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Northeast Spot Prices Punch Back From Multi-Year Lows; Futures Inch Higher

Physical natural gas for Tuesday delivery rebounded in Monday's trading as nearly all points were solidly in the black with only a few isolated locations failing to score gains.

The biggest winners were in New England and the Mid-Atlantic, where prices recovered from Friday lows going back as much as 16 years. Double-digit gains were common throughout the Eastern Seaboard from New England to the Marcellus. Mid-Atlantic points jumped back above the $2 hurdle. The Great Lakes, Midcontinent and Gulf Coast all managed increases of a few pennies. Futures trading was hard pressed to match the action in the cash market. October futures rose 1.3 cents to $3.850 and November gained 0.5 cent to $3.908.

A significant number of eastern points rebounded from multi-year lows. In the view of one analyst, the low prices were noteworthy but not surprising. "All summer long we have seen Northeast prices just nosediving, and it's really a product of what we have been expecting for a while, which is all the production growth and pipeline expansions facilitating getting that production out to markets," said Rick Margolin, a senior analyst with Genscape in Boulder, CO.

"Some of the pipeline expansions are going to moderate some of the price declines, but they are still not sufficient enough. The Texas Eastern TEAM project helped a little bit, but there is just so much production waiting to come online that prices are going to remain suppressed for the summer season for the foreseeable future. It may even be as long until LNG comes in. There is just a lot of production, and we haven't even started to see the Utica augment all that.

"We are starting to see a lot of demand growth in the Gulf Coast, and in the Upper Midwest we are seeing industrial demand growth for fertilizers and chemical manufacturing also. There is also some steel manufacturing in Appalachia."

Gas in the Mid-Atlantic rebounded from sub $2 pricing Friday by double digits. Gas bound for New York City on Transco Zone 6 added 37 cents to $2.07, one trading session after the point averaged a 16-year low at $1.70. Deliveries on Tetco M-3 gained 35 cents to average $2.08.

While this was certainly a record low for prices, this sort of price behavior during the shoulder months is not out of the usual, according to NGI Markets Analyst Nathan Harrison.

"Around this time of year we see temperatures in the Northeast that are not quite warm enough to turn on the A/C and not cold enough to justify heating," he said. "Since 2008, annual lows at Transco Zone 6 NY have ranged between $3.32/MMBtu to Friday's $1.70. While the 'arctic vortex' of last January has thus far managed to skew 2014 annual averages at Northeast points to the higher end, overall prices in the region have been on a downtrend due to the unlocking of Marcellus gas."

Harrison added that scheduled pipeline maintenance during the shoulder months can also have a profound impact on short-term spot market prices, particularly in the Northeast, "where available capacity for rapidly growing production is already tight. Such maintenance can have the effect of backing up gas along the system, which essentially cuts into available capacity on more than one pipeline system."

Gas at the Algonquin Citygates jumped 19 cents to $3.13, and gas at Iroquois Waddington rose 78 cents to $3.89. Tuesday deliveries on Tennessee Zone 6 200 L gained 36 cents to $3.41, and deliveries to Millennium added a stout 33 cents to $2.11.

Marcellus points were also solidly in the black. Tuesday parcels on Tennessee Zone 4 Marcellus added a hefty 38 cents to $1.94, and deliveries on Transco Leidy rose 40 cents to $2.04.

Next-day prices at eastern locations rose within the framework of higher next-day power prices, but lower forecast peak power and a moderate temperature outlook. IntercontinentalExchange reported on-peak power for delivery at the ISO New England's Massachusetts Hub Tuesday jumped $6.28 to $36.82/MWh, yet ISO New England forecast peak power load Monday of 16,270 MW would ease to 15,850 MW Tuesday and rise to 15,880 MW Wednesday.

Forecaster Wunderground.com predicted that Monday's high in Boston of 71 would ease to 70 Tuesday and drop to 64 Wednesday. The normal high in Boston is 70 this time of year. New York City's 71 high Monday was seen reaching 72 Tuesday and 74 by Wednesday, virtually right at the seasonal norm of 73. Philadelphia's high Monday of 70 was seen rising to 72 Tuesday and making it to 74 Wednesday. The normal mid-September high in Philadelphia is 72.

The National Weather Service in suburban Philadelphia said, "high pressure will build over the middle-Atlantic region tonight and Tuesday, then intensify over New England on Wednesday. By Thursday, low pressure will develop to our south, bringing a chance for rain to areas mainly south of Philadelphia. Weaker but persistent high pressure should maintain mostly fair weather for Friday through the weekend."

In the near term, gas prices in New England are likely to remain firm as Tennessee Gas Pipeline (TGP) has scheduled maintenance on Station 261 for Sept. 23-26, according to Genscape. "For the duration of this maintenance, the operational capacity of Station 261 is expected to drop from 959 MMcf/d to 400 MMcf/d. This could seriously curtail eastward flows into TGP's New England markets. Year-to-date average flows through Station 261 have been 703 MMcf/d and 655 MMcf/d for the month of September (2012-2014). The largest observed flow in September was 940 MMcf/d. These averages imply a daily curtailment of 250-300 MMcf/d during the course of this maintenance," the company said in a report.

Those curtailments may be enough to counter weather forecasts calling for minimal changes from mild seasonal norms. WeatherBELL Analytics in its Monday morning 20-day Energy Outlook called for troughs and ridges with some possible "mischief'" impacting the Gulf Coast, but bottom line for the next two weeks accumulations of both heating degree days (HDD) and cooling degree days (CDD) were forecast to be more than 40% below normal.

Joe Bastardi, meteorologist at WeatherBELL, predicted that a "trough comes and goes in the East in the front five days, [and] a major ridge balloons into the East in six-10 day. Watch the Gulf/Southeast coast in six-10 day [and look for a] Western cool pool develop[ing] in week two. It will try to send cooler air eastward, but a core of warmth develops in the East for the first two weeks of October.

"The day six pattern opens the Gulf up for possible tropical mischief, and plenty of chilly air starts invading the West in the six-10 day and holds after that, fighting its way into the Plains, but moderating rapidly eastward." By day 12, "I would look for cooling out of the major western chill to come out eastward, but modify greatly (more so than what just happened). Remember the warmth spreading through southern Canada in the six-10 day is near record, so it will cool down. The major point is that the East should be biased toward warmth and the West biased toward cool."

For the next two weeks, WeatherBELL forecasts a total national accumulation of 73 CDD and HDD. This is far less than last year's combined total of 109.8 and the 30-year average of 126.8 (CDD and HDD).

The recent range-bound trading has been characterized as "trench warfare" with prices oscillating within well defined boundaries. "Gone are the powerful, sweeping multi-month price trends that had dominated natgas from Nov 2013 into Aug 2014," said Walter Zimmermann of United ICAP in a weekly note to clients.

"Instead, we are left with a static, trench warfare and a very narrow 'no-man's land.' Still, peg this no-man's land to the space between $4.050 resistance and $3.780 support. In the bigger picture still peg $4.380 pivotal, long term resistance and $4.380 key, long-term support. By the way, this style of congestion this time of the year has always been bottoming action. So bears beware."

Tom Saal, vice president at INTL FC Stone, in his work with Market Profile is looking for the market to test last week's value area at $4.013 to $3.897 and "maybe" test $4.418 to $4.326 "if time permits." October options trading ends Thursday and the October futures contract expires Friday.

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