Continuing the week's cycle of seesaw trading that saw virtually across-the-board higher prices Monday followed by a reversal lower on Tuesday, nearly the entire natural gas cash market Wednesday for Thursday delivery showed upticks.
Besides a couple of slim declines in the Northeast, averages for the entire country showed gains from a couple of pennies to 15 cents. Most Northeast points climbed around a nickel, while spots along the Gulf Coast, Midcontinent and the West mostly increased between a nickel and a dime, with a few points recording larger additions.
One Midcontinent trader noted that overall cash prices have been very weak for the last month or so. "I'm not sure what we're seeing here. There is an oversupply of gas and no load anywhere. Fundamentally, there has been a disconnect between the market and the screen. We're looking at 75 to 80 degree temperatures all week, so the heat, and the air conditioning are off. The gas demand just is not there. Nobody in our market area is outright buying. They might be buying for early storage, but that's it."
He noted that April bidweek could be interesting. "I've always said that it is more difficult to manage oversupply than a shortage. When you have oversupply, everyone is trying to transport, but the pipes are full, so you have extra gas which creates gas-on-gas competition. That is what I expect is going to happen at the beginning of bidweek. Of course no one knows what the fundamentals will be, but once the gas-on-gas competition begins, all bets are off."
As for where cash prices will tread Thursday is anyone's guess, especially since front-month futures finished Wednesday's regular session basically flat. April futures finished the day at $3.938, down three-tenths of a penny from Tuesday's close.
Continuing to break down the potential repercussions from the unfolding tragedy in Japan with regards to unstable nuclear power reactors, some analysts believe gas as a fuel for power generation worldwide should see a bump, but not a spike (see Daily GPI, March 15a; March 15b).
Analysts at Tudor, Pickering, Holt & Co. Securities Inc. (TPH) said the Japan situation has "some countries rethinking newbuild projects and contemplating inspection/review of existing fleet," which could leave the door open for more gas-fired generation. According to TPH data, nukes generate 14% of the world's electricity, while coal is responsible for 42%, natural gas for 21%, hydro for 18% and oil for 5%. The analysts noted that a 10% reduction in global nuke output would increase gas demand by 5 Bcf/d assuming all incremental demand was made up for with gas (global gas demand 300 Bcf/d, global LNG 30 Bcf/d). "Not sure [this is a] catalyst to get long gas," but it could create some short-covering, TPH analysts said.
The Midcontinent trader said he believes all of the talk about gas demand increasing from the United States in response to the Japan situation is just that, simply talk. "From an LNG standpoint, the United States doesn't have the infrastructure to export a lot of LNG to Japan. Natural gas is a domestic market. Even though it tries to act like an international market, it really is not."
As for the argument that a fresh nuke scare will put more reliance on natural gas to power the worldwide future, the trader noted that a new nuclear power facility has not been built in the United States in decades. "Fundamentally, we have not had a new nuclear power plant built in this country for a long time, so I see this as all talk, which will be gone from the headlines in six months, leaving us all at square one."
Taking a peak at Thursday morning's natural gas storage report, traders and analysts alike are wary of getting burned again this week. Last Thursday the industry, which had been expecting a withdrawal in the high-70s Bcf to mid-80s Bcf, was surprised when the Energy Information Administration revealed that only 71 Bcf was withdrawn for the week ending March 4 (see Daily GPI, March 11).
Citi Futures Perspective analyst Tim Evans said he is still looking for a 53 Bcf draw, which would be much larger than last year's date-adjusted 25 Bcf draw for the week, but just below the five-year average draw for the week of 58 Bcf.
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