Natural gas cash values declined nearly across the board as physical gas traders used the screen's prior-day drop for inspiration. Most points declined by a nickel or less and traders and analysts alike are having trouble pointing to any sort of rebound in the immediate future. Even what appeared to be a bullish storage injection report Thursday wasn't what it seemed according to one NGI source. September futures traveled an up and down course on Thursday but ultimately closed the day's regular session at $2.724, down 2.4 cents from Wednesday's close.
Cash prices in the East for the most part followed the national script on the day except for a few spots, some of which declined by more, while a couple managed to add a few pennies on the day. Tennessee Zone 5 200L declined 24 cents to average $3.08 and Tennessee Zone 6 200L declined by a dime to $3.65, while Millennium East Pool added 4 cents to average $2.87 and Tennessee Zone 4 Marcellus gained 5 cents to $2.56.
Midcontinent values also followed the country's day of declines of a few pennies to a nickel or so. Chicago Citygate dropped 3 pennies to average $2.85 and MichCon came off by 4 cents to $2.87, while Alliance dropped a nickel to $2.84.
"It's the same story, just a different day," said a Midcontinent trader. "There is no demand, so we are still seeing low prices. While some regions are seeing some heat, that's not the case in the Midcontinent. It's real mild here -- around 85 degrees -- and most people have already bought their gas."
Looking further down the road, the trader said any sort of price rebound will be tied to a rebalancing of supply and demand, which puts the weather into the spotlight. "It really all depends on how the winter goes, which of course no one is certain of," he told NGI. "If it is a hard winter, which we expect it to be, then we'll have quite a bit of withdrawals and cash prices will go up. First, we need storage to empty, which is a situation we are very far from now."
In the Southeast, the effects from the mysterious natural gas bubbles that have been seen in two bayous in Assumption Parish, LA, continue, as another pipeline shut portions of its system down (see Daily GPI, Aug. 7). Geologists and other experts are monitoring an area of swampland that has liquefied into muck, creating a sinkhole, also known as a slurry.
On Wednesday Florida Gas Transmission Co. (FGT) declared a force majeure until further notice for the southern portion of the Chacahoula Lateral and the Napoleonville Interconnect located in Assumption Parish (see related story). Both have been taken out of service until an investigation can be completed and action taken to repair or replace the facilities.
"This condition commenced on August 8, 2012 when the formation of a sinkhole in close proximity to the pipeline facilities created a subsidence condition which impinges upon the integrity of the pipeline and creates a potential danger to public safety," FGT said.
On Thursday the sinkhole widened and claimed a workboat.
Despite the ongoing problem, gas prices in the region, from Tennessee 500L and Columbia Gulf Onshore to TETCO-East Louisiana and Trunkline-East Louisiana, are staying inline with surrounding points.
Turning attention to futures, September natural gas futures spiked and then crashed following news Thursday morning from the Energy Information Administration (EIA) that 20 Bcf was injected into underground storage for the week ending Aug. 10.
Heading into the 10:30 a.m. EDT report the September contract was trading at $2.763, but spiked to a high of $2.840 in the minute after the number hit the street. However, the enthusiasm was short-lived as the prompt-month contract came crashing lower to $2.685 just minutes later.
The 20 Bcf build was right on target with industry expectations, but well below the 43 Bcf injection which was both last year's build for the same week and the five-year average injection. Bentek Energy hit the bulls eye with its 20 Bcf injection estimate, while a Reuters survey of 25 industry participants produced an average expectation of a 24 Bcf build.
Citi Futures Perspective analyst Tim Evans, who was on the record with a 25 Bcf injection estimate for the week, said the injection was slightly less than expected. "Although the net injection of 20 Bcf was supportive both relative to market expectations and compared with the 43 Bcf five-year average rate, it still may not be enough of a bullish surprise to produce a robust price recovery in our view," Evans said Thursday morning. "Although the data does imply a somewhat tighter supply/demand balance, moderate temperatures in the weeks ahead will allow for more robust rates of injection going forward."
As of Aug. 10 working gas in storage stood at 3,261 Bcf, according to EIA estimates. Despite the reduction in the current surplus over both last year's inventory and the five-year average inventory, stocks are still 442 Bcf higher than last year at this time and 363 Bcf above the five-year average of 2,898 Bcf. For the week the government agency said the East Region injected 29 Bcf, while the West and Producing regions withdrew 5 Bcf and 4 Bcf, respectively.
"The reason we saw such a low storage build [Thursday] is because cash is stronger than Nymex, so people are selling storage gas," said the Midcontinent trader. "Some traders obviously believed the 20 Bcf injection was bullish, but that's really not the case. It was just the smart play. These guys would like to empty their storage so they can take advantage of when the price really tanks, which I think will happen in October."
Looking longer term, the East region looks like a strong candidate to be a heavy gas burner this winter, if forecasters at AccuWeather.com are to be believed. The country may be suffering through one of its worst droughts in decades and record high temperatures are being recorded on a monthly basis, but portions of the eastern United States can expect above-normal snowfall during the 2012-2013 winter season, according to the report (see related story).
The MidAtlantic and southern New England, which experienced a "snow drought" last winter, can expect a "snow dump" this year, according to Paul Pastelok, leader of AccuWeather.com's long-range forecasting team.
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