• Natural gas futures pick up another couple cents as cooler shifts seen in weather data
  • With storage sitting comfortably, production outpacing new Mexico, LNG demand
  • Cash slides as last hurrah for summer seen ending in coming days

Hints of early season cold spooked natural gas traders on Friday with flashbacks to last October, when a surprising shift colder led to a sharp rally that eventually pushed futures prices to nearly $5. Despite an early dip to the downside, the November Nymex contract rallied for a second day to settle at $2.352/MMBtu, up 2.3 cents. December climbed 2.4 cents to $2.524.

Cash markets were mostly lower as an unseasonably strong ridge continued moving across the South and East in what could be the last hurrah of late season heat. With another cool shot sweeping across the Midwest and Northeast not far behind, the NGI Spot Gas National Avg. fell 17.0 cents to $1.665.

Overnight weather models showed some reduction in forecast demand when compared to Thursday’s runs, according to Bespoke Weather Services. Nevertheless, models showed hints that another push of colder air could come into the eastern United States at the end of the 11- to 15-day period, preventing the outlook from being bearish.

Global wind patterns appeared to reflect some variability in the long-term forecast, and Bespoke projects total demand over the next couple of weeks to be slightly below normal overall. However, the firm acknowledged some colder/higher demand risks to its forecast in the 11- to 15-day period based on the latest model projections.

“At this time, we are not expecting to see demand rise to the same levels as we saw starting in the middle of October last year, however,” Bespoke chief meteorologist Brian Lovern said.

Friday’s midday Global Forecast System data added demand back by trending colder with a weather system into the United States Oct. 11-15, according to NatGasWeather. “The data is struggling with exactly how much cold air will arrive with this system, but the data has added demand since the start of the week.”

With prospects for some cold arriving sooner than expected, the latest government storage data likely provided some resistance on Friday. The Energy Information Administration (EIA) reported a 112 Bcf injection into storage, boosting inventories as of Sept. 27 to within the five-year average range.

Tudor, Pickering, Holt & Associates Inc. (TPH) analysts called the reported build “another ugly number” but said the market’s upward momentum despite the bearish data improved its outlook for coming week’s print. Unseasonably warm weather got even warmer as the week progressed, driving power burn up toward 37 Bcf/d over the last three days, compared to an average of 33 Bcf/d to start the week, as cooling degree days continued to track around 10% above norms.

The increased power burn dropped TPH’s  preliminary estimate for the next EIA storage report to below the 100 Bcf mark to 98 Bcf.

Meanwhile, the intrusion of heating demand in the Pacific Northwest and Rockies also appeared to be enough to drive weekly injections back below the century mark, according to Mobius Risk Group. “Daily storage data from Sept. 27-Oct. 3 suggests the current streak of triple-digit injections could end at two, but this is penciled with large interstate systems still not reporting until Monday.”

Indeed, production has increasingly flooded the market since Kinder Morgan Inc.’s Gulf Coast Express intrastate Permian gas pipeline entered full service last month. More production is expected in the coming months, while increasing signs of a cooler shift during late October/early November are providing fodder for bulls, EBW Analytics Group said. “During the next few trading sessions, the market could struggle to sort out these conflicting signals.”

Lower 48 inventories stood at a “relatively healthy” 3,317 Bcf, a surplus of 465 Bcf compared to last year’s same-date levels, according to Genscape Inc. Furthermore, as a testament to how strong production continued to be current inventories sat only 18 Bcf lower than the five-year average.

“This is the tightest the current inventory value has been to the five-year average since early October 2017,” Genscape senior natural gas analyst Rick Margolin said. “This eradication of the deficit has occurred in an environment where demand has been growing for power generation, residential/commercial uses, and exports to Mexico and overseas liquefied natural gas markets, and imports from Canada have been curtailed. During this time, production gains have more than outpaced the demand-side gains and non-production supply cuts.”

Cash Slides

Cash prices in most of the United States moved lower on Friday as another round of soggy weather was taking aim on the Plains and Midwest after unleashing more snow over the northern Rockies.

"While less rain is likely to fall compared to other recent storms over the Plains and Upper Midwest, enough rain can fall to keep the soil soggy, cause isolated flash flooding and keep river and stream levels elevated in the region," said AccuWeather senior meteorologist Brett Anderson.

Outside of thunderstorms, gusty winds were set to accompany the storm system into the early part of the upcoming week over the north/central states, according to AccuWeather. Gusts from the west and northwest, ranging from 35 mph to 50 mph, were likely from the eastern slopes of the northern Rockies to the northern Plains and western Great Lakes region.

If the weather system were to shift eastward, showers and thunderstorms were expected to sweep across the Ohio Valley on Sunday, AccuWeather said. Cooler air more typical of the season was expected to be ushered in by brisk, northwesterly winds as the storm moved away.

“Daytime temperatures will be fairly typical for early October with highs to range from the mid-50s across the north to near 70 over the Ohio Valley early next week,” although real-feel temperatures are expected to range from the upper 30s to near 40 across the North to the 50s over part of the Ohio Valley, the forecaster said Friday.

The new batch of cool air could make progress into the southern Plains and Deep South in the week ahead, ending a stretch of sizzling temperatures in a seemingly never-ending summer for some areas.

The crisper fall air sent cash prices in the Northeast plunging. Algonquin Citygate tumbled 74.5 cents to average just 80.5 cents. Tenn Zone 6 200L was down 46.5 cents to $1.215.

Forty-cent declines were the norm across Appalachia as well, while losses across the Southeast were no more than 20 cents.

On the pipeline front, Transcontinental Gas Pipe Line from Tuesday (Oct. 8) to Oct. 28 plans to conduct hydrotests on its Mobile Bay Lateral. During the outage, all deliveries on the Mobile Bay Lateral would have to be sourced from receipt locations on the lateral, including receipts from Station 85, Gulf South-Scott Mountain and Midcon Express Pine View.

Net deliveries on the lateral had averaged 889 MMcf/d over the last 30 days, although they trended downwards in the last week, according to Genscape. Major delivery points such as the two older Florida pipes, Florida Gas Transmission (FGT) and Gulfstream Pipeline, as well as Bay Gas Storage, would likely bear the brunt of the supply cut and respond bullishly.

“FGT has a variety of upstream supply options, while Gulfstream is more limited and will likely rely on increased receipts from SESH Coden, Gulf South, Sabal Trail Osceola, and possibly Destin,” Genscape analyst Josh Garcia said.

Receipts on Sabal Trail Hillabee would also likely increase as another route for Station 85 gas to supply Florida, according to Genscape. Production on the lateral from the Mobil Bay processing plant and from offshore platforms such as Tubular Bells and Yellowhammer should not be shut in. Given the milder weather outlook for the region, little price risk was seen.

In the Midwest, Chicago Citygate spot gas dropped 20.5 cents to $1.635, similar to other declines in the region and the Midcontinent.

Parts of Texas posted some of the nation’s only losses amid the lingering heat in the state. South Texas prices were up less than a dime, with Tres Palacios spot gas climbing 7 cents to $2.285. Most East Texas pricing hubs were up around a nickel or so.

West Texas prices, however, continued to plunge off recent highs following the Gulf Coast Express in-service. El Paso-Permian was down 18 cents to $1.155.