Natural gas prices on average gained 9 cents nationally for the week ended October 11. Only a handful of points in the Midcontinent and Northeast endured declines and the vast majority of locations enjoyed gains, some well into double digits.
The Northeast had the distinct honor of the week's greatest gaining and losing points. Gas on Tennessee Zone 4 Marcellus added 27 cents to $1.96 and gas traded on Transco-Leidy Line tumbled 43 cents to $2.06.
Regionally, the Rocky Mountains made the greatest improvement, adding 12 cents to $3.53 and the Northeast posted the smallest gain, just a penny, to $3.36.
The Midcontinent added 5 cents to $3.55 and the Midwest rose by 7 cents to $3.78. East Texas tacked on 9 cents to $3.62. South Texas, South Louisiana, and California all added 11 cents to $3.63, $3.65, and $3.78, respectively.
November futures rose 27.0 cents to $3.776.
Futures traders don't have a solid feel for the market's next move. "We got a little buying at the end of the day. There were some weather forecasts floating around calling for cold weather in the 11- to 15-day period, and maybe this thing has some legs to it," said a New York floor trader. "Maybe we go to $4, but the way it is set up it looks like it will trade next week to $3.85 to $3.90."
Legs are just what analysts have in mind. Jim Ritterbusch of Ritterbusch and Associates looks for a supportive weather outlook to maintain a firm market.
"This week's price advance has stalled following [Thursday's] failure off of expected resistance at the $3.80 level and the market's lack of response to a seemingly supportive storage figure. However, updated cold temperature forecasts are reviving buying interest this morning and fresh highs remain on the table," he said in a Friday morning report to clients.
"While further expansion in the storage overage against five-year average levels may prove difficult within EIA reports to be issued later this month, we feel that the market will need to contend with another above-normal injection [report] [this] week based on [last] week's generally mild temperature trends."
Traders Thursday were closely watching the 10:30 a.m. EDT release of storage data by the Energy Information Administration. Last year 73 Bcf was injected, and the five-year average stood at 84 Bcf. Estimates were centered in the mid-90s Bcf area. IAF Advisors of Houston calculated a build of 92 Bcf, and a Reuters survey of 26 traders and analysts showed an average 94 Bcf increase. Bentek Energy's flow model predicted an increase of 87 Bcf.
The week's 90 Bcf build helped to whittle away at the deficit to last year and build upon the five-year surplus.
Analysts saw the seemingly bullish figure more as the result of timing in the release of last week's and this week's reports. "The 90 Bcf net injection was less than the consensus expectations, in the lower half of the forecast range, but still more than the 84 Bcf five-year average level," said Tim Evans of Citi Futures Perspective. "The data remains inconsistent from week to week, with last week's larger-than-expected 101 Bcf build followed by the lower figure. This suggest some possible timing issues between the two reporting periods."
Inventories now stand at 3,577 Bcf and are 138 Bcf less than last year's record-setting build and 55 Bcf above the 5-year average. In the East Region 51 Bcf was injected and in the West Region 9 Bcf was added. Inventories in the Producing Region increased by 30 Bcf.
In Friday's trading physical natural gas prices for weekend and Monday delivery eased with points in the loss column having a slight edge over those in the win column. Prices overall fell 3 cents on average, with eastern points sustaining relatively heavy losses and certain Marcellus points suffering double-digit setbacks. At the close of futures trading, November had risen 5.3 cents to $3.776 and December was 5.2 cents higher at $3.929.
West Coast power generators utilizing natural gas reported that the recent rise in gas prices squeezed their operating margins since there was little in the way of a commensurate advance in power prices.
"The spreads weakened on this up-move, and quite a bit. Power [prices] has definitely been lagging on this up-move," said a San Diego-based power generator.
"The Q1 heat rate had been 7.8 [MMBtu/MWh] prior to the move and it came down to right around 7.0 to 7.1, and that's a pretty big move. A 7 heat rate is kind of on the lower end, and that will be your floor."
Power generators typically will not have a roster of power generation operating at a heat rate as low as 7, "and typically you are shutting off enough plants [at higher heat rates] before you get there." He added that later in the week heat rates on balance-of-the-month power rose "you had a little bit of a bounce, but it's not much for how much it had come off."
The tight power spreads and their vulnerability to higher gas prices points out that if power producers aren't careful, "you won't make any money. It's important to trade around your asset base," the generator said.
Falling gas prices for weekend and Monday delivery along with a slight improvement in western prices did offer power generators some reprieve. Quotes for gas at Malin fell 4 cents to $3.67, and at the PG&E Citygates gas came in at $4.02, down a penny. At the SoCal Citygates, weekend and Monday packages fell 2 cents to $3.84, and at the SoCal Border gas changed hands at $3.72, down 3 cents. Gas on El Paso S Mainline fell 2 cents to $3.74.
IntercontinentalExchange reported that Monday peak power deliveries at SP-15 rose $1.63 to $41.76/MWh and Monday peak power at Mid Columbia rose $2.61 to $36.60/MWh. At COB, peak power was seen at $38.39/MWh, up $1.89.
At Rocky Mountain market centers gas for weekend and Monday delivery was mostly lower. On CIG Mainline, packages were seen at $3.51, down 2 cents, and at the Cheyenne Hub gas was up 2 cents to $3.59. On Northwest Pipeline Wyoming, weekend and Monday parcels traded at $3.57, 2 cents lower, and at Opal gas was seen at $3.58, down 4 cents. Deliveries to El Paso non-Bondad fell a penny to $3.50.
Infrastructure-challenged Marcellus locations led the day's declines with double-digit losses. Transco-Leidy tumbled 32 cents to $1.77, and on Tennessee Zone 4 Marcellus weekend and Monday gas skidded 28 cents to $1.71.
Other market center points were also in the red. Gas bound for New York City on Transco Zone 6 dropped 17 cents to $3.42, and at the Henry Hub gas was traded at $3.72, down 2 cents. At the Chicago Citygates, weekend packages slipped a penny to $3.73, and at the NGPL Midcontinent Pool gas was seen at $3.63, down 2 cents.
Weather forecasts continue to feature a cooler theme. Commodity Weather Group in its Friday morning six- to 10-day outlook showed a broad ridge of below-normal temperatures centered over the Texas Panhandle and western Oklahoma but extending as far west as Nevada and as far east as Illinois.
"[Friday's] outlook offers general consistency with yesterday's themes. Progression of the forecast is the main culprit for a slightly cooler look in the middle third of the U.S. for the six-10 day compared to [Thursday]," said Matt Rogers, president of the firm. "There are some modeling options that are slower with the cold front timing into the East, offering warmer risks to the East Coast (the biggest proponent of this is the European operational). American models are also stronger than our outlook for coverage and intensity of Midwest to South below normals. The European ensembles still favor a cool-prevailing 11-15 theme, focused on the Midwest again."
Earlier in the week traders and analysts were scratching their heads following a 21-cent leap on Monday and Tuesday. The gains were in part explained by seasonality and short-covering, but in its weekly report Bentek forecast a build of 87 Bcf, well at the low end of the spectrum. In a report Bentek said the low-side risk to this week's figures was in the East Region's estimate, as the drop in supply from Canada potentially impacted storage injections in the region more than what the drop in the sample shows. It added that its "production estimates for the region show an increase of approximately 0.1 Bcf/d from the previous week, but production in the region remained 0.3 Bcf/d below the previous three-week average."