish elements for positive trade to establish a run. This week will likely have a test of the June lows, but expect the stronger test of that support to happen after the expiration...When the September contract takes over as prompt, further probes lower between $2.101 and $2.000 should be expected.”
Radiant Solutions highlighted cooler trends in its latest 11-15 day outlook Monday, with the forecaster calling for more cool air to move into the northern part of the country during the period.
The pattern could result in “near to slightly below normal temperatures in the Midwest, while the South leans on the hotter side of normal,” Radiant said. “Above normal temperatures are also forecast in the Pacific Northwest. Confidence is held on the low side of moderate overall, with higher confidence being precluded by differences in the models.”
Meanwhile, Radiant’s latest six- to 10-day forecast “carries a mix of small changes” versus earlier expectations, “trending cooler from the Northwest to Central and warmer in the East. The period is one of changing conditions, as a trough settles over the Great Lakes at the end of the period. A round of below normal temperatures are associated in the North Central at that time. However, above normal temperatures can be expected in advance from the Upper Midwest toward the East.”
With summer’s end on the horizon, and with the prospect of more production coming online this fall, the September contract could face even more downward pressure in the weeks ahead, according to EBW Analytics Group CEO Andy Weissman.
“With cash market demand expected to stay near last week’s for the first two or three weeks of August, September should be range-bound during its first week or two as the front month,” Weissman said. “By mid-August, however, air conditioning demand should rapidly fade, and start-up of the 2 Bcf/d Gulf Coast Express pipeline will only be a few weeks away.
“As this occurs, renewed downward pressure is likely, potentially driving the front end of the forward curve below $2.00 this fall and forcing electricity prices in gas-sensitive regions to new lows.”
Some hotter temperatures to start the week along the Interstate 95 corridor accompanied spot price gains at numerous East Coast locations Monday.
Radiant Solutions called for highs in Boston to hit 93 Tuesday, with temperatures averaging about 11 degrees warmer than normal. Further south, the forecaster called for Washington, DC, to see highs reach 96 degrees Tuesday, with temperatures about 7 degrees warmer than normal.
According to the National Weather Service (NWS), “An expansive area of high pressure that has been bringing pleasant and generally dry weather over much of the eastern U.S. over the last several days will gradually give way to a cold front moving steadily across the Plains and Midwest. Southwesterly flow ahead of the cold front will transport notably hotter and more humid air up across the Ohio and Tennessee Valleys and along the East Coast.
“Temperatures will be above normal for the next couple of days and will be well into the 90s for many major metropolitan areas,” the NWS said. “...In behind the aforementioned front crossing the central U.S., cool high pressure will be nosing south from Canada, and this will bring below normal temperatures across most of the northern Plains and upper Midwest” Monday through mid-week.
Maintenance on Transcontinental Gas Pipe Line’s (Transco) Leidy Line could impact around 700 MMcf/d of production in Northeast Pennsylvania starting Thursday (Aug. 1), according to Genscape Inc. analyst Josh Garcia.
“From Aug. 1-25, Transco will conduct an outage on its Leidy Line A near Station 515 in Luzerne County, PA,” Garcia said. “As a result of this maintenance, Leidy West aggregate receipts will be shut in and Leidy East aggregate receipts will be limited to 680 MMcf/d for the duration of the outage. Leidy West aggregate receipts have maxed at around 520 MMcf/d over the last two weeks, while Leidy East has maxed at around 870 MMcf/d, meaning that up to 707 MMcf/d of production could be impacted.
“This event should bring pressure for Northeast spreads to widen as production should price itself lower to reroute or flow out of the constrained region, while demand should price itself higher to attract supply,” the analyst said. “Despite the magnitude of this outage, the Northeast is well supplied and deconstrained, limiting this outage’s upside.”
Maintenance on Columbia Gas Transmission (TCO) could restrict up to 333 MMcf/d of flows in West Virginia this week, Genscape analyst Anthony Ferrara said.
For gas days Tuesday and Wednesday (July 30-31), TCO was scheduled to perform maintenance at its Sherwood Compressor Station, potentially impacting up to 235 MMcf/d of southbound flows and 98 MMcf/d of receipts, according to Ferrara.
“Due to the maintenance being performed, southbound flow will be restricted to 898 MMcf/d through the Sherwood B MA42 throughput meter, which has averaged 1,075 MMcf/d and maxed at 1,133 MMcf/d over the past 14 days,” the analyst said. “Furthermore, receipts will be restricted to 585 MMcf/d at the Sherwood-MXP gas processing plant, which have averaged 580 MMcf/d and maxed at 683 MMcf/d over the past 14 days.”
The total reduction associated with this maintenance could fluctuate during the outage, and impacts could extend into Thursday’s gas day (Aug. 1), Ferrara said.
Meanwhile, in Western Canada, Westcoast Station 2 prices dove off a cliff Monday amid ongoing restrictions on southbound flows on the Westcoast Energy system. Proving that West Texas isn’t the only producing region vulnerable to negative spot prices, Westcoast Station 2 fell C84.5 cents to average minus C24.5 cents/GJ Monday.
Flows through Station 4B South on the Westcoast system have been restricted recently as the pipeline conducts repairs in the wake of an explosion last October near Prince George, British Columbia. Westcoast notified shippers that Station 4B capacity will be limited to 963,147 GJ for gas days Tuesday and Wednesday (July 30-31).
Genscape analyst Joseph Bernardi said last week that the current restrictions represent a cut of about 500 MMcf/d compared to the previous four-year average. Flows through Station 4B could ramp back up by late August, earlier than expected, according to the analyst.
Westcoast Station 2 has seen negative spot prices before. Prices there averaged negative 0.5 cents earlier this summer during the June 20 trade date, Daily GPI historical data show. Prices there fell more deeply into the red on several trading days last fall in the aftermath of the Westcoast explosion.
Downstream of the Westcoast restriction, Northwest Sumas prices barely budged Monday, adding 2.0 cents to $2.035. Elsewhere, prices gained at a number of locations in California and the Desert Southwest to start the week.