- Technical trading drives natural gas futures solidly higher
- Exports to Mexico set to jump as pipeline conflict ends
- Cash soars as scorching temperatures linger over West, Texas
Fundamentals were relatively steady Monday, but some technical influences ahead of natural gas futures expiration helped drive prices considerably higher to start the week. With solid gains in the cash market as well, the September Nymex gas contract jumped 7.8 cents to settle Monday at $2.230/MMBtu. October rose 7.7 cents to $2.233.
Despite the feast or famine national demand on tap this week, spot gas prices were uniformly higher on Monday, with substantial gains of more than $1 in California. The NGI Spot Gas National Avg. ultimately climbed 13.5 cents to $1.935.
On the futures front, the curve was stronger from the onset of Monday’s session, despite little change in overall weather forecasts and new highs for both production and liquefied natural gas (LNG) intake. Given that speculative traders had accumulated a record number of short positions in recent weeks, the sudden surge in prices is no surprise, but strong cash markets provided additional support.
The September Nymex contract, which expires on Wednesday, reached an intraday high of $2.232 before going on to settle a few ticks below that level.
“The divergence between the price action and the technical indicator may highlight the decay of the existing market dynamic,” said Powerhouse analyst David Thompson. “For example, the bears have been in control for some time, but each push lower in price occurs with less intensity."
Indeed, NatGasWeather saw the recent battle for the coveted $2.15 level for both the September and October contracts being decided either Monday or Tuesday, “with the pressure on the bull camp needing to hold it.”
Although both the American and European weather models were slightly hotter over the weekend, neither was notable enough to justify Monday’s gains since the pattern actually looks rather bearish for national demand most days the next two weeks, NatGasWeather said.
In addition, some datasets showed production reaching a new high. Bespoke Weather Services’ data showed production topping 93 Bcf over the weekend, while Genscape Inc. showed supply soaring above 92.1 Bcf/d, as production appears to have fully recovered from last week’s maintenance-induced lows. The August month-to-date average is now back at 91.37 Bcf/d, more than 0.94 Bcf/d above Genscape’s forecast headed into the month.
Bespoke continues to suspect that the eastern United States sees more anomalous heat moving through September. “It’s just not yet showing up with consistency in the models yet.”
Meanwhile, forecasters continue to monitor a couple tropical systems, one off the South Carolina coast that isn’t expected to impact the U.S. mainland. A second stronger cyclone, Dorian, is expected to track toward the Caribbean this week, “but with much uncertainty if it will have the opportunity to impact U.S. interests after,” according to NatGasWeather.
Later this week, all eyes will be on the Energy Information Administration’s (EIA) weekly storage inventory report. The year/year natural gas storage comparison has not pointed to tighter market conditions in an astounding 31 weeks, according to EBW Analytics Group. Over this time, the year/year storage balance has flipped from a 355 Bcf deficit versus 2018 to a 369 Bcf surplus versus 2018.
“This week, however, may break the trend,” EBW said.
A preliminary estimate for the EIA's next storage report, due out Thursday, points to a 58 Bcf injection, which may tighten the year/year comparison for the first time since early March, according to EBW.
“To be sure, the increase, if it verifies, would by no means signify the start of a major bullish shift, and current projections suggest the year/year surplus could reach 400 Bcf by late September. But it may help support the bottom from falling out for natural gas, at least in the immediate term,” EBW said.
With most of the intense heat seen across the United States concentrated in the West and Texas, it comes as a bit of a surprise that widespread spot gas price gains were seen across the country.
In the Northeast, points along the Transcontinental Gas Pipe Line shot up around a quarter to average in the high $1.60s to $1.70s, although most other pricing hubs climbed less than a nickel day/day.
Stout increases were seen across Appalachia, where Dominion South jumped 28.0 cents to $1.645.
The Midwest also saw most market hubs post double-digit gains, with Defiance adding 14.5 cents to $1.945.
The solid moves higher occurred despite a strong cool shot forecast across the Midwest, Ohio Valley and Northeast that was keeping daytime highs in the upper 60s to low 80s and making for very light demand, according to forecasts
“Conditions will remain quite comfortable across the Midwest and Northeast through the first several days of September, while very warm to hot across the western, central and southern United States,” NatGasWeather said.
Indeed, high pressure continued to dominate the West, Southwest and Texas, keeping demand in those regions elevated as temperatures soar into the 90s and locally, 100s. Although some slightly cooler weather was expected later this week, the strong demand bolstered cash markets.
Gains were far more pronounced in California, where the return date of a critical import line became less clear. Southern California Gas (SoCalGas) had expected to bring its L235-2 online in mid-September, but changed the end date of the work to “to be determined.”
The announcement came after new leaks were discovered during attempts to gradually restore pressure to this line, which has been out of service since it exploded on Oct. 1, 2017, according to a notice on the pipeline’s electronic bulletin board.
“SoCalGas originally expected L235-2 to return as early as this April, but each round of restoring flows has resulted in the discovery of new leaks. There have now been 15 separate leaks mentioned postponement announcements, all of which have been discovered when SoCalGas has attempted to restore pressure to this line,” Genscape analyst Joe Bernardi said.
Although Monday’s price surge in markets across California was not directly tied to the latest SoCalGas announcement, it does highlight the lack of flexibility the region has when coping with strong demand.
Prices were also markedly higher in the Rockies, where Kern River shot up 27.0 cents to $1.925.
Gains throughout most of Louisiana and the Southeast were limited to less than a dime. Henry Hub cash was up 8.5 cents to $2.215.
Meanwhile, Texas Gas Transmission is scheduled to conduct maintenance at the Youngsville East compressor station in Lafayette Parish, LA, beginning Tuesday and continuing through Saturday.
Flows have averaged 328 MMcf/d over the past 30 days, and have already been cut by 30 MMcf/d because of ongoing maintenance events, according to Genscape. “On Tuesday, operational capacity will be reduced to 200 MMcf/d. This will reduce flows by 128 MMcf/d compared to previous 30-day averages,” Genscape analyst Dominic Eggerman said.
Mexican utility Comisión Federal de Electricidad (CFE) has reached new contract terms with three pipeline companies, ending a conflict that began in early July and allowing for the start of commercial gas delivery on the Sur de Texas-Tuxpan marine pipeline.
“We’ve finally reached an agreement,” Mexico President Andrés Manuel López Obrador said on Tuesday morning in his daily press conference. “I’d like to underline the fact that this was only possible because of the will and openness to dialogue on the part of businessmen, because legally they had signed contracts and they had come to agreement on conditions that we thought were harmful to the national treasury, and for this we reached out to the owners of the companies and we reached an agreement that was beneficial to everyone.”
In July, the CFE filed arbitration requests with the developers of seven stalled pipelines in an attempt to amend the force majeure clauses of the 25-year firm capacity agreements built into the original contracts, which it claimed were “abusive.” The CFE has said it has reached agreements with three of the four pipeline companies, with only Mexican company Fermaca yet to commit to a new plan.
Lopez Obrador said the new agreement would save Mexico $4.5 billion, without specifying details.
Among the pipelines in the agreement is the 2.6 Bcf/d Sur de Texas-Tuxpan pipe, a crucial outlet for Texas natural gas and fundamental to reliable gas service in the southeast of Mexico. The $2.5 billion marine pipeline owned by Infraestructura Energética Nova (IEnova) and TC Energy Corp. is ready to enter service but has remained stalled as the pipeline spat continued. It could begin operation by the end of this week.
IEnova said “through this agreement, a new tariff structure has been agreed to which will extend the life of the contract by 10 years.” The agreement “satisfies the interests of both parties and allows for a benefit to the CFE while conserving the integrity of the contracts.”