Spot natural gas made it three straight days of advances Wednesday as attractive storage differentials at some Western points, along with cooler weather, prompted buying in most regions of the country. A handful of Northeast locations were the exception as the posted double-digit drops, mostly between a dime and 30 cents. At the close of futures trading May had fallen 4.6 cents to $2.141 and June had skidded 5.1 cents to $2.267. May crude oil tumbled $2.54 to $101.47/bbl.
At points along the westbound corridor for gas headed for California from Wyoming prices rose. “There’s a bunch of nuclear capacity offline in California, and that’s where the prices are highest. PG&E Citygate and SoCal Citygate are above Henry Hub,” observed a Rocky Mountain producer.
At the Cheyenne Hub, Opal and CIG, next-day quotes were higher by almost a dime. Farther west gas into Malin added 8 cents, and at the PG&E Citygate Thursday parcels rose by just a few pennies.
Three major nuclear plants providing power to Southern California remain offline while one just returned to service. According to the NGI NRC Power Reactor Status Report, the Southern California Edison 1,070 MW San Onofre 2 and 1,080 MW San Onofre 3 nuclear plants are offline, as is the 1,247 MW Arizona Public Service Palo Verde 3 facility. The 1,073 MW Pacific Gas and Electric Diablo Canyon 1 ramped up to full power in the last day or so.
Several nuclear plants are down across the country. The four serving Southern California are among 33 that are either offline or running at reduced capacity. The 20,876 MW out of commission represents a stout 21% of total U.S. capacity of 100,900 MW generated from 104 facilities.
At eastern points next-day deliveries weakened as term products held steady. “May-October Algonquin for 2012 is holding right at 42 cents [over Nymex], and 2013 April-October 2013 is about 36 cents over. Those are fairly normal spreads,” said an eastern marketer.
Deliveries into Iroquois Waddington dropped by more than a dime and gas on Tennessee Zone 6 200 L fell by more than 15 cents. Prompt gas to the Algonquin Citygate was unchanged.
Boston’s high reading Wednesday of 62 was forecast to drop to a more seasonal 52 on Thursday as the National Weather Service in southeastern Massachusetts reported that an upper level system “moves off and Great Lakes high pressure builds over the northeast U.S.A. This should mean a dry day with plenty of sunshine [Thursday].”
Midwest points scored solid gains. Packages Thursday into the Chicago Citygate added close to a dime and deliveries to Michcon and Consumers each fetched almost a nickel more than the previous day.
Futures traders see something of a lifeless market with a tendency to work lower. “We seem to rally a little bit and then we find sellers at the $2.20-2.215 area in the May. On the downside it feels like we are going to break $2.00,” said a New York floor trader. “I think we’ll see some short covering ahead of the three day weekend, but overall it looks like we are headed to $1.85, probably next week or the week after.”
The market response to Thursday’s Energy Information Administration storage report may have some bearing on how quickly the market visits $1.85 if it in fact reaches that point at all.
Natural gas storage currently stands at 2,437 Bcf, and should additions by the end of the season take storage to near last year’s level of 3,850 Bcf, the current 900 Bcf surplus would put total storage well above 4,700 Bcf, or above present capacity.
Last year at this time 29 Bcf was withdrawn and the five-year average stands at a build of 8 Bcf. Industry estimates are considerably higher with a Reuters poll of 25 analysts revealing an average 34 Bcf from a sample range of 10 Bcf to 45 Bcf. Ritterbusch and Associates expects an increase of 28 Bcf and industry consultant Bentek Energy calculates a build of 33 Bcf.
Bentek said it sees “most of the risk to the high side this week. Larger injections could be reported in the East and Producing regions, although the withdrawals in the East by NGPL and TCO support the smaller build estimated in this region.”
Analysts see the dynamic of an ever-expanding storage surplus coming to an end. “The natural gas market looks as though it is set for one more bearish DOE [Department of Energy] storage report, with estimates for the week ending March 30 coming in near our own 33 Bcf build forecast from what we’ve seen so far implying a bearish comparison with the 7 Bcf five-year average net injection for the week and another addition to what was already a 900 Bcf year-on-five-year average storage surplus,” said Tim Evans of Citi Futures Perspective.
By April 20 Evans sees the growth in the storage surplus ending “although this still leaves the market with the longer term problem of how to limit the storage total to roughly 4,100 Bcf at its November seasonal peak, when the five-year average is 3,705 Bcf. [T]he market needs to work the surplus down to about 400 Bcf over the next six months. The fact that the surplus has stopped expanding counts as progress, but the market still has an oversupply problem that will limit the upside for prices, and may leave the downside open if the progress in reducing the surplus proves slow.”
Market technicians see the market as having a lot of work to do to demonstrate any kind of market bottom. “[It was] another constructive day [Tuesday]. However, as we have noted previously, there are two key ingredients needed to complete the recipe for bottoming action: a turn higher from key support and a breach of key resistance,” said Brian LaRose, market technician with United-ICAP. “While natgas has turned higher from $2.087-1.964 support neither $2.188- 2.225 nor $2.323-2.401 has yet been exceeded. Suggest any bulls maintain a defensive stance.”
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