Record-high temperatures on the West Coast and typical August heat and humidity in the South and Southeast this week drove sharp gains in natural gas prices across the Lower 48 for the Aug. 17-21 week. Led by massive increases in California, NGI’s Weekly Spot Gas National Avg. jumped 20.5 cents to $2.255.
Even before the work week got under way, rotating power outages in California on Aug. 14 and 15 sparked concerns that the persistent scorching conditions would threaten the state’s power grid. However, power conservation efforts, much-needed imports and increased wind generation helped stave off disaster for the nation’s most populous state.
Demand across the California Independent System Operator footprint fell short of setting a record, even though loads reached well over 47,000 MW midweek.
Nevertheless, the heightened demand boosted spot gas prices across California to the highest levels of the summer so far. SoCal Citygate traded as high as $14.00 before going on to average $7.040, up $3.205 week/week.
Market hubs in other producing regions also climbed week/week, with increases of about 20 cents or so the norm. Double-digit gains extended across Texas, Louisiana and the Southeast as well.
Over in the East, though, weekly prices moved lower as any heat in the region proved to be fleeting. Texas Eastern M-3, Delivery prices were off 40.5 cents week/week to $1.325, while Algonquin Citygate tumbled 28.0 cents to $1.420.
LNG Optimism Drives Futures Gains
It was a dizzying week for Nymex futures, one that may foreshadow what’s to come in the days ahead as two tropical storms set their sights on the Gulf Coast just as the Nymex curve is set to flip to a new prompt month.
Futures got off to a quiet start on Monday as the September Nymex contract eased a bit with worries about storage containment still on the table. On Tuesday, however, traders attempted to close the gap with the winter strip, pushing September above the $2.40 mark. Analysts saw the move higher as sustainable overall, but cautioned that with two months remaining in the storage injection season, the risk of stocks toppling over still threatened the rally.
Indeed, after the U.S. Energy Information Administration (EIA) reported a 43 Bcf build into inventories for the week ending Aug. 14, the market appeared to acknowledge just how loose the market still is, shedding more than 7 cents at the front of the curve. Stocks are now at 3,375 Bcf, nearly 600 Bcf above last year and around 440 Bcf above the five-year average, according to EIA.
Tudor, Pickering, Holt & Co. (TPH) analysts said the focus for the rest of the injection season should be on regional balances, where some “interesting movements” were reported in the most recent EIA report. For example, the analysts pointed out that the South Central region showed a net build into inventories, bucking the trend of seasonal draws. Extrapolating five-year average builds from here through the end of October would push stocks against regional capacity by mid-October, they said.
The Midwest reported a seasonally normal build of 24 Bcf, but on this pace would exceed capacity by around 30 Bcf this fall, the TPH team said. In the East, strong cooling demand was supportive of a strong build for the reference week, but lower power generation over the past week should make for a less constructive injection in the next EIA report.
Overall, the TPH team is modeling for a 65 Bcf build versus norms of 48 Bcf in the upcoming EIA report. With another draw expected in the Pacific thanks to the persistent heat out West, “this likely means more above-normal builds in the regions that can least afford it.”
The week drew to a close with more volatility. The market was poised to head a bit lower, with weaker power burns now evident and long-range weather models failing to agree on sustained heat in early September. But after a dip to $2.280, buyers quickly returned to the market and the September contract went on to settle at $2.448, up about 10 cents from Thursday’s close and 11 cents higher than where it settled Monday. October rose to $2.573.
Like the gains garnered earlier in the week, the latest rise in futures largely stemmed from the steady increase in liquefied natural gas (LNG) demand. With Thursday’s deadline for cargo cancellations from Cheniere Energy Inc.’s terminals, and indications that fewer than 10 cargoes may be canceled for October, bullish traders pounced and sent the prompt-month to the highest settlement in months.
Bespoke Weather Services said given the softness earlier in the session, though, Friday’s rally may simply be because “no one wants to go home short with sentiment having shifted so bullish lately.”
Even still, two major storms have their sights set on the Gulf Coast, threatening production, LNG exports and domestic demand in the coming days. Two of the biggest operators in the deepwater Gulf of Mexico (GOM), BP plc and Royal Dutch Shell plc, on Friday had begun evacuating employees from platforms and rigs.
BP also was shutting in production from its four operated platforms, Atlantis, Mad Dog, Na Kika and Thunder Horse. Work was underway to secure Shell’s drilling operations, but there were no impacts to production as of Friday afternoon.
The National Hurricane Center (NHC), in its Friday afternoon update, said on the forecast track, Tropical Storm Laura would move near or over Puerto Rico Saturday morning, and near the northern coast of Hispaniola late Saturday and early Sunday. Tropical Depression 14, which would become Marco if it strengthens as expected, was on track to approach the east coast of the Yucatan Peninsula of Mexico on Saturday before moving over the central GOM toward the northwestern Gulf on Sunday and Monday, NHC said.
Spot gas markets ended the week mostly in the red as the looming storms were set to increase cloud cover along the Gulf Coast, while comfortable conditions continued across the northern United States for a couple more days.
The National Weather Service (NWS) said a persistent upper-level trough over the Deep South and a stalled frontal boundary over the Southeast should trigger scattered showers and thunderstorms. There also is a threat for excessive rainfall in the southern Appalachians, while farther north, a pair of frontal boundaries should spark showers and storms in the Upper Midwest and New England.
More rain was expected throughout the weekend from the Tennessee and Ohio valleys to the Mid-Atlantic coast and in the Upper Mississippi Valley and northern Great Lakes, according to the NWS. However, as a system moves across southeast Canada, record high temperatures were possible for southern New England and the northern Mid-Atlantic states by Monday, the forecaster said.
The prospect of record heat fueled some of the only spot market gains seen across the Lower 48. Transco Zone 6 NY prices for gas delivered through Monday were up 8.5 cents to $1.290, but prices at New England’s Algonquin Citygate stayed flat at $1.445.
Much of the West and Plains were being blanketed by a cloak of smoke from wildfires that extended from the Rockies to the West Coast, the NWS said. Elevated risks for fire weather conditions continued in portions of the Northwest and northern Great Basin and in/near the Northern Rockies as gusty winds and low relative humidity levels persisted. Record high temperatures were slated for parts of the Southwest, the Rockies and West Texas through Sunday, NWS said.
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