Natural gas futures couldn’t hold onto early gains Tuesday as traders weighed near-term hot temperatures against the prospect of weaker heating demand heading into next month. After trading as high as $2.590/MMBtu in the early-morning hours, the October contract steadily declined over the course of the day, eventually settling at $2.503, off 2.4 cents. November slid 3.0 cents to settle at $2.525.
In the spot market, West Texas prices gained as the confirmed official start-up of the Gulf Coast Express pipeline promised further relief from takeaway constraints; NGI’s Spot Gas National Avg. added 3.5 cents to $2.145.
Futures prices’ “notable move higher” early in the session seemed to be tied to “some stronger burn revisions” and higher demand projected in the weather models overnight, according to Bespoke Weather Services.
“This sent the October contract rather surprisingly to the $2.59 level before sellers stepped back in,” Bespoke said. “Even with revisions, burns are not bullish by any means on a weather-adjusted basis, and the weather pattern is still in its warm-biased mode in the key areas of interest for natural gas, which can only be bullish for another week to 10 days before” the focus shifts to lower heating demand from the warmer temperatures.
“Given the weak balance picture, should warmth indeed persist more often than not, it likely will lead prices lower ultimately,” the forecaster said. “In the near term, we still have some solid cooling demand in the South, and of course the possibility of erratic price action around the expiration of the October contract.”
Looking further out, as demand starts to taper off in the South, prices could move down into the $2.40-2.45 range, according to Bespoke.
In the meantime, the South can expect near-record heat for late this weekend into next week, part of “a highly amplified pattern,” according to Maxar’s Weather Desk. During this time frame, the forecaster noted hotter trends for the southern Midwest in its latest outlook Tuesday, with few changes elsewhere.
“Below and much below-normal temperatures are along the West Coast and in the far northern Rockies, while much and strong above-normal temperatures are widespread across the Eastern half,” Maxar said. “Temperatures are forecast near daily records in parts of the South, and 90s also press into the Mid-Atlantic on Day 9 as ridging peaks overhead.
“Unsettled conditions in the Midwest separate the cooler West from the warmer East, and this region is lower confidence versus elsewhere.”
Further out, from Oct. 4-8, Maxar said the overall themes remained the same in its latest forecast, including a round of below-normal temperatures through the Midwest and East early in the period. The eastern half of the Lower 48 “leans on the warm side of normal overall, especially in the South where aboves to much aboves hold steady coverage.”
Looking at balances, last week’s bearish miss from the Energy Information Administration’s (EIA) storage report may have been a symptom of weaker-than-expected gas demand in the power sector, according to Energy Aspects.
“There were mixed signals for generation overall” during the most recent reporting period “as total electricity demand was close to unchanged, with coal and wind rising to offset lower nuclear output and some signals of gas-to-coal switching,” the firm said.
As for this week’s EIA report, Energy Aspects issued a preliminary estimate for an 89 Bcf injection. The higher build reflects a 1.7 Bcf/d week/week decline in power burns, according to the firm.
West Texas spot prices strengthened as Kinder Morgan Inc. (KMI) announced that its highly anticipated 2.0 Bcf/d Gulf Coast Express, designed to transport Permian Basin gas to Agua Dulce near the Texas Gulf Coast, will officially begin full commercial in-service on Wednesday. The new line is expected to help relieve the long-standing takeaway constraints on associated gas in the Permian and reduce flaring.
“We had over 3,000 contractors deployed at times and more than six million contractor hours worked -- all without a major safety incident during the construction phases of the project,” Kinder Morgan’s Sital Mody, president of Natural Gas Midstream, said. “With natural gas supplies projected to rise over the next 20 years from supply basins such as the Permian, our strong network of pipelines provides the ability to connect this supply to the growing markets along the Gulf Coast.”
KMI subsidiary Kinder Morgan Texas Pipeline owns a 34% interest in Gulf Coast Express and will operate the pipeline. Altus Midstream Co., DCP Midstream LLC and an affiliate of Targa Resources are the other equity holders.
El Paso Permian rallied 12.5 cents Tuesday to average $1.765.
Meanwhile, for much of the Lower 48, spot prices saw small adjustments Tuesday as forecasts pointed to generally comfortable temperatures over the next few days, aside from continuing heat over Texas and the Southeast. Henry Hub added a penny to $2.545.
Weather-driven demand should be lighter this week compared to last, the result of a “messy pattern” including “numerous weather systems” impacting the United States with showers and cooling, according to NatGasWeather.
A system was expected to exit the Northeast Tuesday, “while a second colder system arrives into the far northern United States in the coming days with highs of 50s and 60s for light early-season heating,” the forecaster said. “A warm and tropical system will bring heavy showers and thunderstorms across the Southwest, easing heat over Las Vegas and Phoenix into the 80s and lower 90s.
“However, the coldest of all the systems will push into the West late this weekend with valley rain and mountain snow as lows drop into the 20s to 40s.”
Still, most of the temperature-driven demand will come from heat focused over Texas and the South, including highs in the upper 80s to 90s through next week, NatGasWeather said. “It’s also warmer than normal from Chicago to New York City, but this late in the season this means near ideal highs of 70s to lower 80s for light demand.”
Chicago Citygate picked up a nickel to average $2.015 Tuesday, while further east Transco Zone 6 NY added 2.5 cents to $1.645. Further south, Transco Zone 5 gained 3.5 cents to $2.635, while Texas Eastern M-1, 30 added 0.5 cents to $2.355.
A cleaning tool run on East Tennessee Natural Gas’ 16-inch diameter Line 3300-1, which was scheduled to start Tuesday and continue through Wednesday could impact around 110 MMcf/d of power plant deliveries, according to Genscape Inc. analyst Josh Garcia. The cleaning tool run is between the Boyds Creek and Fordtown compressor stations.
“As a result, the meter for the TVA-John Sevier power plant” is shut in, Garcia said. “This plant has averaged 108 MMcf/d in demand over the last two weeks,” but demand took “a slight dip over the weekend. Temperatures in the South are expected to remain hotter than normal,” including a “heatwave expected to arrive midweek.”
Maintenance scheduled for Segment 420 on the WIC (aka Wyoming Interstate Co.) system could disrupt 280 MMcf/d of flows to the Opal hub Wednesday, according to Genscape analyst Matt McDowell.
“WIC is conducting compressor maintenance at its Wamsutter compressor station in Sweetwater County, WY, and flows through the segment could be backed up at interconnects with Dominion Energy’s Overthrust pipeline,” McDowell said. “Segment 420 is part of a bypass of two receipt-heavy laterals in the Piceance and Uinta basins that helps move molecules from East of the Rockies to Opal.
“...Of the interstate pipes heading West from Opal, Ruby has historically responded with decreases in flow through its Roberson Creek compressor station in Lincoln County, WY,” the analyst said. “This could put upward pressure on Malin, but it’s important to note that WIC states that 134 MMcf of capacity will be available for the last two cycles” of Wednesday’s gas day.