Gas for delivery over the weekend and Monday rose on average 4 cents Friday. Double-digit declines at some Northeast points were easily overcome by broad regional strength, and only a handful of locations showed losses.
Most major market centers were higher. The May contract posted a new 20-month high, trading as high as $4.249 before easing at the close. May settled at $4.222, up 8.3 cents, and June gained 8.2 cents to $4.261. May crude oil spiraled lower by $2.22 to $91.29/bbl.
Rocky Mountain producers are fearful of a gas-to-coal migration and subsequent loss of demand at current price levels. “It’s really kind of scary, but Bentek says natural gas has lost 2 Bcf/d in the Southeast. The analysts are all saying the Southeast is a stronghold for the gas market and Appalachian coal would come in at $4.50, but clearly it’s coming in at less than that,” said a Denver producer.
“You have to keep in mind that this is a low period for power demand, and that’s why all the nukes and power plants go down in the spring and the fall. It’s not going to stay spring down there forever; it’s going to warm up, so what do they use to replace that capacity? Is there spare coal capacity, are there enough nuclear plants coming back on line? It’s hard to say.
“I just don’t see the situation working out the way the bulls see it working out. We got lucky here. We had a great March for weather, so as a consequence we have had this huge increase in the storage deficit. Prices always go up when that happens and they go down when those factors reverse, and that is what I think is about to happen.
“There is no doubt there is a lot of momentum in this market and every Tom, Dick and Harry is bullish. I know for a fact that companies in the Rockies like Ultra and Encana have choked back production up in Wyoming for quite a while, and at these prices they are going to open up the taps.”
Deliveries on CIG Mainline were up a penny at $3.96, and at Opal weekend and Monday gas gained a nickel to $4.02. Deliveries to the Cheyenne Hub were seen at $4.04, 4 cents higher, and on Northwest Pipeline Wyoming packages were quoted at $3.98, 3 cents higher. Gas on Questar added 4 cents to $3.96.
Near-normal to above-normal forecast temperatures for New England were enough to knock the spots off prices for weekend and Monday gas deliveries. Forecaster Wunderground.com predicted that the high in Boston Friday of 45 would reach 55 on Saturday and 52 on Monday. The normal high in Boston this time of year is 54. In Hartford, CT, Friday’s high of 46 was seen jumping to 63 Saturday and 64 Monday. The seasonal high in Hartford is 59.
The National Weather Service in southeast Massachusetts said, “Mostly dry and more seasonable weather is expected Saturday through Monday. A cold front may bring a few showers to the area Tuesday or Wednesday. However, the temperature trend next week appears to be mild.”
Quotes at the Algonquin Citygates plunged 58 cents to $4.97, and gas into Iroquois Waddington slipped 17 cents to $4.99. On Tennessee Zone 6 200 L weekend, and Monday deliveries dropped 55 cents to $4.81.
Farther south on Tetco M-3 gas was seen at $4.30, up 3 cents, and on Dominion packages changed hands at $4.19, 2 cents higher. Gas deliveries to Transco Zone 6 New York, however, dropped 23 cents to $4.33.
Other market centers experienced firm pricing as well. Gas deliveries to El Paso Permian added 5 cents to $4.04, and at the Henry Hub weekend and Monday gas jumped nearly a dime to $4.21. At the SoCal Citygates, parcels were quoted at $4.30, up two cents, but at the Chicago Citygates weekend and Monday gas dropped 3 cents to $4.26.
Futures traders cited the possibility of further gains Monday. “If we come in higher than $4.254 resistance on Monday, we could test $4.35 right off the bat next week. The market feels like one of those short covering rallies, and it’s difficult to pick a top right now. Some of the shorts are getting their head handed to them, but it all depends on where we come in Monday,” said a New York floor trader.
“If we come in 5 to 7 cents lower, then it might be right back down to the $3.95 area. Monday is a key day as to where we trade.”
Other observers also suggest that the natural gas-to-coal switching price point may prove an obstacle to further price advances. “One of the few bearish considerations currently available to this market is the likelihood that utilities will be increasing coal purchases at the expense of natural gas with physical values holding above the $4 mark,” said Jim Ritterbusch of Ritterbusch and Associates. “We will also note international weakness in coal prices in which annual contracts are being cut appreciably. However, this long-awaited switching has failed to develop in force as can be partially derived from the larger-than-expected storage withdrawals of late.”
On the other hand “[W]e are still viewing the production factor as price-supportive and we still see surprises within the nuclear and hydro areas as more apt to be bullish than bearish going forward. Furthermore, an active hurricane season is being projected and will require maintenance of a significant amount of storm premium within the summer contracts. With a supply deficit likely to remain intact, this market will be much more sensitive to occasional storm threats than was the case last year, despite the fact that offshore production is less of a market factor than was the case prior to the shale revolution.”
Weather patterns going into the weekend show a hefty surge of below- to much below-normal temperatures throughout the nation’s midsection. Commodity Weather Group in its morning six- to 10-day forecast shows a large wedge of cooler temperatures from Idaho to Louisiana to Ohio. “A big ridging pattern over the Bering Sea area is forecast to drive another deep cold trough down through the middle of the U.S. next week, offering unusually strong late-season cooling for the Midwest, Plains, Rockies and Texas/South yet again,” said Matt Rogers, president of the firm.
“This could be of similar caliber to this week’s event, but there is some risk it could sneak in even stronger in some areas. Ahead of this cool surge, the East Coast runs the risk of more 70s and 80s again (especially Mid-Atlantic). The very amplified jet stream pattern is also offering offsetting hot ridging toward the Southwest with 90s there and 80s or hotter in nearby SoCal too. The 11-15 day looks less amplified but still generally ranges from seasonal to cool in the Midcontinent with warmer chances toward the Southwest/California yet again.”
Even with the cooler-than-normal temperatures forecast, the impact on heating loads is nearly nonexistent. The main impact is likely to be less call for incremental power generation. The National Weather Service for the week ended April 13 actually shows heating requirements well below normal in key energy markets. New England is expected to see just 63 heating degree days (HDD), or 83 fewer than normal, and the Mid-Atlantic is forecast to experience 58 HDD, or 70 fewer than normal. The Midwest from Ohio to Wisconsin is anticipated to see 96 HDD, or 37 fewer than normal.
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