One day after a huge storage miss sent natural gas futures skyrocketing, weather models trended cooler for the end of August, sending prices several cents lower to cap the week. The September Nymex gas futures contract fell 3.2 cents to settle Friday at $2.20/MMBtu, and October dropped 3 cents to $2.207.
Spot gas prices were mixed as a mild weekend was expected to become increasingly warm in the northern United States. With heat easing slightly in Texas, the NGI Spot Gas National Avg. fell 4.5 cents to $1.975.
Blistering conditions in Texas and out West were enough to prop up prices earlier in the week, but cooler-trending weather outlooks for the rest of the country were the main focus on Friday. Both the Amercan and European models were cooler overnight, with the latter model making the biggest shift as it lost more than 10 cooling degree days (CDD), according to NatGasWeather.
Overall, the firm still expects a hot pattern for much of the United States through the middle of the week, although the data has been cooler trending late in the week through Aug. 30, favoring weather systems and cooling across both the northern and southern United States in a still not nearly hot enough pattern.
“Essentially, weather sentiment remains bullish on the front but bearish biased by late in the week,” NatGasWeather said.
Despite the cooler trends, the forecaster noted that Nymex futures were already solidly lower before the European model trended cooler overnight, so it doesn’t view that as the primary reason for Friday’s selling, “but it probably didn't hurt. Bulls gained control this week but lost a bit of momentum...and we expect they will need to hold $2.15” in order to maintain it early in the week, NatGasWeather said.
The September contract dropped as low as $2.17 before recovering a few cents in the last half hour of trading.
Aside from temperatures, American weather models were starting to pick up on some storminess on Friday off the northern coast of Central America, taking it slowly across the Yucatan Peninsula in the coming days and then hinting at development late in the week in the western Gulf of Mexico, according to Bespoke Weather Services. Other models have not jumped on board yet, but the firm noted that the second half of August is usually a time when tropical activity typically picks up, “and models are suggesting that the atmosphere indeed will become more conducive for development.
“It is something that all interests in the western half of the Gulf of Mexico (Louisiana/Texas) need to keep an eye on, but no action needs to be taken just yet. Just have a plan ready just in case,” Bespoke chief meteorologist Brian Lovern told NGI.
With any rain likely to lower temperatures in the region, prices could see even more downside in the coming days, especially as the cooler weather is likely to have a bearish impact on storage stocks in the hard-to-assess South Central region. Strong demand from unrelenting heat resulted in a net withdrawal of 2 Bcf in the region for the week ending Aug. 9, including a 7 Bcf draw from salt facilities and a 6 Bcf injection into nonsalts, according to the Energy Information Administration (EIA).
Total working gas in storage rose by a much smaller-than-expected 49 Bcf, which is 357 Bcf above year-ago levels and 111 Bcf below the five-year average, according to EIA.
The last half of August is forecast to be 44 CDDs warmer than normal and 18 CDDs warmer than the same period last year, according to Mobius Risk Group. If forecasts verify, likely injections for the second half of August would average less than 65 Bcf/week.
“This would lead to a marginal 15 Bcf increase in the cumulative storage surplus,” the Houston-based firm said.
Considerable attention is going to turn to the Labor Day storage week and whether triple-digit injections could be observed in September, or if such builds have to wait until October, according to Mobius. “A delay to October would neutralize some of the recent market headwinds.”
However, if attention turns to September and consensus begins to see potential for a sub-325 Bcf cumulative injection, the market will have to weigh the risk of a colder-than-normal October. Last October was near normal, and it has been 10 years since there was a meaningful cold deviation versus normal, so this risk could be dismissed until late September, according to Mobius.
“However, it is certainly worth noting because normal weather was enough to get the market moving directional higher last year.”
Spot gas prices were mixed Friday as weather conditions were expected to get progressively warmer in the coming days over the northern United States. The South was forecast to remain hot too, with retail providers in Texas continuing to call for power conservation on Friday.
Although power demand was well below the peak reached on Aug. 12, the unexpected loss of more than 5,000 MW of generation on Thursday sent reserves plunging and real-time prices surging to their cap. The loss of supply occurred as the state’s electric grid operator has called upon older, less efficient units to meet high demand during an extended heat wave.
Temperatures were expected to ease a bit for the next week, with daytime highs stalling in the 90s, rather than 100s, according to forecasts. The dip in projected gas demand, combined with scheduled pipeline maintenance in neighboring regions, delivered a blow to Permian Basin prices, which had in recent days reached their highest levels of the summer so far.
Waha spot gas plunged 37 cents to $1.175, with nearly as stout losses seen throughout the rest of the region. By comparison, pricing hubs across the rest of Texas were generally up a few cents on the day.
Natural Gas Pipeline Company of America (NGPL) said Amarillo line maintenance beginning Tuesday and lasting through Saturday is expected to cut more than 700 MMcf/d through Compressor Station 107 in Mills County, IA. Similar maintenance events in prior months have temporarily depressed NGPL’s Permian takeaway capabilities while forcing the pipeline’s Midcontinent region to curb receipts as NGPL Midcontinent cash spot prices plummet to compete with Permian molecules and spot pricing, according to Genscape Inc.
“This inter-basin competition between constrained Permian outflow and NGPL-captive molecules is inflamed by a lack of eastbound takeaway capacity through the pipe’s TEXOK tariff zone,” Genscape natural gas analyst Matthew McDowell said. “Segment 15 typically flows full towards the Gulf Coast mainline and has not had substantial available primary firm capacity since January 2019.”
A prior 30-day analysis (excluding the most recent force majeure impacting flows from July 29-Aug. 1) showed that Station 107 Mills in western Iowa flowed an average of 1,412 MMcf/d, according to Genscape. “During prior forces majeure, spot prices at NGPL Midcon have dropped and rallied over $1 around these events and have dipped into negative territory briefly,” McDowell said.
On Friday, NGPL Midcontinent spot gas tumbled 10.5 cents to $1.695, while several other points in the region shifted only a few cents.
Another exception in the Midcontinent, however, was ANR SW, which fell 11 cents to $1.72 as the pipeline said planned maintenance on its Michigan Leg South could create constrained conditions and lead to flow cuts of up to 170 MMcf/d. Over the past 14 days, flows through St. John Eastbound have averaged 735 MMcf/d and maxed at 1,034 MMcf/d, according to Genscape.
Prices across the Midwest barely budged on Friday. The same was true across much of Louisiana and the Southeast.
In Appalachia, Texas Eastern M-3, Delivery rose 4.5 cents to $1.915, a day after Texas Eastern Pipeline (Tetco) issued an update regarding repairs following the explosion earlier this month. In compliance with the Corrective Action Order issued by the Pipeline and Hazardous Materials Safety Administration (PHMSA), Tetco is implementing its work plan to replace segments of Lines 10 and 25 in the vicinity of the incident site, and it is assessing Line 15 between Uniontown and Kosciusko.
Based on the current schedule, Tetco expects to complete the necessary repairs and related activities to return Line 25 back to service from Aug. 24-26, returning the line to a capacity of about 780 MMcf/d, according to Genscape.
Tetco also expects that necessary Line 10 construction will be completed by early September. Before returning Line 10 and 25 to service, Tetco “will address all of the site-specific concerns identified by PHMSA and will be undertaking rigorous inspections on Line 10 and 25 in compliance with the CAO.”
The pipeline also stated that these lines would not be returned to service until all regulatory requirements stipulated in the order were satisfied and “it is safe to do so.”
Meanwhile, after several reschedules, several points on the Columbia Gas Transmission (TCO) system in Pennsylvania and West Virginia will be affected because of unrelated maintenance on Tetco, mainly restricting all receipts and deliveries between the two pipes at the Waynesburg interstate interconnect, effectively cutting up to 273 MMcf/d of deliveries from TCO onto Tetco from Sunday to Saturday, Aug. 18-24, according to Genscape.
Finally, Transcontinental Gas Pipe Line (Transco) said maintenance underway on Leidy Line A near Station 515 in Luzerne County, PA, is expected to be complete by Tuesday, four days earlier than scheduled. The event has impacted roughly 600 MMcf/d of Transco’s Pennsylvania production, but overall Northeast production has not been affected because of reroutes to Tennessee Gas Pipeline and Millennium Pipeline, Genscape said.
Indeed, Transco-Leidy Line was flat on Friday at $1.845.
In the Northeast, big gains were seen across New England, where Algonquin Citygate jumped 21 cents to $2.345. Transco points were up less than a dime.