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Cash Market on Balance Steady, but Futures Continue Higher

Physical natural gas for Thursday delivery overall moved little in Wednesday's trading. Market strength in the Gulf, Rockies and California was easily able to balance out the double-digit losses at New England points, while Mid-Atlantic locations softened and Appalachia was mixed.

At the close of futures trading, May had managed to post its third gain in a row and advanced 5.2 cents to $4.586, while June was up 4.3 cents to $4.593. May crude oil rose $1.04 to $103.60/bbl.

New England locations suffered the day's worst drubbing as forecasts of mild temperatures throughout the area kept buyers at bay. AccuWeather meteorologist Alex Sosnowski said the “upcoming warmer weather pattern in Boston will peak on Monday but will feature several days of ideal outdoor conditions. Highs will be within a few degrees of 60 F Thursday, Friday, Saturday and Sunday, [and] a shower is possible during the day Friday."

He added that most of the weekend looked to be free of rain, and "a balmy breeze is forecast on Monday with enough sunshine to drive temperatures into the 70s. Monday will be the warmest day since early November or October."

AccuWeather.com’s forecast of Wednesday’s high of 47 in Hanover, NH was expected to surge to 63 Thursday and 62 on Friday, well ahead of the seasonal high of 54. Boston's high of 56 was anticipated to reach 61 Thursday and Friday. The normal early April high is 64. In Hartford, CT Wednesday's high of 58 was predicted to make it to 64 on Thursday and 63 on Friday. The normal high in Hartford this time of year is 58.

At the Algonquin Citygates, next-day gas dropped 18 cents to $4.98, and gas into Iroquois Waddington shed 18 cents as well to $4.94. Deliveries on Tennessee Zone 6 200 L plunged 34 cents to $5.00.

Marcellus points were mixed. Deliveries to Transco-Leidy added 4 cents to $4.15, and gas on Tennessee Zone 4 Marcellus shed 4 cents to $4.07. Quotes were also mixed in Appalachia. Dominion South was seen at $4.30, down 13 cents, and gas on Columbia Gas TCO rose 4 cents to $4.54.

Industry consultant Genscape Inc. said as weather warms, Dominion is likely to have fewer nomination issues. "Marcellus production growth has prompted more gas received in the North zone to be nominated to Dominion's South Point pool.

"During the winter, the high volume received in the North combined with a reduction in physical supplies in the South Point pool jeopardized Dominion's ability to fulfill FT obligations. Since February, Dominion has been restricting nominations sourced in the North for delivery to the South based on priority of service.

“Flows from the North to the South decreased by over 1.0 Bcf/d to 0.3 Bcf/d in the past week. As heating demand fades with warmer weather, Dominion no longer has this operational issue."

Midwest marketers said they had ended up going light on April baseload, and according to one Michigan-based trader "things are working out better. We paid $4.90 and $4.93 for [Thursday] on Consumers and Michcon, and the baseload price [with basis] was over $5.00. I think it's working out better that we didn't get as much baseload as we would have liked."

Futures market observers see the market shrug[ging] off expectations for the first storage injection of the year.

"Gas prices have now rebounded nearly 8% from last week's 2.5-month low, grinding higher amidst growing concerns surrounding the market's ability to replenish storage ahead of next winter, plus forecasts for cold weather and lingering heating demand next week," said Addison Armstrong of Tradition Energy. "But record production levels and expectations for a series of above-average storage injections in the coming weeks will likely provide resistance to rising prices until the onset of hot weather and increased cooling demands."

Analysts see natural gas priced cheaply relative to current fundamentals. Tim Evans of Citi Futures Perspective said, "March 28 storage of 822 Bcf was the lowest since 2003, but prices are only slightly more for this time of year than in recent years.

“Only the 10-year price lows from April 2012 stand out as extraordinary. Overall, this suggests that prices are fundamentally cheap with potential to trade in the $5 to $6 range instead of $4.00 to $5.00"

According to figures from Genscape, storage injections week-on-week have increased at least 2 Bcf/d in certain locales. "East Texas storage injection increased by 0.6 Bcf/d week-on-week, going from 0.3 Bcf/d of withdrawal to 0.3 Bcf/d of injection and Midwest storage injection increased by 0.5 Bcf/d week-on-week, going from 0.0 Bcf/d of withdrawal to 0.5 Bcf/d of injection," it said in a Wednesday morning report.

"California injections equaled those of the Midwest increasing 0.5 Bcf/d week-on-week, going from 0.6 Bcf/d of injection to 1.1 Bcf/d of injection and operators in Louisiana increased by 0.3 Bcf/d, going from 0.0 Bcf/d of withdrawal to 0.3 Bcf/d of injection. Southeast Mid-Atlantic storage injection increased by 0.1 Bcf/d going from 0.3 Bcf/d of injection to 0.4 Bcf/d of injection."

The Energy Information Administration (EIA) is looking for a record storage build. "Expectations for lower demand from the electric power sector compared with the past several years, as well as increasing production, should help enable a record-high stock build," EIA said in its latest Short-Term Energy Outlook (see Daily GPI, April 8).

EIA expects total natural gas consumption will average 72.1 Bcf/d this year, an increase of 0.7 Bcf/d compared with 2013. "Increased residential, commercial and industrial use offsets declines from the electric power sector, which are related to higher natural gas prices. In 2015, total natural gas consumption falls by 0.4 Bcf/d as a decline in residential and commercial consumption more than offsets consumption growth in the industrial and electric power sectors," EIA said.

Gas consumption in the power sector is expected to increase to 22.8 Bcf/d in 2015 with the retirement of some coal plants.

Traders are looking for a build of about 14 Bcf for Thursday’s inventory report. This would compare to last year's 25 Bcf pull and the five-year injection of 9 Bcf. ICAP calculates a build of 14 Bcf, and a Reuters poll of 23 traders showed an average 13 Bcf with a sample range of plus-4 Bcf to plus-20 Bcf. Tradition Energy calculates an increase of 18 Bcf.

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