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Cash Market Bullishness Gets All-Points Extension

May 3, 2011
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The recently bullish cash market carried over into Monday, with price gains across the board supported by pockets of weather-related demand and the previous Friday's rise of 12.7 cents by June futures.

Most of the increases were in double digits as they ranged from about a nickel to a little more than 20 cents and were distributed fairly evenly across geographic market areas.

June futures will provide neutral guidance for Tuesday's cash trading as they idled for most of the day Monday and wound up half a cent lower (see related story).

Some heating load is returning as lows in the 40s and 30s dominated the forecast for Tuesday in Canada and most of the northern half of the U.S. However, the general cooling trend also eroded most cooling demand in the South where highs would fail to surpass the 70s for the most part except in Florida and the Carolinas. Even Texas is getting unseasonably cool, although a return to the 80s is due from midweek onward.

But although the Rockies and Pacific Northwest also will be chilly with lows in the 40s or less, California is mild and such desert Southwest locations as Phoenix can expect highs rising into the mid 90s.

The National Weather Service's (NWS) forecast for the May 7-11 period called for below-normal temperatures across most of the northern U.S., extending into the Florida peninsula in the East and into Nevada, California, northern Utah and eastern Arizona in the West. Of course, cooler readings are not as meaningful for gas demand in those areas in early May as they would have been a few months earlier. But the prediction of extremely below-normal temperatures in lower New England and in Washington state and most of Oregon could result in substantial heating load. The only area where NWS looks for above-normal conditions is in the western two-thirds of Texas along with southeastern New Mexico.

Pipeline constraints are negligible for the time being.

IntercontinentalExchange (ICE) said despite Henry Hub prices rising about a dime, trading volumes there on the ICE platform were up almost imperceptibly from 980,500 MMBtu Friday to 1,080,000 MMBtu Monday.

A Midcontinent producer said there was no doubt about current heating load in his area, with a low in the mid 30s due overnight Monday, adding, "My furnace has been kicking on for the last two days." However, conditions will be warming up later this wee, he said.

Currently Midcontinent prices are "very strong," probably 25-30 cents above first-of-month indexes, the producer said. He expected them to remain above index for the rest of this week but then starting to recede. Prices now are higher than what his company had budgeted for during 2011, he said.

It's going to be "an interesting summer" in the Rockies market, a regional producer commented. It remains to be seen what happens to western gas prices when California starts getting another 1.1 Bcf/d from Ruby Pipeline upon its expected startup in July, he said, "but one thing is for sure. Ruby gas will have to come from other pipelines [because] Kern River just announced that it will have 400 MMcf/d of capacity available in June."

He also cited a Bentek Energy report as "a reminder that production is not growing everywhere." It may also partly explain why Questar's Clay Basin storage facility went into May "with its lowest inventory ever and why storage in the West Region is now 90 Bcf below last year. It's the same story in Western Canada, where storage is 103 Bcf below last year. At least for a while, gas being displaced by hydro will find a home," the producer said.

The Bentek report to which he referred said Rockies year-to-date production is off more than 500 MMcf/d from 2010, with decreased production in the Green River-Overthrust and Powder River basins more than offsetting growth in the Piceance Basin.

The Baker Hughes Rotary Rig Count found an increase of four to 882 in the number of units targeting gas in the U.S. during the week ending April 29. All four rigs were activated onshore, while the Gulf of Mexico count was flat. Baker Hughes said its latest tally was down 1% from a month ago and 8% less than the year-earlier level.

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