• Natural gas futures prices retreat as weather models cool
  • Production, LNG feed gas deliveries sit near highs
  • El Paso Natural Gas maintenance sends Permian Basin cash sharply lower

A price rally driven largely by short-covering failed to hold up on Tuesday as weaker cash prices and generally stable fundamentals drove natural gas futures lower. With bidweek volatility on full display, the September Nymex gas contract settled 2.8 cents lower at $2.202/MMBtu, and October dropped 4.1 cents to $2.192.

Cash prices, which unexpectedly rose across the board on Monday, gave back some of those gains on Tuesday as mostly moderate temperatures were seen lingering across the United States. With heat remaining in the West and across Texas and continuing to drive up prices in those regions, however, the NGI Spot Gas National Avg. rose 4.5 cents to $1.980.

The general weakness in cash prices added further pressure to the futures market, which responded early to slightly cooler long-range weather outlooks. Although forecasts increased heat for the eastern United States next week, the following week was pushed slightly cooler, according to Bespoke Weather Services. The most consistent heat over the next two weeks remains out in the West.

“We are still not seeing as much heat into the eastern United States as we had expected, although we still are confident in our call for overall above-normal national demand for the month of September,” Bespoke chief meteorologist Brian Lovern said.

Any heat by mid-September, of course, packs much less of a punch, so it is getting tougher for weather to move the needle much, according to Bespoke. The September Nymex contract traded in a tight range of about 5 cents throughout Tuesday’s session. October traded similarly.

Meanwhile, forecasters continue to monitor Tropical Storm Dorian in the Atlantic. On its current track, the storm is forecast to move toward Puerto Rico and then the Bahamas in the next few days, packing heavy rains and gusty winds and likely reducing demand. The projected drop in demand will offset any temporary loss of production, according to NatGasWeather.

The storm, however, “is numerous days out and anticipated impacts will change,” the firm said.

Looking ahead to the winter, the Farmers’ Almanac on Tuesday in its winter outlook warned of a “polar coaster” and said the most frigid weather was forecast to take hold from the northern Plains into the Great Lakes. The Northeast, including the densely populated corridor running from Washington, DC, to Boston, is expected to see colder-than-normal temperatures for much of the season, while only the western one-third of the country at near-normal temperatures.

The coldest outbreak is forecast to arrive during the final week of January and linger through early February, according to the annual forecast. Spring should be slow to start with winter temperatures lingering across the Midwest, Great Lakes, Northeast and New England.

“Occasional wet snow and unseasonably chilly conditions will hang on for a ride that you may not be able to get off until April,” Farmers’ Almanac said.

Weather aside, this week’s price action was expected to be somewhat volatile given the rollover in the Nymex futures curve. The net short position that speculators had been building in recent weeks was seen as a potential catalyst for material upside before heating demand begins, according to Mobius Risk Group. However, Tuesday’s decline, but not full reversal, could indicate that speculative traders are willing to hold onto positions through the final summer month in hopes that early fall brings on one last price collapse.

To regain and build any momentum, bulls would need an indication that this week’s daily storage data, for the Energy Information Administration storage report due next week (Sept. 5), is tracking below an 85 Bcf build, Mobius said. “Anything larger than that would likely keep bulls on the sidelines and bears emboldened.”

Other market drivers were generally stable on Tuesday, with both production and feed gas deliveries to liquefied natural gas (LNG) facilities off a bit day/day after reaching new highs on Monday.

LNG demand climbed steadily over the weekend as Sabine Pass Trains 3 and 4 ramped to full operations following maintenance and Corpus Christi and Cameron both experienced an increase in demand. Total demand reached 6.8 Bcf/d on Monday, the highest on record, according to EBW Analytics Group.

Further records are likely as Freeport Train 1 and Elba Island ramp up gas inflows, with LNG feed gas demand potentially exceeding 7.3 Bcf/d in the weeks ahead, the firm said.

Despite the surging operational capacity in the United States, questions remain about the global appetite for LNG, according to EBW. European storage capacity has topped 4,000 Bcf, but elevated Latin American demand has helped to absorb record global supply. “While rising LNG demand is clearly supportive of Nymex natural gas, any maintenance or reduced utilization could quickly lead domestic gas futures lower,” it said.

Meanwhile, FERC late last week issued a favorable environmental assessment for Cheniere Energy Inc. affiliate Sabine Pass LNG LP’s proposed Third Berth Expansion Project. The expansion includes a marine berth near the two existing marine berths along the Sabine Pass Channel, two additional tugs, an LNG loading system and two 30-inch diameter loading lines, among other facilities.

Elsewhere on the export front, U.S. pipeline exports to Mexico are set to quickly ramp up after Mexican utility Comisión Federal de Electricidad 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. The $2.5 billion marine pipeline owned by Infraestructura Energética Nova (IEnova) and TC Energy Corp. is ready to enter service but had remained stalled as the pipeline spat continued. It could begin operation by the end of this week.

Cash Mixed

After widespread gains on Monday, cash prices retreated at a good portion of pricing hubs Tuesday. Most market hubs posted losses of less than a dime, although West Texas prices were hit harder due to some planned maintenance on a critical pipeline in the region.

El Paso Natural Gas (EPNG) on Wednesday is set to begin a three-day emergency shutdown test that may impact around 500 MMcf/d of Permian outflow bound for customers in Phoenix and Southern California. Flow through EPNG’s Plains Station in Yoakum County, TX, would be curtailed to zero for three days, as will flow through the “PERM N” meter bringing gas north out of the Permian Area Zone.

“These flow restrictions will cut off supply through EPNG’s North Mainline by 497 MMcf/d,” Genscape Inc. natural gas analyst Matthew McDowell said. The North Mainline, which primarily serves Phoenix and Southern California demand, could potentially offset these lost volumes by receiving San Juan Basin gas through EPNG’s “SJ TRI” throughput meter, according to Genscape.

“This maintenance has the potential to drive down Permian prices, and put upward pressure on Transwestern San Juan and spot markets in the Desert Southwest,” McDowell said.

Indeed, El Paso Permian next-day gas plunged 28 cents to average just 82.5 cents, while Transwestern San Juan picked up 3.5 cents to $1.955. El Paso S. Mainline/N. Baja shot up 41.5 cents to $3.46.

Pipeline maintenance also influenced markets in Louisiana, although to a lesser degree as prices slipped no more than a nickel across most of the state.

Gulf South Pipeline on Tuesday began maintenance to the Hall Summit Compressor Station (CS) in Bienville Parish, LA, which cut 243 MMcf/d from the Hall Summit/East Texas/Koran Area Scheduling Group. This maintenance is scheduled to be completed on Wednesday.

In addition, maintenance to the Delhi CS in Richland Parish, LA, on Wednesday and Thursday will cut 137 MMcf/d from the Delhi Expansion Scheduling Group.

ANR Pipeline also indicated that it would continue compressor maintenance that would restrict deliveries in Louisiana by up to 163 MMcf/d through Thursday due to unplanned maintenance at the Eunice CS, along with continued planned compressor maintenance at various locations.

“Over the past 14 days, which have included some maintenance restrictions, deliveries have averaged 1,147 MMcf/d and maxed at 1,213 MMcf/d, translating to cuts of up to 163 MMcf/d,” Genscape analyst Anthony Ferrara said.

Farther east, Texas Eastern Transmission (Tetco) on Monday partially restored capacity to the Danville CS (Lincoln County, KY) by returning Line 25 to service. Operational capacity was restored to 777 MMcf/d, or 41% of total capacity (1.89 Bcf/d) available before the explosion on Aug. 1.

The full return to service date is currently still unknown, but Tetco has indicated partial capacity restoration on Line 10 is on track for Friday or sometime next week. Once regulatory authorization is obtained to return Line 10 to service, an additional 393 MMcf/d of capacity will be available, bringing total capacity through Danville to 1.17 Bcf/d.

Appalachia prices along the Tetco system rose considerably Monday as the capacity increased, and smaller increases were seen on Tuesday. Texas Eastern M-2, Receipt next-day gas climbed 5.5 cents to $1.655, while several other pricing hubs in the region posted slightly stronger gains.

In the Northeast, Algonquin Citygate jumped a sharp 17 cents to $1.975, well above most other hubs in the region.