- November natural gas futures end day nickel lower after volatile session
- Weather models show coming cold snap lacking staying power
- Widespread U.S. pipeline maintenance events boost cash prices in high-demand regions
After a two-day rally that lifted natural gas prices more than a dime late last week, futures prices retreated Monday amid shifting weather outlooks. After falling as low as $2.291/MMBtu, a strong cash market helped to trim some of those losses, but more aggressive selling late session sent the November Nymex gas futures contract down to a $2.303 settle, down 4.9 cents. December slipped 2.4 cents to $2.500.
Spot gas prices were mostly higher as a weak cool shot was expected to sweep across the Midwest and Northeast to open the week, leaving highs in the 50s and 60s and driving up prices in the Northeast by as much as 75 cents. Bookended by solid gains on the West Coast, the NGI Spot Gas National Avg. rose 16.5 cents to $1.830.
With weather data not yet holding onto any sustained cold this month, futures were lower out of the gate. Weekend weather models moved in the warmer direction in the medium range 11- to 15-day pattern, according to Bespoke Weather Services. There is still a healthy shot of below-normal temperatures on the way this weekend into early next week, although it’s focused mostly in the middle of the nation.
The colder air mass is expected to lift back up into Canada thanks to another trough digging into the western United States after the middle of October, allowing anomalous warmer ridging to take shape once again in the eastern third of the nation, the forecaster said. This results in forecast demand heading back to below-normal levels starting around the middle of next week, “very different from the picture seen last year at that time.
“This places the weather factor on the bearish side of the spectrum after a few model ‘scares’ in the colder direction late last week,” Bespoke chief meteorologist Brian Lovern said.
Indeed, traders appeared to give more weight to the longer-term outlook, with prices falling as low as $2.291 despite some chilly temperatures to start the week. Maxar’s Weather Desk said that a deep trough diving into the West during the week will settle over the Midwest during the early half of this period. This feature will slowly lift northward during the latter stages, while still promoting a cool air flow.
“The coolest conditions are at the start of the period, when much belows are common from the Rockies to the Midwest. By the latter stages, however, only slight belows are in the Midwest, while aboves emerge from the Interior West toward Texas,” the firm said.
The East Coast averages the period in the normal category, with the forecast taking the middle ground of guidance. There were, however, some cooler risks along the East Coast through mid-period, as Atlantic low pressure is slow to progress away, according to Maxar.
Although remaining firmly in the red, futures prices did temporarily bounce a bit after the Global Forecast System (GFS) midday data added demand for the Oct. 16-17 period, favoring a reinforcing cool shot to follow across the North and East. The GFS data remains quite bearish Oct. 18-22, but over the 15-day forecast did add 4 total degree days (TDD) compared to Sunday night’s run and 12 TDD versus Sunday’s midday run, according to NatGasWeather.
“It's important to note the European model has 20 TDDs less than the GFS model, so it could add some demand with its afternoon run, but likely will be more bearish overall than the GFS,” the forecaster said.
There remain three periods of focus, with light demand for much of the United States through Thursday, a swing to stronger demand Oct. 12-17 as a couple cool shots sweep across the northern United States and then back to bearish Oct. 18-22, according to NatGasWeather. Nevertheless, the firm expects the modest storage inventory deficit to the five-year average to flip to a surplus off next week’s storage inventory report, then slowly increase to a 50 Bcf overhang by the end of October.
Powerhouse analysts noted that the average rate of net injections into storage is 28% higher than the five-year average so far in the refill season. If the rate of injections into storage matched the five-year average of 10.5 Bcf/d for the remainder of the refill season, total inventories would be 3,674 Bcf on Oct. 31, which is 18 Bcf lower than the five-year average of 3,692 Bcf for that time of year.
Meanwhile, the multitude of headwinds facing natural gas in the near term has been reflected in the latest drilling activity data. The rig count dropped by another five last week, with the total decline since the beginning of the year now at a significant 220 rigs (-20.5%), according to Baker Hughes, a GE company.
“The precipitous declines in rig count are indicative of the sharp pricing pressures facing producers,” EBW Analytics Group said. “Natural gas-directed rigs have been hit even harder than total figures, declining by 54 rigs (-27.3%), mirroring shrinking prices this year.”
Producers with a considerable backlog of drilled-but-uncompleted (DUC) wells, however, may be able to sustain or grow production in the near- to medium term despite the dramatic rig count declines, according to the firm. In Appalachia, for example, the latest government data suggests that even if producers halve the rate of new wells drilled, the existing DUC backlog may sustain completion rates for more than three and a half years.
Cash Up on Chill
Spot gas bounced back with a vengeance Monday after widespread losses on Friday sent Northeast prices down to their lowest levels year to date, with outright fixed deals looking more like basis transactions in premium-priced markets like New England.
Several pricing hubs in the Northeast and Appalachia averaged below $1 on Friday amid strong regional production, weak seasonal demand and ample pipeline capacity to move molecules to demand centers. In fact, Genscape Inc. noted that cash prices at AGT Citygate and Columbia Gas hit their lowest points in the history of the firm’s NGI price dataset, which begins in January 2000.
Demand in the East fell to a summer-to-date low of 19.1 Bcf/d on Saturday, driven by shoulder-season demand in the Northeast, according to the firm. At the same time, Genscape’s East production estimate reached another new record high of 33.2 Bcf/d on Oct. 4.
But prices roared back on Monday as a weak cool front accompanied by storms was expected to sweep across the Midwest and Northeast. The entirety of the Mid-Atlantic and Northeast was forecast to get soaked into Monday night as the front moves through, with a bit of a lull expected on Tuesday before more widespread wet weather returns by midweek, according to AccuWeather.
A high pressure system settling over northern New England and the Canadian Maritimes this week will combine with the flow around the storm system to channel strong, gusty winds and moisture back into the Interstate 95 corridor from Boston to Washington, D.C, with some chance that the storm develops tropical or subtropical characteristics, the forecaster said.
"There are some similarities to the Halloween Storm, otherwise known as the 'Perfect Storm' from 1991, but on a much smaller and less-intense scale," according to AccuWeather senior meteorologist Alex Sosnowski.
Columbia Gas in Appalachia shot up 71.5 cents to $1.350 as the pipeline issued a force majeure that went into effect on Friday, restricting up to 107 MMcf/d of receipts in Maryland until further notice. Columbia Gas Transmission (TCO) indicated that due to unplanned WB-5 pipeline work causing lowered capacity at the interconnect with Transcontinental Gas Pipe Line (aka Transco) at “Rockville-30, meter: E2”, receipts at the interconnect are limited to 97 MMcf/d.
“Prior to this location nominating on Oct. 1, it has not nominated gas since May,” Genscape natural gas analyst Anthony Ferrara said. “However, since Oct.1, nominations at Rockville-30 have averaged 116 MMcf/d and maxed at 204 MMcf/d.”
TCO is also starting planned maintenance on Line 1983 on Tuesday that could limit up to 192 MMcf/d of receipts through Oct. 14. Receipts onto the pipeline from Balis-Lewis, Pike Fork, and Balis US Meter Station will be cut completely to zero. Over the past month, these three locations have averaged 183 MMcf/d, with a maximum of 192 MMcf/d, according to Genscape.
TCO also indicated that other restrictions may become necessary based on operating conditions.
Meanwhile, planned compressor maintenance on the Equitrans Pipeline system in Ohio was expected to restrict flows through the PLASMA-Ohio Valley Connector (OVC) compressor station Tuesday through Thursday and again Oct. 15-17 by up to 203 MMcf/d. Over the past 30 days, deliveries have averaged 775 MMcf/d and maxed at 821 MMcf/d, according to Genscape.
Transco and Texas Eastern Transmission (Tetco) are also set to kick off their planned maintenance events on Tuesday, with Transco’s isolation of the Mobile Bay Lateral cutting around 900 MMcf/d of deliveries to Gulf and Florida markets for the better part of the month.
Tetco will also begin a smaller maintenance event on its Bedford compressor station that will last until Oct. 10. Bedford, Chambersburg, and Heidlersburg compressor capacity will each be cut by roughly 500 MMcf/d. While the work shouldn’t cut flows significantly, it could become constrained, Genscape said.
Other maintenance events were planned across the country, although with light demand, had little impact on prices. In the Southeast, Transco Zone 5 spot gas was up 6.5 cents to $2.18, but most other pricing hubs in the region shifted only a couple of pennies at best.
Florida Gas Transmission (FGT) will begin maintenance on its compressor station #10 Wiggins in South Mississippi on Tuesday, reducing the station’s capacity of 1.27 Bcf/d by 200 MMcf/d through the end of the month. Flows through this compressor have maxed at 1,227 MMcf/d as recently as Oct. 4, meaning a max impact of 154 MMcf/d, although flows have been trending lower over the last 30 days, according to Genscape.
“While FGT has other supply options downstream of this constraint point, the coinciding Transco Mobile Bay maintenance means that a major supply interconnect will not be available. Additional volatility could occur for Florida prices if weather turns much hotter or colder than expected, with one heatwave already forecasted to begin on Oct. 14 and peak on Oct. 18,” Genscape analyst Josh Garcia said.
Out West, Northwest Sumas cash shot up $1.21 to average $4.015 as a two-day planned maintenance this week on Westcoast Transmission will disrupt up to about 150 MMcf/d of flows onto TC Energy’s Alberta system.
Westcoast is performing a station outage at its Sunset Compressor, which will reduce the operating capacity to 642 MMcf/d on Tuesday, which is above the recent 30-day average of 528 MMcf/d. However, capacity will decrease to 390 MMcf/d on Wednesday, representing a cut of 138 MMcf/d versus the recent average, according to Genscape.
Meanwhile, Pacific Gas & Electric (PG&E) was monitoring what could be a potentially widespread, strong and dry wind event later this week that would impact northern, central, coastal and Bay Area counties across much of PG&E’s service area. Due to the forecast extreme weather conditions, PG&E is considering proactively turning off power for safety, and implementing an unprecedented Public Safety Power Shutoff across portions of approximately 30 northern, central, coastal and Bay Area counties.
The main period of weather risk is early Wednesday through midday Thursday. The dry, windy weather pattern is expected to reach from the northern portions of PG&E's service territory and down through the Sacramento Valley before spreading into the central areas of the state including most of the Bay Area.
“While customers in high fire-threat areas are more likely to be affected by a Public Safety Power Shutoff event, any of PG&E's more than 5 million electric customers could have their power shut off because the energy system relies on power lines working together to provide electricity across cities, counties and regions,” the company said in a press release.