Expectations for a warm-up across most of the nation this week, along with continuing high gas storage levels, sent cash and futures prices down hard Monday, but the cash drops were much greater than those seen on the futures market. Dollar-plus declines occurred on several pipes in the Midcontinent, and a number of points in the Rockies crashed more than $2 with Questar, Opal, CIG, Northwest and Kern River all posting lows less than $1.50.
Temperatures are expected to be 5-15 degrees above normal across the Upper Midwest through Tuesday, and that warmth will hit the eastern U.S. later in the week. Meanwhile, temperatures in the Rockies are well above normal and Southern California was hitting the 90s on Monday.
Nationwide heating degree days are expected to be 10% below normal over the next two weeks because of the warming trend. With current cash at the Henry Hub more than 75 cents below near-month futures and warm weather expected across most of the nation, the storage trend could stage a small reversal through the middle of the month. "People have stopped withdrawing and are putting some back in where they can," said a Midwest marketer. "It's not a real fat curve toward the future, but it's still something. Anytime you can get something in the money you have to do it."
The National Weather Service's six- to 10-day forecast shows above-normal temperatures up and down the East Coast and in Southern California. Below normal temperatures are forecast for the Northern Rockies and part of the Pacific Northwest, and normal temperatures are expected elsewhere.
Last week, heating degree days were about 9% above normal, but consultant Stephen Smith of Stephen Smith Energy Associates is predicting a 6 Bcf injection into storage in this week's gas storage report from the Energy Information Administration (EIA) for the week ending Nov. 3. In fact, Smith is projecting injections in the next three storage reports with gas storage levels rising to 3,471 Bcf by Nov. 17. That would be 1 Bcf shy of the all-time gas storage record set in November 1990, according to the EIA's Natural Gas Monthly statistics.
Monday's cash market activity showed a clear recognition of bearish fundamentals. Prices in the Northeast slid more than 60 cents. The Gulf Coast region showed average declines of 30-70 cents with Henry Hub averaging in the low $6.70s and several other points below $6. The Midcontinent was crushed with sharp declines of more than $1 at CenterPoint, ANR Southwest, NGPL Amarillo leg, Panhandle Eastern and Williams, which dipped below $5.
But the market weakness was most severe in the Rockies where averages were coming in well under $3. Opal dropped more than $2.40 from Friday's price levels to the low $2.90s. Questar was hammered down more than $3, to the $1.60s, according to the few transactions reported. CIG averaged in the mid $2.90s with a low of $1.25.
"There was some maintenance on Kern River that put about 180,000 Dth/d in deliveries to California off the pipe," said a Rockies marketer. "Another thing was a lack of demand. The whole region will be dang near 70 degrees tomorrow. Southern California is in the 90s in some places, which is unreal. The last thing that kind of played into this was the park-and-loan business on Kern River. People had been borrowing the pipeline space to hold their gas, and now the pipeline is saying that they need that space back so some gas is being dumped on the market. I think any one of those things would have led to market weakness, but it wouldn't have freaked out like it did unless we had all three together. It put a pretty ugly spin on the Rockies today."
Kern River is performing maintenance at the Veyo and Muddy Creek compressor stations through Wednesday, which is limiting capacity, but all gas flowing on firm transportation is expected to be unaffected. Nevertheless, the maintenance clearly is having a market impact.
While prices could recover a little Tuesday or Wednesday in the Rockies, the warming trend is expected to continue until the weekend. "I don't think we'll see anything out of the $4s this week in the Rockies," the regional marketer said. "If people put some downward pressure on the winter futures months, we could see some weaker prices across the board for awhile."
A Midcontinent trader said prices at Panhandle were extremely weak Monday, but staged a recovery late in the session. The trading range was about 65 cents, starting around $5.60 and then collapsing to below $5 before rebounding back into the $5.50s. Although the average was in the $5.20s, late quotes were reported at $5.58, he said. "We finished near where we started, even though the bulk of the trading was done in the teens and 20s."
A Midwest marketer said Chicago was very weak, but points with access to Michigan storage were commanding a premium. "There's no demand in the Midwest at all. You are seeing people trying to inject what they can into storage. There's little or no utility buying. With the Midcontinent getting weaker today, that also meant that transport was in the money. And the weather forecasts don't get any better. Chicago may not get some colder-than-normal weather until the middle of the month.
"MichCon and Consumers were holding a bit of a premium so pipes like Northern Border and Alliance were coming in higher than NGPL," he added. "There's more storage in Michigan, and Alberta was strong today because there's some storage space up there. With prices coming off, there's been a lot of demand for storage in Alberta. That brought Dawn and all the other pipelines supplied by Alberta a bit higher than the other points today."
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