Physical natural gas values fell an average of approximately 8 cents Thursday for Friday delivery as the retreat was in full swing prior to the release of Energy Information Administration (EIA) storage data.
Declines at Gulf Coast points were in line with the overall market decline, but northeast and eastern locations saw double-digit declines. The EIA reported a storage build of 111 Bcf for the week ending May 31, well above what the market was anticipating, and prices tanked. At the close, July had retreated 17.4 cents to $3.827 and August was down 17.2 cents to $3.843. July crude oil added $1.02 to $94.76/bbl.
“I expect prices [Nymex] to sit here for a little while, but I think it’s going to be in this range for the foreseeable future,” said a Florida municipal buyer. “Unless hurricanes cause a one- or two-day price spike, I think prices will settle in a range of $3.90 to $4.10. I don’t see the market much more volatile than that. We have seen prices trending lower from June’s settlement of $4.148, but the heat comes back in after the storm [Andrea] leaves; 90 degrees is projected for Florida.”
He added that he didn’t see any advantage to base-loading gas. “If we baseload anything, it will be off Transco into Florida, and if anything it will be a wash.
“I think Florida cash prices will go down for the weekend as the storm will be directly over Florida, but if we see 90 degrees we will see a little hike in cash, especially the [FGT] Zone 3 basis. Last summer, the basis got to 20 to 30 cents, but June basis is currently at 11 cents.”
Deliveries to Florida Gas Transmission Zone 3 fell 8 cents to $3.91, and quotes at the Henry Hub were off by 6 cents to $3.93. Friday gas into Transco Zone 3 was seen off 7 cents to $3.86, and packages on ANR SE fell 4 cents to $3.83. Buyers on Columbia Gulf Mainline saw their prices drop by 6 cents to $3.85, and gas on Tennessee 500 L came in 9 cents lower at $3.87.
East and northeast points felt the day’s sharpest declines. At the Algonquin Citygates, Friday gas traded at $3.95, down 14 cents, and parcels into Iroquois Waddington dropped 17 cents to $4.10. Gas deliveries on Tennessee Zone 6 200 L came in 13 cents lower at $3.86.
Friday deliveries to Dominion dropped 10 cents to $3.69, and gas into Tetco M-3 was lower by 13 cents to $3.86. Gas headed for New York City on Transco Zone 6 was seen 20 cents lower at $3.82.
Forecaster Wunderground.com predicted that major eastern cities would see a drop in temperatures Friday, but more elevated readings were expected to begin next week. Boston’s Thursday high of 77 was predicted to slide to 63 Friday but make it back up to 81 by Monday. The normal high in Boston is 73. New York City’s high on Thursday of 73 was anticipated to ease to 68 Friday before advancing to 82 on Monday. The seasonal high in New York is 77. Washington, DC’s Thursday high temperature of 79 was expected to ease to 77 Friday and climb up to 82 by Monday, the normal high.
Kari Kiefer, Wunderground.com meteorologist, said “a low-pressure system will move through the eastern third of the country, bringing active weather mainly east of the Mississippi Valley. This active weather will be in the form of moderate to occasionally heavy rain from Mississippi through the Northeast. Some of this rain may come from strong thunderstorms as well. A couple of inches of rain will be possible from this system when all is said and done.”
Futures traders see a tough sell for the bullish case. “It’s hard to be real bullish on natural gas,” said a California broker. “I’m bullish up to $4.44; that’s been my number on the charts since we broke out of $3.50. We haven’t pulled back a whole lot, so the range might be a little higher than we thought right now. It seems like a frog in water. Natural gas is just finding its way up, especially as we get involved in things like LNG exports.”
As natural gas prices have found their way higher in recent months, producers have been tweaking their capital expenditure budgets. WPX Energy, for example, plans to increase gas drilling in the Piceance Basin this year to prepare for 2014, and Encana Corp. has decided to add gas rigs in the Haynesville.
Randall Collum, managing director of Supply Analytics at Genscape Inc., thinks prices certainly tell some of the story. “Part of it’s prices” that are leading producers to consider adding onshore gas rigs. “Gas is getting closer to being economic for many producers, and [WPX] has the capital budget and it can spend there because it has no oil, no liquids tying it up.” Collum said.
Encana Corp.’s decision to add gas rigs to the Haynesville Shale is “part of a big piece of them trying to figure out ways to make it economic” in the play, he said. For instance, the driller is experimenting with longer laterals going across its lease lines. They are trying to make it economic because such a big piece of their portfolio is in this play, he said.
Collum does think the domestic gas rig count is “going to bounce back up a little bit,” but there’s still going to be more liquids-rich gas drilling. Also, the rigs “are so efficient,” that the rig count won’t increase as much historically in any case.
All hands were on deck for the Thursday release of inventory data, and as expected, it showed the largest build so far of the newly minted 2013 injection season. Prior to the report analysts were thinking the price risk was to the upside of a trader consensus that formed in the mid-90 Bcf to 100 Bcf range.
Last year, 63 Bcf was injected, and the five-year pace stands at 92 Bcf. A Reuters survey of 24 analysts revealed a sample mean of 95 Bcf, and the analysts at United ICAP forecast a build of 100 Bcf. Bentek Energy, utilizing its flow model, expected an increase of 106 Bcf and saw the risk to a larger number.
Addison Armstrong of Tradition Energy expected a build of 100 Bcf. “Gas prices have pivoted around the $4.00 [area] for five consecutive days as the market looks to hold above this week’s earlier two-week low at $3.951 while traders balance forecasts for mild weather in the coming week and expectations of what might be the first triple-digit storage injection of the past couple of years against the nascent cooling demand and hurricane season risk,” he said.
His data showed a benign weather outlook with “forecasts little-changed from [Wednesday], with normal to below-normal temperatures expected across the Midwest and Northeast in the coming weeks, while Texas and the Southeast are expected to see normal to above-normal temperatures.”
Tropical storm Andrea, the first of the 2013 hurricane season, at 5 p.m. EDT Thursday was 80 miles southeast of Tampa, FL, and was heading to the northeast at 17 mph, the National Hurricane Center reported. Maximum sustained winds had reached 65 mph.
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