• May natural gas futures rally early, but ultimately roll off the board lower
  • Weather-driven demand fairly insignificant, but all eyes on LNG
  • Cash prices on the rise as cheap gas appears to stoke power burns

May natural gas futures charged the pavement early Tuesday, making an early run above $1.900 but ultimately sputtering out ahead of the close. The May Nymex contract went on to expire at $1.794, down 2.5 cents day/day, while June rose 3.2 cents to $1.948.

Spot gas prices posted widespread gains, elevating NGI’s Spot Gas National Avg. by 12.5 cents to $1.675.

Volatility has been at a fever pitch for weeks given the still unfolding coronavirus pandemic and oil market downturn, and Tuesday’s price action in the futures market offered more of the same. Early strength was likely because of the overnight Global Forecast System (GFS) model gaining more than 10 heating degree days (HDD) amid colder trends for next week, according to NatGasWeather. Although the European model was little changed, the added demand in the American model put them closer together as the European model was already cooler than the GFS for next week, the forecaster said.

Nevertheless, above-normal HDDs “just don't have the same impact on demand compared to core winter,” NatGasWeather said. In addition, cooler trends also have occurred across the southern United States, resulting in lighter cooling demand being projected for the region.

Given the more than 20-cent trading range for May futures on Tuesday, other factors likely had a hand in the price direction of the expiring contract. With stakeholders likely pushing the final settlement price higher ahead of options expiration on Monday, the May contract’s reversal is not completely unexpected, according to EBW Analytics Group. The firm said this “two-step” often occurs on the last two days of trading.

Meanwhile, much of the market’s attention on demand has been squarely focused on the potential for lower liquefied natural gas (LNG) demand and how it would absorb the gas intended for overseas markets. More than 20 LNG cargo cancellations for June have been reported, and with Henry Hub futures now priced higher than key international benchmarks through September, additional cancellations could lie ahead, EBW said.

“Additional costs -- shipping costs, charter rates, regasification fees, tolling fees, insurance fees, broker fees, etc. -- would only push the margins deeper into negative territory.”

The market also is trying to grasp the demand side effects of the coronavirus in the power and industrial sectors, according to Mobius Risk Group. While the industrial sector has presumably seen a “material reduction” in burner tip needs, the power sector has proven “quite resilient” with only the Gulf Coast and surrounding regions seeing “sporadic” periods of weakness, the firm said.

“Since temperatures in the South have been very mild, burns in the region have suffered,” Mobius said. In addition, wind generation in Texas has been “robust” in recent weeks.

“What the market may not be appropriately considering is how quickly this can change during May when cooling degree days begin their inevitable climb higher,” Houston-based Mobius said. “A precursor could be seen this week in the West, where temperatures in Phoenix and Las Vegas are expected to reach the low 100s and high 90s, respectively.”

Meanwhile, the market is still anxiously awaiting production data points in early May for signs that associated gas production losses will be “immediate and large, or gradual and minor.

“This factor will have a substantial pricing effect on the balance of 2020 strip in both Nymex and basis forward curves,” Mobius said.

Strong Cash

Sub-$2 gas appears to have sparked increased power burns in spite of low demand, with cash prices up by the double digits on Tuesday.

Texas led the way, with Permian Basin pricing continuing to improve. Waha next-day gas jumped 34.5 cents to $1.380, while Houston Ship Channel climbed 13.5 cents to $1.785.

Genscape Inc. reported that from Wednesday to Saturday, Cheniere Energy Inc.’s Creole Trail Pipeline is set to perform filter maintenance at its Trunkline Meter Station, restricting operational capacity at the Trunkline-Gillis interconnect to zero. However, in a recent update, Creole Trail notified customers that maintenance nearby at the Transco-Gillis interconnect was expected to be completed by Tuesday, freeing up 900 MMcf/d of operationally available capacity.

“As a result, feed gas deliveries to Sabine Pass LNG are unlikely to be impacted through a rerouting of flows via the Transco-Gillis interstate interconnect,” Genscape analyst Preston Fussee-Durham said.

Farther east, Henry Hub spot gas was up 15.5 cents to $1.800, while in the Midwest, Chicago Citygate picked up 3.5 cents to $1.715.

Gains were smaller on the East Coast, and some points ended the day in the red. Dominion South cash climbed 11.5 cents to $1.590, while Algonquin Citygate slipped 2.5 cents to $1.750 despite some upcoming maintenance on the Algonquin Gas Transmission (AGT) system.

On Wednesday, AGT is scheduled to conduct pig runs on its 26-inch diameter mainline, from the Southeast to Oxford compressor stations. During this one-day outage, capacity at the Southeast station is to be reduced to 725 MMcf/d from a normal capacity of 1.82 Bcf/d, “though it has not been at that capacity for two weeks,” according to Genscape.

“Over the last two weeks, capacity on the mainline has fluctuated wildly due to daily maintenance events across the line,” Fussee-Durham said.

Despite recent reduced capacity, the outage may impact 506 MMcf/d of flows compared to the previous two-week average and 638 MMcf/d of flows compared to the two-week max, according to Genscape.

Fussee-Durham expected the pipeline work to bring bullish pressure to Algonquin Citygate prices given the lingering cold, but that failed to materialize as the pricing hub was one of a few points to finish the day lower.

Tenn Zone 6 200L also declined, slipping 4.0 cents to $1.735 as a pair of maintenance events on Tennessee Gas Pipeline had the potential to cut as much as 400 MMcf/d of operational capacity.

West Coast markets were up sharply given the unusually hot weather in the region, with PG&E Citygate next-day gas rocketing 18.5 cents higher to $2.530.