• Natural gas futures get late-session boost to end in the black
  • Weather, production remain bearish indicators, but exports to Mexico could be tailwind
  • Permian Basin prices get hammered by regional pipeline maintenance

Oppressive heat spanning most of the United States supported natural gas futures Monday, but cooler-trending long-range outlooks combined with another production record to send prices lower for most of the session. Most analysts considered $2.15 to be the battle line, and bulls came out victorious after a late rally lifted the September gas futures contract by a penny to $2.21/MMBtu, while October rose six-tenths of a cent to $2.213.

Spot gas prices were mostly higher as the sweltering summer heat was expected to reach as far north as Albany, NY. Fueled by stout increases in California and the Southwest, the NGI Spot Gas National Avg. rose 3.5 cents to $2.01.

The steamy conditions have been at the forefront of the natural gas market over the last week, especially in Texas, where the state’s grid operator set a fresh record for power usage on Aug. 12 and declared energy emergencies twice, all the while seeing power prices surge into the thousands. While the Lone Star State remains an oven, the dome of hot high pressure has extended into the northern United States, boosting temperatures to near the century mark in Washington, D.C. and Harrisburg, PA, as a line of storms bring additional humidity to the region, according to AccuWeather.

“The heat and high humidity will stick around through the middle of the week before a refreshing air mass moves into the Northeast on Thursday,” AccuWeather meteorologist Courtney Spamer said.

It’s this cooler air mass that is seen likely drenching demand in the upper regions of the country, but also sending temperatures back into the upper 80s and lower 90s in Texas through the end of the month. Genscape Inc. meteorologists are forecasting Lower 48 population-weighted cooling degree days (CDD) will drop from a peak of 145 on Tuesday to a low of 100 on Saturday. Only California and the Rockies are forecast to see hotter temperatures.

“As a result of the cooling, we are forecasting national demand during the next seven days will average 75.9 Bcf/d, about 2.44 Bcf/d lower than the previous seven-day average. We expect the daily numbers will top out at 80.1 Bcf/d Tuesday, then drop daily through Saturday,” Genscape senior natural gas analyst Rick Margolin said.

Although the midday American model run was a touch hotter for next week, it trended even cooler for the tail end of August and early September, according to NatGasWeather. “The weather data would have needed to trend notably hotter for late this week through Sept. 3 to be considered bullish, and the weekend, overnight and most recent data failed to, giving weather sentiment a bearish bias after heat abates Wednesday into Thursday.”

Nevertheless, the September contract hit its intraday low early in the session and then traded higher, although still in the red, for most of the day. In the last half hour, however, prices moved up another notch to finish slightly higher on the day.

Bespoke Weather Services said this final move higher occurred as news spread that Mexican exports may see a ramp up starting sometime next week.

Bulls have a lot working against them in their bid to stage a lasting rally, however. Sunday’s production set another daily record high of 92.04 Bcf/d, according to Genscape. “This is the 10th time since July 1 that a new daily high has been established,” Margolin said.

Monday’s estimate was only slightly lower at 91.86 Bcf/d, but most weekday top-day estimates have been revised up in subsequent reporting cycles lately, according to Genscape. Including Monday’s estimate, August month-to-date production is now averaging 91.28 Bcf/d, which is more than 0.85 Bcf/d above its forecast, according to Genscape.

“This exemplifies a theme we’ve been discussing frequently with clients of our production forecast lately: There are presently more upside risks to our near- and mid-term production forecasts than downside risks,” Margolin said.

The dismal market outlook was reflected in the most recently available data from the Commodity Futures Trading Commission, which showed that money managers boosted their net short positions to more than 200,000 contracts, the most bearish data since 2015. While this would indicate there is limited “dry powder” in terms of selling interest, it is possible to see another probe lower at the front of the curve if fall weather ends up supporting bears’ efforts to squeeze the last bit of profit out of an oversupplied market before attention turns to winter, according to Mobius Risk Group.

The shortest net position previously observed was in 1H2015 as the market came off a warmer-than-normal winter and, at the time, record production. This pushed prices to sub-$2 levels in early 2016, the Houston-based firm said. During the second half of 2016, however, there was a shift in oversupply, which quickly transitioned to undersupply as production growth slowed and liquefied natural gas (LNG) exports began.

“The next six to nine months are going to get another dose of LNG export growth and by winter, excess European natural gas stockpiles will be less of a headwind,” Mobius said. “If the $2.00 barrier is to be tested again, it would likely require a string of triple-digit injections beginning in late September/early October.”

Spot Gas Mixed

Spot gas prices were mixed on Monday as prices in West Texas continued to crater, while some points in East Texas slipped a few notches despite the continued heat wave that resulted in about 85,000 customers losing power over the weekend.

Southwestern Electric Power Company (SWEPCO), which serves nearly 500,000 customers in Arkansas, Louisiana and a small portion of East Texas that is not covered by the Electric Reliability Council of Texas, had restored power to all but about 3,000 customers late Monday after extreme heat led to voltage problems on the company’s transmission lines Sunday.

“We’re methodically energizing our substations to ensure we can restore power to all customers tonight,” said SWEPCO’s Gary Guin, director of risk & reliability.

Houston Ship Channel next-day gas fell 2 cents to $2.075, while Waha plunged 37 cents to average 80.5 cents amid some pipeline maintenance in the nearby Midcontinent region and ongoing work on portions of the El Paso Natural Gas system.

Natural Gas Pipeline Company of America (NGPL) will cut throughput at its Compressor Station (CS) 107 in Mill County, IA by more than 700 MMcf/d beginning Tuesday and lasting through Saturday.

During similar work in the past, prices in the Midcontinent have fallen in order to compete with Permian Basin gas for space on the Amarillo mainline toward Chicago, according to Genscape.

Non-restricted flow through CS 107 has averaged 1,412 MMcf/d in the last 30 days.

“Prior events have seen Waha and El Paso Permian cash consistently undercut NGPL Midcontinent for the duration of these events,” Genscape analyst Matthew McDowell said.

Meanwhile, downstream impacts have been buffered by an increase in receipts at interconnects with Trailblazer Pipeline in Nebraska, and Rockies Express Pipeline on the Gulf Coast mainline in Illinois. In past events, these two interconnects have matched the deficit created by restrictions in NGPL’s supply zones, according to Genscape.

“During this event however, Trailblazer’s interconnect with NGPL will be upstream of this constraint and unable to alleviate these supply issues,” McDowell said.

Over in the steamy Southwest, prices were up in a big way. El Paso S. Mainline/N. Baja shot up 74.5 cents to $2.825, while SoCal Citygate in California jumped 77.5 cents to $3.00.

Most day/day price moves elsewhere across the country were limited to less than a dime, although a handful of Appalachia pricing hubs posted double-digit gains. Tennessee  Zn 4 Marcellus shot up 33 cents to $1.64.

The Northeast also saw a few big movers. Both Transco Zone-NY and non-NY rose more than 20 cents to average $2.27 and $2.265, respectively.