Building heat in long-range weather outlooks combined with strong natural gas cash prices to boost futures on Tuesday. The September Nymex gas futures contract hit an intraday high of $2.175/MMBtu before going on to settle at $2.147, up 4.2 cents on the day. October also rose 4.2 cents to $2.159.
With triple-digit heat setting power records and prompting power conservation requests from Texas utilities, spot gas prices continued to gain ground at several pricing hubs, with another day of double-digit increases in West Texas, the Southwest and California. The NGI Spot Gas National Avg. rose 4.5 cents to $1.985.
August already is on track to be hotter than last year, but the latest weather models shifted slightly hotter again overnight Monday. The change came with more heat this weekend into next week, mostly thanks to a hotter West than in the previous forecast, according to Bespoke Weather Services.
The firm still expects the heat in Texas/South to ease as it expands into the Midwest/East after this week. However, the latest American ensemble data suggested another possible cooler window toward the end of the 11- to 15-day in the eastern United States, something not seen in the European modeling. This is really the first time in several days Bespoke has seen what it would consider a “notable model difference” in the pattern.
“It’s something to watch, but our lean remains toward a continuation of the overall hotter-biased pattern through the end of the month and into September,” Bespoke chief meteorologist Brian Lovern said. “Windows of variability mixing in of course cannot be ruled out.”
Most of the data still favors heat fading across the northern and southern United States Aug. 25-30 as weather systems arrive with showers and cooling, especially the Global Forecast System model that trended further cooler midday Tuesday, according to NatGasWeather. The model remained not nearly hot enough by dropping daily national cooling degree days (CDD) to near or even slightly below normal during this period.
Sea surface temperatures have a role in forcing this warm regime, notably the warm pools in the tropical Pacific and Atlantic basins, according to Radiant Solutions. The atmospheric wind pattern is also a factor. As for the 11- to 15-day outlooks, weather models presented cooler risks in parts of the South and mixed risks in the West, the firm said.
Given the uncertainty over long-term heat, NatGasWeather said Tuesday’s gains could be attributed to power burns coming in a little stronger than expected, the threat of more intense heat next week or simply a short-covering rally once the prompt month again failed to take out $2.10. With production near all-time highs, the firm has ‘a tough time believing weather patterns are considered solidly bullish since three of the next four storage injections should still print larger than normal.”
With much of the projected heat concentrated in Texas, where publicly available pipeline data is limited, the impact of low gas prices on power burns may remain speculative until the next Energy Information Administration storage report “and for that matter, the next two,” according to Mobius Risk Group.
Wind generation in the Electric Reliability Council of Texas (ERCOT) should have a material impact on these data points as the past four days have had 10 GWh of output, with the prior four days at 6 GWh, the firm said. “For reference, at the current CDD count in Texas, such a change in wind generation can move natural gas consumption in the power stack by 1 Bcf/d.”
Spot gas prices continued to post meaningful gains Tuesday in the Southwest, California and Texas, where sweltering conditions continued to suffocate the regions.
In Texas, power consumption hit a fresh record on Monday when load reached 74,576 MW between 4 p.m. and 5 p.m. CT, according to ERCOT. The new peak easily beat out the previous record of 73,259 MW set in July 2018.
ERCOT operated under normal conditions throughout the day, but it had alerted market participants of a projected reserve capacity shortage from 2-6 p.m. The thin operating cushion led to a dramatic spike in real-time power prices, which soared to around $6,500/MWh.
The Public Utility Commission of Texas earlier this spring approved an increase in the amount that power generators could charge for producing during periods of peak demand. If operating reserves dip below 2,000 MW, the price adders may increase the price of power to $9,000/MWh, the highest price allowed in Texas.
Texas utilities urged customers to lower their thermostats and take other measures to conserve electricity on Tuesday afternoon, especially as ERCOT had projected demand to reach even higher levels of 75,586 MW.
By 3 p.m. CT Tuesday, real-time data on the grid operator’s website showed that operating reserves were nearing 2,000 MW, and ERCOT indicated it once again expected a reserve capacity shortage from 2-6 p.m. At around 3:30 p.m., an energy emergency level 1 alert had been issued, stating that energy conservation was needed. No rotating outages had been conducted, however.
With heat expected to ease on Wednesday, albeit slightly as highs are forecast to retreat to the 90s versus 100s, spot gas prices in much of the Lone Star State slipped a few cents. Katy dropped 5.5 cents to $2.055, while NGPL S. TX fell 4 cents to $2.06.
West Texas points continued to march on, however, as strong demand in California and the Southwest was enough to keep Permian Basin prices elevated. Waha jumped 27 cents to $1.19.
Cash increases were much tamer throughout the rest of the country, with gains of less than a dime.
On the pipeline front, because of ANR Pipeline’s planned compressor maintenance at the Eunice Compressor Station in Louisiana, deliveries at the Eunice Total location were to be restricted by up to 174 MMcf/d on Wednesday. Located in the Southeast Area Segment, deliveries to Eunice Total would be limited by 150 MMcf/d (leaving 1,025 MMcf/d available) throughout the maintenance. Over the past 30 days, deliveries had averaged 1,069 MMcf/d and maxed at 1,199 MMcf/d, according to Genscape Inc.
The restriction sent ANR SE spot gas down 5.5 cents to $2.005.
In the Northeast, weather systems on tap through the weekend were expected to bring temperatures back to comfortable levels. With highs forecast to stall in the 70s and low 80s, cash prices retreated.
Transco Zone 6 NY next-day gas dropped 5 cents to $1.855, with similarly small declines seen in Appalachia.
Spot gas prices in Western Canada shot up as year/year growth in intraprovincial demand continues to outpace production, according to Genscape. Storage inventories have recently dropped below their previous five-year minimum mark, sitting now at roughly 145 Bcf.
“This is a full 100 Bcf below the five-year average, and 11 Bcf below the five-year minimum for this time of year,” Genscape natural gas analyst Joseph Bernardi said.
Average monthly provincial production has fallen in the last several months, posting year/year growth in only one of the last six months, according to Genscape. Meanwhile, monthly average intraprovincial demand has now shown year/year increases for a whopping 39 straight months.
“The last time a month’s average intraprovincial demand represented a decrease from that same month in the previous year was May 2016,” Bernardi said.
On Tuesday, NOVA/AECO C spot gas prices jumped C52.5 cents to C$1.42. AECO cash basis prices have been under $1 eight times in the last six weeks, cresting thus far at minus 44 cents, their highest mark since early March, according to Genscape.
The month-to-date average spot basis price for August is at minus $1.03. “If this mark were to hold for the rest of the month, it would represent the highest average in a summer month in over two years,” Bernardi said.