Forecasts showing weak weather-related demand by the second week of October, along with indications of further production growth, saw natural gas futures follow through to the downside Monday. After selling off late last week, the November Nymex contract fell another 7.4 cents to settle at $2.330/MMBtu. December settled at $2.504, off 6.1 cents.
In the spot market, a hot forecast helped prices rally throughout the Northeast and Appalachia to start the week; NGI’s Spot Gas National Avg. added 14.0 cents to $1.930.
Last week’s reported triple-digit injection from the Energy Information Administration (EIA) brought supply growth into focus, sending prices lower. Coming off such a large bearish surprise, the next few reports should reveal whether last week’s report was a one-off or part of a trend, according to INTL FCStone Financial Inc. Senior Vice President Tom Saal.
“The market was sliding anyway, and I think that helped push the snowball down the hill a little more,” Saal told NGI. But one week’s report “does not make a trend. It may, but let’s see...We’ve got a lot of supply. That’s the obvious thing,” even though storage still sits near five-year average levels even with record-level supply.
“Maybe we don’t need all that gas in storage, because we’ve got all this flowing gas. That’s true, but where the gas is and where it needs to be on a cold day might be two different places,” he said.
From a technical standpoint, key support at $2.50 failed to hold in the face of last week’s bearish 102 Bcf injection figure, opening up a test of the low $2.30s, according to analysts at Enverus.
“The storage report provided cover for additional shorts to enter the market as well as any weak bulls to reassess the seasonal trend of prices rising in the fourth quarter,” the Enverus analysts said. After prices broke below $2.50, this week should bring “a test of the low $2.30s...Rallies will now face strong selling at the area where prices collapsed last week, around $2.50.”
Looking at the supply picture, Genscape Inc. said it revised higher its estimate of Lower 48 dry gas production to 92.32 Bcf/d for Friday, putting output back above the 92 Bcf/d mark for the first time in nearly a month.
“Production continued to hover around the 92 Bcf/d level through the weekend,” Genscape senior natural gas analyst Rick Margolin said. “Since Friday, production has been averaging more than 1.17 Bcf/d above the month-to-date average before Friday.”
Drivers of the recent production growth include Texas, where recent output outside of the Permian Basin rose 0.7 Bcf/d above the month-to-date average, and the Northeast, which is up 0.49 Bcf/d from “notably higher volumes out of West Virginia and Ohio, largely on the conclusion of pipe maintenance events.”
Production out of the Texas/New Mexico Permian Basin was also up 0.7 Bcf/d versus the month-to-date average in the latest estimate, driven by the Gulf Coast Express pipeline ramping up to full commercial operations in late September, Margolin said.
Along with production gains, forecasts Monday also contributed to the downward pressure on prices, according to Bespoke Weather Services.
The latest guidance shifted “toward a lower demand weather pattern once we move beyond the elevated demand of the next few days,” Bespoke said. The pattern is likely to be “skewed warmer more often than not as we move through the remainder of October and even into the start of November.”
Lower prices could help to tighten balances, but “we still likely have at least a couple more very large injections to go through in upcoming EIA reports, and end-of-season storage levels are now looking to exceed 3.8 Tcf.”
After closing out last week at heavily discounted levels, hubs in the Northeast and Appalachia rallied sharply in Monday’s spot trading.
Maxar’s Weather Desk was calling for temperatures to rise to above-normal levels along the populated Interstate 95 corridor over the next couple of days, with highs in New York City expected to go from the upper 60s Monday to the mid-80s by Wednesday. Philadelphia and Washington, DC, were expected to see highs reach the 90s by Wednesday, according to the forecaster.
“A large temperature range is expected” across the continental United States into Wednesday “as an upper-level troughing dominates in the West, and upper-level ridging builds across the East,” according to the National Weather Service (NWS). “Underneath the trough, daytime highs could be 20-30 degrees or more below average across much of the Northwest, with several daily record low maximum temperature records possible into Tuesday, especially across the Northern Great Basin/Rockies and California.
“Meanwhile, east of the Rockies temperatures will be much above average,” the NWS said. “The core of the heat will be from the Southeast/Central Gulf Coast states to the Ohio Valley, where widespread daytime highs” in the mid to upper 80s further north and the mid to upper 90s further south “could approach or exceed record values. For the East, this stretch of record warmth will continue through much of the week.”
Price moves were mixed across the Gulf Coast and Southeast Monday. Henry Hub fell 4.5 cents to $2.325, while Florida Gas Zone 3 climbed 8.5 cents to $2.500. Texas Eastern S. TX slid 5.0 cents to $2.305.
Two maintenance events this week on Transco (aka Transcontinental Gas Pipe Line) in South Texas are impacting deliveries to the Corpus Christi liquefied natural gas (LNG) terminal, according to Genscape analyst Josh Garcia. The two events may affect deliveries to Transco’s Sinton, TX, interconnect with the export terminal.
“The first, from Monday (Sept. 30) to Friday (Oct. 4), is to perform facility maintenance at Station 23,” while the second event will see Transco “perform an anomaly cutout at its Mainline A between Stations 17 and 20A5” from Tuesday (Oct. 1) until next Monday (Oct. 7), Garcia said. “Transco will coordinate flow with Corpus Christi for the first event, but anticipates a meter outage for the second event.
“Deliveries to the interconnect have been falling over the last month, reaching 114 MMcf/d” for Monday “after maxing at 390 MMcf/d as recently as Sept. 6. Corpus Christi LNG has a variety of upstream supply options, with receipts from KM Tejas seemingly displacing those from Transco.”
Prices sold off for the most part in the Rockies and Pacific Northwest Monday. One notable exception was Northwest Sumas, which rallied 18.0 cents to average $2.805.
Starting Tuesday, planned annual maintenance will limit injections at Northwest Pipeline’s (NWPL) Jackson Prairie storage facility in Washington, a restriction likely to put “moderate upward pressure” on prices at Northwest Sumas amid cooler weather in the region, according to Genscape analyst Matthew McDowell.
“Jackson Prairie will be shut in for annual testing on Tuesday (Oct. 1) through Oct. 21,” McDowell said. “NWPL has noted that this work will limit its balancing flexibility, with both withdrawals and injections unavailable for the duration of the maintenance.
“The turnaround comes as inventories at the facility have reached close to capacity. Current inventory sits at about 24.5 Bcf, within 1 Bcf of the facility’s reported working capacity. Historically, the switch from injections to withdrawals at Jackson Prairie starts in October, with about half of October days averaging a net withdrawal over the past three years.”
Genscape’s meteorologists expect cooler weather in the Pacific Northwest to start the week, with close to 14 HDDs expected in the region for Tuesday.
Across the border into Canada, Westcoast Station 2 plunged C58.5 cents to average C26.5 cents/GJ.