Physical gas prices overall traded about 5 cents lower Thursday, but Rocky Mountain producers and marketers got hit with a double whammy of a force majeure on a major pipeline hauling gas to California and a plunge in hydro-derived electricity prices. Eastern and Gulf points endured nominal losses.
The Energy Information Administration (EIA) reported an inventory increase of 28 Bcf, well below historical norms but about what traders were expecting. At the close of futures trading June had gained 8.7 cents to $2.340 and July had added 7.6 cents to $2.430. June crude oil dropped $2.68 to $102.54/bbl.
Wednesday afternoon Kern River said Mojave Pipeline Operating Co. was responding "to a pipeline incident involving a release of natural gas to the atmosphere" at a pipeline junction outside of Bakersfield, CA. Mojave said it was a force majeure event and because of its need to respond to the incident it was shutting in 30 locations. Among them the Kern Mojave Wheeler Ridge junction, which connects to SoCal and PG&E.
Next-day prices throughout the Rocky Mountains plunged. Kern River Receipt point fell nearly 20 cents and Opal dropped close to 18 cents. CIG Mainline was lower by about a dime, and deliveries on Questar shed about 14 cents.
Other points delivering into California also dropped. Waha was down about a nickel, and Malin fell by more than a dime.
If that weren't enough, expectations of ample Pacific Northwest power and tumbling power prices also helped push prices lower. The Northwest River Forecast Center (NWRFC) reported for May 3 that the Dalles Dam on the Columbia River was forecast to see April-August flows of 109,066 KAF (thousand acre-feet) per second, well above the 93,090 average but short of last year's 127,379 KAF flow. A month earlier NWRFC predicted April-August flows at The Dalles at 101,327 KAF.
Power prices also dropped sharply at Pacific Northwest locations. IntercontinentalExchange reported next-day power into the California Oregon Border delivery point dropped a whopping $7.51 to $9.65/MWh and power into Mid Columbia fell $7.32 to $5.13/MWh.
Prices at Northeast locations were only moderately lower. "Temperatures are a little bit milder, and it's still a little cool," said an eastern marketer. He added that longer term gas was holding up. "The Transco Z6 basis into New York is 31 to 32 cents (over Nymex) and Algonquin is 34 to 37 cents."
Friday gas at Algonquin fell close to a dime, and deliveries to Iroquois Waddington fell about the same. Gas on Tennessee Zone 6 200 L lost a couple of pennies.
Gulf points fell slightly. Losses of a penny were reported on Texas Eastern E LA and ANR SE and quotes on Tennessee 500 L, Henry and Trunkline E LA fell by a penny more.
Futures traders were generally pleased with the Energy Information Administration (EIA) storage report and subsequent rise in prices but see softness near term.
"Are we really going to head back to the $1.90 level?" queried a New York floor trader. "Last year we were at a 60 build, so the smaller builds are giving the market upward potential."
At the close another trader observed, "It feels like traders want to take the market above $2.39-2.395 area, but I think it may have a tough time Friday. I'm looking for it to settle Friday at $2.27-2.30 and we'll see where it goes from there. The market looks a little stretched to me."
The main price driver for the day was the storage report, and estimates for this week's storage build report fell far short of historical averages as above-normal degree day accumulations piled up. Last year 60 Bcf was injected, and the five-year average stood at 79 Bcf. That trend may continue.
Before the release of the figures, traders hypothesized that "Thursday's storage data will also come within what looks like an ongoing supportive context, with more below-average storage injections expected to follow over the next few weeks," said Tim Evans of Citi Futures Perspective. Evans estimated that this week's build report would be 27 Bcf, a touch lower than the consensus, but going forward he sees the 908 Bcf year-on-five-year surplus falling from the present 908 Bcf to 753 Bcf as of May 18, "with a declining storage surplus normally an intermediate-term support for prices."
Evans cautioned, however, that "our confidence in the storage forecast for the weeks ending May 11 and May 18 is lower than normal since our model basically assumes that the smaller-than-forecast recent injections are a function of a tighter background supply-demand balance, when the weather may have had more to do with it."
Others saw the injection slightly higher. ICAP predicted a build of 28 Bcf, and a Reuters survey of 24 analysts and traders resulted in a sample mean of 31 Bcf with a range of 20-42 Bcf. Industry consultant Bentek Energy came in on the low side of expectations with an estimated 23 Bcf build.
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