• November Nymex futures up 5.9 cents to $2.339/MMBtu; December up 3.4 cents to $2.532
  • “How long this colder pattern lasts is now of considerable interest, because it will need to be sustained to keep surpluses from increasing”: NatGasWeather
  • “A swing milder in the weather could easily start the winter off on a bearish foot...forcing the commencement of net monthly withdrawals only in December”: Energy Aspects
  • SoCalGas returns Line 235-2 to service at a reduced pressure, in-line inspections beginning immediately

Forecasts Tuesday strengthened what was already shaping up to be a chilly late October pattern, lifting bulls’ spirits and propelling prompt-month natural gas futures to a second straight day of gains. The November Nymex contract climbed 5.9 cents to settle at $2.339/MMBtu; further along the strip, December added 3.4 cents to $2.532, while January settled at $2.647, up 2.5 cents.

In the spot market, a cold front helped drive price gains in the Midwest and Midcontinent, while easing import restrictions accompanied declines in Southern California; the NGI Spot Gas National Avg. added 8.5 cents to $1.945.

In its early morning run ahead of Tuesday’s trading, the Global Forecast System (GFS) advertised a “much colder pattern” compared to its European counterpart, and the mid-day GFS run trended even colder for late October, according to NatGasWeather. This left the GFS colder by a “hefty” 25 heating degree days.

“There remain three major periods of interest, starting with a cold shot currently sweeping across the northern U.S. for a bump in national demand,” the forecaster said. “This will be followed by national demand dropping below normal this weekend through early next week...but where the data is cold enough and bullish in most weather models is Oct. 24-30 as a series of stronger cold shots advance deep into the U.S. with widespread lows of teens to 30s.

“The GFS didn’t back off this round and actually trended further colder on the last week of October pattern to add 6 HDDs. While the GFS is likely too cold, we must expect the European model is too warm and will add demand” in subsequent runs. “How long this colder pattern lasts is now of considerable interest, because it will need to be sustained to keep surpluses from increasing.”

The duration of the late-October cold could prove pivotal in shaping market sentiment going into the winter.

Looking longer-term, Energy Aspects said it sees risks for a net injection for the month of November if there is milder than normal weather. The firm’s estimates put the market on track for injections through the week ended Nov. 15, assuming close to 10-year normal temperatures. Recent modeling suggested end-November inventories from 3.73-3.74 assuming normal weather, just below a projected end-October carryout at 3.77 Tcf.

This underscores “how moderate we anticipate withdrawal activity will be in November,” Energy Aspects said. “A swing milder in the weather could easily start the winter off on a bearish foot by a two-fold sway to sentiment: forcing the commencement of net monthly withdrawals only in December and the typical bullish enthusiasm zapper of a mild first month of the heating season.”

Additional November injections could have knock-on effects by adding to the potential end-March inventory level, which the firm’s recent projections placed at 1.85 Tcf.

“The amount of demand lost or gained in November is not huge in the context of the entire heating season,” Energy Aspects said. “However, any additional volumes being directed into storage above our projected end-March carryout would have reverberations beyond heating season 2019/20, especially given an increasingly likely set of risks that would loosen balances -- notably in the export market and industrial sector.”

As for this week’s report, analysts at Tudor, Pickering, Holt & Co. (TPH) said they’re bracing for an “ugly print” well into the triple digits -- potentially even record-setting for a fall injection -- from the Energy Information Administration’s upcoming storage data.

“That said, it’s not all negative, as current week data shows a 3.9 Bcf/d week/week jump in residential/commercial demand, and the return of Cove Point (down since Sept. 20) is adding about 0.8 Bcf/d,” pushing liquefied natural gas feed gas demand above 7 Bcf/d “for the first time,” the TPH analysts said. “Cumulative injections continue to track about 40% above norms, and we’re modeling another five weeks of builds, driving exit levels about 6% above the five-year average.”

Still, according to TPH those holding short positions may want to “monitor the macro closely, as despite material looseness currently exhibited in the market, incremental tightening and a turn in weather could drive a very crowded rush for the exit.”

Cold Front Boosts Midwest, Midcon

Spot prices throughout much of the Midwest and Midcontinent rallied for a second straight day Tuesday as a cold front was expected to pass through the central Lower 48 and make its way east over the next couple days. Chicago Citygate gained 11.5 cents to $1.965, while Northern Natural Ventura added 13.0 cents to $1.940.

“A low pressure system moving slowly eastward across the Great Lakes region will sweep a cold front across the central and eastern U.S. through Wednesday,” the National Weather Service said. In terms of temperatures, this cold front “will lead to below normal high temperatures across the Plains to the Mississippi and Ohio Valleys on Wednesday, spreading to the Eastern Seaboard on Thursday.”

On the West Coast, SoCal Citygate shed 44.0 cents to average $3.615 Tuesday as utility Southern California Gas (SoCalGas) confirmed the partial return to service of a critical import line following an extended maintenance period.

SoCalGas returned its Line 235-2 import pipeline to service effective Tuesday, which should reopen about 170 MMcf/d of import capacity, according to Genscape analyst Joseph Bernardi.

In a notice to shippers, SoCalGas said Line 235-2 is returning to service at a reduced pressure, with in-line inspections beginning immediately. This “requires that gas only flow from North Needles due to the pressure requirements” during the inspection, according to the operator.

“In a longer-term view, this represents progress on SoCalGas’ maintenance efforts to restore import capacity through the Northern Zone,” Bernardi said. “L235-2’s return to service was expected as early as April of this year but has been repeatedly pushed back as SoCalGas has discovered more leaks in the pipe during maintenance. Overall, this area of SoCalGas’s imports has been severely limited for over two years due to a series of unplanned outages mostly starting in the fall 2017.”

The partial restoration on Line 235-2 should increase import capacity from Transwestern at the Needles interconnect to 168 MMcf/d, up from zero previously.

“SoCalGas is still working on restoring the adjacent Line 4000, which was taken down for repairs on Sept. 19, thus reducing the overall capacity of the Needles and Topock import points to zero,” Bernardi said. “In the months before that, these points were able to bring in a combined 250-300 MMcf/d. These levels were still noticeably limited compared to previous years, which saw receipts up in the 500-800 MMcf/d range.”