Physical natural gas for Wednesday delivery fell nominally in Tuesday's trading. Broad, though modest, gains in the Gulf Coast, California, and Great Lakes were unable to offset cascading quotes in the Northeast, Appalachia and Marcellus. Bigger picture, some storage operators expressed concerns regarding the rate of refill to date.
Overall, physical prices eased about 4 cents. Futures took an unexpected turn higher as analysts noted weather forecasts likely to inhibit timely and important storage injections in upcoming weeks. The June contract gained 11.1 cents to $4.799, and July added 10.3 cents to $4.818. June crude oil gained 2 cents to $99.50/bbl.
Next-day prices at Appalachian and Marcellus locations fell as increasing volumes out of the Marcellus along with moderate eastern weather forecasts lessened the need for incremental volumes. Exports into Appalachia have also been impacted. "Marcellus production growth has displaced some of the need in the Northeast for gas imports from the Midwest. Midwest exports to Appalachia have declined -0.2 Bcf/d in the past week to 1.4 Bcf/d," said industry consultant Genscape.
"This flow averaged 1.5 Bcf/d in the past 30 days, compared to 2.4 Bcf/d of flow in the same 30-day period of the previous year. Midwest exports gas into Appalachia via REX, Panhandle, ANR, TGT, TETCO and Crossroads. Most of the decline is reflected on REX, Panhandle and ANR. REX flow decreased the most, from 0.8 Bcf/d last year to 0.3 Bcf/d in the past few days. The first three months of this year are the only months in which the flow held flat to the level of the previous year. In April, Midwest exports to Appalachia declined by over -0.8 Bcf/d. In May, Midwest exports to Appalachia have dropped by over 1 Bcf/d," the firm said.
The National Weather Service in suburban Philadelphia reported that "high pressure extending south from the Great Lakes [Tuesday] will move eastward tonight and Wednesday and then shift offshore by Wednesday evening. Southerly return flow on the back side of the high will bring increasingly warm and moist air into the region on Thursday and Friday. A weak cold front is forecast to cross the area on Saturday or early Sunday but will likely stall just to our south and bring mild but somewhat unsettled weather into early next week."
Gas for Wednesday delivery on Transco Leidy fell 50 cents to $3.12, and packages on Tennessee Zone 4 Marcellus shed 50 cents to $3.08. On Dominion South, gas changed hands at $3.91, down 8 cents, and deliveries to Columbia Gas TCO rose a nickel to $4.75.
Parcels bound for New York City on Transco Zone 6 fell a penny to $4.12, and gas on Tetco M-3 Delivery fell 4 cents to $4.05.
In the Northeast, prices tumbled as weather forecasts called for mild, seasonal conditions. AccuWeather.com predicted that the Tuesday high in Boston of 62 would rise to 65 Wednesday and slip to 63 on Thursday. The seasonal high in Boston is 63. Hartford, CT's high Tuesday of 66 was expected to reach 68 by Wednesday before easing to 64 Thursday. The normal high in Hartford in early May is 69. Providence, RI's Tuesday high of 66 was seen making it to 67 Wednesday before dropping to 64 by Thursday. The seasonal high in Providence is 66.
At the Algonquin Citygates, next-day deliveries tumbled 60 cents to $4.40, and gas into Iroquois Waddington shed 5 cents to $4.85. Gas on Tennessee Zone 6 200 L was off by 35 cents to $4.44.
Both Columbia Gas Transmission and Dominion Transmission have indicated problems gaining momentum on their storage refill following the extreme winter.
Columbia is advising its customers to increase their storage injections starting in early May, noting a continuing low level of gas in storage. The pipeline advised that as of May 2, the 40.2 Bcf in storage is approximately one-half the 80.1 Bcf in storage on May 3, 2013 and a little over one-third the 118.7 Bcf on May 4, 2012.
For Dominion, the working gas level as of May 1 was 47 Bcf, less than half the May 2, 2013 level of 102 Bcf, and a little over one-fourth of the 177 Bcf on May 3, 2012.
A Columbia pipeline notice to customers said that as of the beginning of May, firm storage inventories stand at 20% of storage contract quantity (SCQ), or almost 7% lower than typical.
"This raises concerns about customers expecting to inject at higher rates later in the season. If the majority of storage customers take this approach, demand for storage injections late in the season may exceed TCO's injection capabilities," Columbia said, warning that higher than scheduled injections will not be possible in the fall since as storage inventories increase, so do storage pressures, making injections more difficult.
Columbia said customers reaching an inventory balance of between 55% and 60% of their SCO by July 1 would bring levels back to the historical norm. Early last month the pipeline warned that the unusually long and severe winter had left storage at extremely low levels and loosened some of its rules to allow more injections in April (See Daily GPI, April 4).
Gulf Coast points for Wednesday delivery posted solid gains. Parcels on ANR SE came in 6 cents higher at $4.70, and deliveries to Tennessee 500 L added 4 cents to $4.74. Gas at the Henry Hub rose 7 cents to $4.79, and gas on Columbia Gulf Mainline changed hands 4 cents higher at $4.68.
May weather is not seen as conducive to a desirable storage build. "Although there were relatively minor overnight changes in the weather models, the variable pattern emerging may enable the western heat to move eastward, significantly warming Texas and the southeast," said Teri Viswanath, director of commodity strategy, natural gas at BNP Paribas. "By comparison, mild weather in the Southeast last year (with Georgia recording the 12th coolest observation) enabled a stout 413 Bcf build in inventories during May, outpacing the 392 Bcf five-year average but falling short of the record 465 Bcf set in 2009. We expect that the emerging weather load now threatens to curb the aggregate stock build this month, expanding the year/year storage deficit, which in turn will likely re-accelerate the rally.
"Notwithstanding the supportive weather forecasts, there is also a possibility that gas generation will play a more significant role in meeting the incremental cooling demand this month. Although the spring maintenance season for U.S. nuclear plants peaked mid-April, the industry shift from an 18-month to a 24-month refuel cycle appears to have lengthened the typical outage duration. With roughly 4 GWs of incremental nuclear units offline this week compared to year-ago levels, this increased cooling demand will likely be met with gas-fired replacement units," she said in a Tuesday morning note to clients.
Although shoulder season weather is typically not a market driver, forecasters hint that the summer may be cooler than the burners of the last few years. Joe Bastardi of WeatherBELL Analytics in his Tuesday morning 20-day forecast is utilizing the GFS (Global Forecast System) and in the first five days "sees a trough digging into the West and ridging in the East. In the middle five days a trough translates eastward with colder air replacing warmth, [and] for Days 11-16 and beyond, warmth in the West and a cool East, northern Plains and Great Lakes tries to come out again. [The] pattern becomes much wetter farther west in the Plains."
Bastardi notes cooling forecast by the European model in the 11- to 15-day period. "This is major chill as the normal course for modeling is to get more amplified as you get closer to the time in question as the ensemble members home in on specifics. The pattern grows significantly wet farther west in the Plains, which may be a precursor to the cooler regime I think will get established this summer, relative to the scorching hot summers early in the decade."
Market technicians hint that a near-term market top may be brewing. "With Monday's early advance rejected by the lower bounds of our proposed rising wedge the case for peaking action continues to gain traction," said Brian LaRose, a technical analyst with United ICAP. "However, to confirm a top is in place at $4.852, $4.620-4.611 must be broken. [We] see the A=C objectives from $4.893 (June) as our downside targets if this can be accomplished. 0.618 of "a"="c" cuts at $4.458. "a"="c" targets a double bottom at $4.214," he said in closing comments Monday to clients.
Others also hint that the downside is in play. "Expectations for some cool temps next week might be offering support while mild patterns this week are likely spurring some selling," said Jim Ritterbusch of Ritterbusch and Associates. "Meanwhile, cooling degree days are beginning to take on more importance in some of the southern regions and could contribute to a reduction in this week's storage injection relative to the prior week. We will be looking for a build in the 70-75 Bcf region, a hike that would likely wouldn't exert much price impact. While we ultimately see fresh highs, momentum has shifted from bullish to bearish as a result of some chart damage last week on the technical side and back to back larger than expected supply builds on the fundamental side. Our basic trading theme remains one in which prices will need to remain significantly elevated in order to goose production further and force further switching away from gas toward alternatives such as coal. But, at the same time, we see the market moving into a lull."