The cash market took a breather from bidweek activities and managed to trade less than a penny higher overall Wednesday. Weakness at Midwest points was made up by some strength in New England and eastern points as hot, humid weather was forecast for the next three days. At the close of futures trading September had eased 3.8 cents to $3.171 and October fell 4.1 cents to $3.171 as well. September crude oil added 85 cents to $88.91/bbl.
Midwest utilities reported ongoing requests for natural gas for third-party power generation. “The power generators are still sporadic, but they are using gas almost every day now,” said a utility buyer. “We have been selling a lot of gas to them, which is good for business, but not if you have to put up with this heat wave.”
The buyer said that even with the high sales of natural gas that their injections into storage had not suffered. “They bounce us around so much that we end up injecting. On some days they don’t buy what they said they would and we end up having to inject what’s leftover. We are way ahead on our storage injections.”
“This is total peak shaving, no baseload like you would find in California. You are at the whim of the power generators whether they can bring in wind or buy power off the grid or do different things. You would think they would be hurting even more because their nuclear plant [Fort Calhoun] is down, and it’s unclear whether that will ever come up again,” the buyer said.
The experience of the Midwest buyer is unique for nationwide nuclear outages are low.
The Fort Calhoun plant is located about 20 miles north of Omaha, NE, and is just one of the 19 nuclear plants shown as either off-line or producing at less than 100% of full power in NGI‘s NRC Power Reactor Status Report. The 19 nuclear plants’ generation represents a loss of 5,700 MW out of total U.S. capacity of 100,900 MW generated from 104 facilities.
Quotes on Alliance sagged a few cents and Chicago Citygates were lower by nearly a nickel. Deliveries to Northern Natural Gas Ventura were up a couple of cents, but Thursday gas on Michcon dropped about a nickel. Gas on Consumers fell by close to a nickel.
Gas for Thursday delivery at Northeast and Eastern locations jumped as forecasts called for about three days of warm, muggy weather.
“Heat and humidity will build in the East this weekend making it feel like a sauna. Spotty, drenching storms will erupt as a result,” predicted Alex Sosnowski, meteorologist at AccuWeather.com. His forecasts call for “High pressure strengthen[ing] off the Atlantic coast just enough to drive temperatures and humidity levels upward this weekend. On average, temperatures will run five to 10 degrees higher than they have been to start the week from the Ohio Valley to the Mid Atlantic and New England.”
Deliveries to the Algonquin Citygate jumped almost a quarter and parcels on Tennessee Zone 6 200 L gained nearly 15 cents. Gas into Iroquois Waddington was nearly flat.
Other Eastern points were firm. Gas on Transco Zone 6 New York added about more than a nickel and gas on Tetco M-3 rose a few pennies.
Futures traders saw the day’s nominal decline in a positive light. “We thought that once we got down to the $3.125 level, we would see a little bit of a bounce, and we did,” said a New York floor trader.
“I think we are in good shape here. We are trading above $3 and even $3.10, and I thought once we got over $3.20, we were going to go. It didn’t quite pop, but it still looks good at this point.” He added that the market was a case of the bears having to make their case for lower prices. “Somebody has to prove something at some point,” he said.
Traders can now turn their attention to Thursday’s Energy Information Administration (EIA) inventory report. They should be able to get a better handle on the dynamic of increased power burn and just how much gas is being utilized. Indications are that another large chunk of the gas storage surplus is likely to be consumed. Tim Evans of Citi Futures Perspective is forecasting a lean build of only 19 Bcf for the week ended July 27, well below last year’s 44 Bcf increase and the five-year average of 56 Bcf.
“In terms of the fundamentals behind this declining storage surplus are concerned, we see the clearest evidence that a combination of coal-to-gas switching by power utilities and warmer-than-normal temperatures have been responsible for rebalancing the market so far,” he said.
On the production side of the ledger, Evans noted that U.S. dry gas production is up 4.5% from a year ago, according to EIA data, and recent figures show production levels that stubbornly refuse to decline.
“With production still running higher than a year ago, the natural gas market remains a weather-driven market, at risk for a cycle of long liquidation on any break in temperatures. Our preference would therefore be to buy the market at lower levels following such a break rather than risking a drop from current levels,” he said.
Other analysts see a thin build as well. United ICAP is looking for an increase of 20 Bcf and a Reuters survey of 26 traders and analysts showed an average 23 Bcf build with a range from 16 Bcf to 38 Bcf. Industry consultant Bentek Energy also calculates a 23 Bcf gain.
The tropics continue to become more active. On Wednesday the National Hurricane Center (NHC) said it was tracking Tropical Depression 5 located about 810 miles east of the Windward Islands. Maximum sustained winds were 35 mph and it was moving to the west northwest at 18 mph. NHC projects it will reach the Caribbean by Friday.
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