Physical natural gas prices Wednesday for Thursday delivery fell an average of 8 cents nationally as double-digit, power-driven declines in the East and Northeast prompted declines in next-day gas that at some points exceeded $1.00. On the West Coast, however, prices made small advances as the independent system operator predicted high next-day power loads. At the close of trading the expiring July contract had added 6.0 cents to $3.707 and August rose 6.7 cents to $3.737. August crude oil gained 18 cents to $95.50/bbl.
Next-day gas prices at California points gained a couple of pennies as power demand was expected to be strong. The California Independent System Operator (CAISO) reported that Wednesday’s peak load was expected to reach a stout 38,110 MW, but Thursday’s peak was predicted to reach an even greater 41,334 MW. It’s still June, and California appears capable of taking out 2012’s peak load of 46,846 MW reached last Aug. 12. CAISO also reported that at 12 p.m. PDT solar power was contributing 2,200 MW and wind was adding 1,300 MW.
Next-day power prices at California points and delivery locations into into the state posted healthy gains. IntercontinentalExchange reported that day ahead peak power deliverable Thursday at NP (North Path) rose $7.29 to $51.54/MWh, and day ahead peak power delivered to SP (South Path) added $9.21 to $56.56/MWh. In addition next-day power at Four Corners rose $13.75 to $58.00/MWh, and power into COB rose by $5.10 to $39.27/MWh.
The firm power price environment was likely able to keep West Coast next-day gas firm. Gas for delivery to PG&E Citygates fell a penny to $3.82, and gas delivered to SoCal Citygates rose a couple of cents to $3.93. Thursday packages to SoCal Border added 2 cents to $3.76, and gas on El Paso S Mainline came in at $3.81, 3 cents higher.
Forecasts of load-killing cooler temperatures and storminess kept Northeast and East Coast points on the defensive. Wunderground.com meteorologist Kari Kiefer said, “Active weather becomes more focused over the East on Wednesday as low pressure in the Central Plains lifts northeastward into the Upper Great Lakes and it’s associated frontal boundaries become draped from the Northeast through the Central Plains.
“Sufficient moisture streaming from the Gulf of Mexico will pool along and near the boundary, leading to showers and thunderstorms from the Midwest into New England areas. More moderate to locally heavy precipitation is expected ahead of the low in parts of the Ohio Valley and Great Lakes.”
Gas quoted for delivery Thursday to the Algonquin Citygates tumbled $1.02 to $4.16, and deliveries to Iroquois Waddington skidded 40 cents to $4.13. Deliveries on Tennessee Zone 6 200 L shed 81 cents to $4.16.
Other points were also soft. Gas on Dominion was seen 32 cents lower at $3.26, and deliveries to Tetco M-3 fell 13 cents to $3.74. Gas bound for New York City on Transco Zone 6 dropped 43 cents to $4.17.
In spite of natural gas prices at three-month lows, traders see a positive future for natural gas albeit at the expense of what was a viable coal industry. On Tuesday, President Obama “was deciding that the coal industry was completely and utterly ruinous, even though the technologies in ‘clean coal’ have changed dramatically,” noted a California broker (see related story).
“The advent of technology and innovation has changed the landscape of coal as a viable source of long-term power without destroying the atmosphere, but that doesn’t matter to him. If you had been trading energy and had been short Peabody Energy, you would have to say that this is the greatest short of all time, all because of [Obama’s climate change initiative]. Peabody “five years ago was in great shape, now not.”
“As far as natural gas goes, that’s one of the reasons it has been holding the upper $3.00s, and also the fact that crude oil has been holding at $95/bbl.”
Thursday morning will give traders a chance to digest weekly storage figures and see if natural gas prices can continue to hold the upper $3.00 range. Expectations are to the bearish side inasmuch last year at this time 58 Bcf was injected and the five-year average stands at 79 Bcf. This week estimates are about 10 Bcf higher.
IAF Advisors of Houston predicts an increase of 88 Bcf, and a Bloomberg survey showed an average 89 Bcf build. Industry consultant Bentek Energy utilizing its flow model calculates an 88 Bcf increase.
MDA Weather Services in its morning six- to 10-day forecast shows heat and humidity working their way into the Northeast. “While the core heat remains focused out West, the Northeast has also slowly been trending warmer — a theme that has continued today [Wednesday]. Small cooler tweaks were made from the Desert Southwest to Texas.
“Though the chance for daily showers and storms still exists, ridging overhead and southerly flow will provide a period of ‘aboves’ across the Northeast, where it will be rather humid as well.” The “West is still hottest, however, with peak heat coming late in the one-to-five day into the start of this time.”
Tim Evans of Citi Futures Perspective calculates a 90 Bcf injection for Thursday’s Department of Energy (DOE) Energy Information Administration storage report, and by mid-July his figures show the year-on-five-year storage deficit at 42 Bcf, about where it is now (47 Bcf). He calls his 5 Bcf narrowing of the storage deficit “broadly neutral. As we’ve been noting neutral storage flows, while consistent with sideways price chop, can also allow prices to trend in the absence of stronger fundamental guidance.
“On Tuesday, it looks as though the market was testing the idea that demand wasn’t strong enough to prevent a price decline,” he said. Evans attributed Tuesday’s decline to “an updated forward temperature forecast slightly cooler than a day ago [that] weighed on prices, as did expectations for an above average storage injection in Thursday’s DOE storage report for the week ended June 21.”
Figures from the National Weather Service (NWS), however, show that at least in the near-term, cooling requirements are expected to be well above normal. For the week ended June 29, NWS predicts higher than average accumulations of cooling degree days (CDD). New England is expected to see 78 CDD, 54 more than normal, and New York, New Jersey and Pennsylvania are forecast to have 83 CDD or 44 more than the normal seasonal tally. The Midwest from Ohio to Wisconsin is predicted to see 83 CDD also, 39 more than normal.
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