The natural gas futures market marked the official start of fall with a quiet trading session Monday; a key support level held as traders mulled the prospect of large injections in the weeks ahead. The October Nymex contract settled at $2.527/MMBtu, down 0.7 cents after probing as low as $2.493 in the early-morning hours, while November finished unchanged at $2.555.
In the spot market, more heat in the forecast kept prices steady from the Gulf Coast to the Southeast, while milder conditions accompanied continued weakness farther north; the NGI Spot Gas National Avg. added 10.0 cents to $2.110/MMBtu.
After last week’s price declines, the market enters the new trading week with a “neutral/bullish bias,” according to analysts at Enverus.
“Prices will now test an area that provided significant buying from 2016 through early 2019,” they said. “The area around $2.50 held until the break down in late May, which set up the test of $2.00 during August. Expect this area to be tested this coming week; should it break down again, prices are likely headed back to the low $2.30s. If prices can garner the support, then the highs of last week ($2.71) will come into play.”
The latest Commitment of Traders data from the Commodity Futures Trading Commission pointed to more short-covering among speculators, according to Enverus.
“Over the last three weeks, the speculative short position has been reduced by more than a third compared with the total short position held in August,” the Enverus analysts said. “There is little evidence for what started the exodus (fundamentally) other than the annual tendency for prices to rise going into the winter period.”
Looking at recent balances, Enverus estimated a decline in total supply last week of 0.57 Bcf/d, with total demand dropping 2.16 Bcf/d. Changes included a 0.14 Bcf/d increase in residential/commercial demand and a 2.58 Bcf/d decrease in power burn, according to the firm. Liquefied natural gas exports rose 0.5 Bcf/d week/week, while Mexican exports increased 0.8 Bcf/d.
Analysts at Tudor, Pickering, Holt & Co. (TPH) told clients Monday that they’re now expecting a triple-digit injection from this week’s Energy Information Administration storage report based on what they estimated as a roughly 4 Bcf/d drop in power generation demand to close out last week. This could be the first in a “string of up to five 100 Bcf-plus injections this fall.
“The drop in power generation demand was partly” the result of former Tropical Depression Imelda, “with Gulf Coast demand falling by about 1 Bcf/d, but cooling temperatures across the Northeast also played a role,” the TPH analysts said.
Maxar’s Weather Desk said its six- to 10-day forecast Monday continued to show a “strongly amplified” pattern during the period, including “cool anomalies in the West and warmth across the Eastern half.
“When compared to the previous outlook, the forecast is cooler from the Interior West toward the western Midwest, while warm adjustments now place the period with strong aboves in the eastern Midwest and at times in the Mid-Atlantic,” the forecaster said. “Like in the nearer term, records will be challenged in the South in most days as much aboves hold steady in coverage.”
Further out in the 11-15 day period, Maxar observed cooler trends in its latest forecast for the eastern half of the nation.
“A round of below-normal temperatures are now expected to accompany high pressure into the Midwest early and East at mid-period,” Maxar said. “Most of the Eastern half still averages on the warm side of normal.”
Coming off declines recorded late last week, spot prices throughout the Midwest and Northeast were mixed Monday, with numerous locations trading below the $2 mark and at a sizeable discount to benchmark Henry Hub. Joliet tumbled 8.5 cents to $1.935. Algonquin Citygate slid 9.5 cents to $1.825.
Monday may have marked the official start of fall, but it felt more like summer to open the week across the eastern and southern portions of the country, with some areas expecting highs in the mid-90s, according to the National Weather Service (NWS).
“Relief is expected to arrive by Tuesday and Wednesday for the Northeast and Mid-Atlantic…as a cold front crosses the region and heralds a return to more seasonal temperatures,” the NWS said. “The same cannot be said for the Deep South and Gulf Coast region, where highs will likely continue to run above normal through the middle of the week.”
West Texas prices were also steady Monday as sellers in the region look forward to the imminent start of full service on the Gulf Coast Express pipeline. Waha eased a penny to $1.695.
Kinder Morgan Inc. spokesperson Katherine Hill told NGI Monday that the company is making “great progress” on wrapping up construction of the 2 Bcf/d line, which is designed to connect Permian Basin associated gas to the Agua Dulce hub in South Texas. The company is in the “final stages of commissioning” in advance of full commercial operations.
“The pipeline is expected to be placed in full commercial service shortly, ahead of the Oct. 1 target date set for the project,” Hill said.
Elsewhere, several Appalachian hubs rebounded Monday after heavy losses in the region to close out last week. Texas Eastern M-3, Delivery jumped 39.0 cents to $1.610.
A series of maintenance events on Texas Eastern Transmission (Tetco) could mean restricted flows on the system’s M-3 zone this winter, Genscape Inc. analyst Josh Garcia said. Texas Eastern M-3 forwards for December to March have traded at an elevated basis in response to a maintenance calendar released late last month, according to the analyst.
“December alone nearly doubled from plus 49 cents to peak at 99.5 cents since the calendar was released,” Garcia said. “The main trigger for this market reaction is a series of maintenance events that enacted flow restrictions along the Penn-Jersey Line, the northern leg of M-3, beginning at the Delmont, PA, compressor station (CS) and ending at the Linden, NJ, CS.
“These events were effective immediately on Aug. 29 and with an end date to be determined. Tetco listed specific capacity restrictions for the rest of the summer and winter. There are no curtailments at current maintenance capacities, but it is safe to assume that these curtailments will last into the winter due to the specific winter capacities listed, and winter capacities will constrain M-3 significantly.”
The most significant restriction will be at the Delmont CS, where winter capacity is scheduled to drop to 2.16 Bcf/d, well below peak flows of 2.93 Bcf/d recorded this past winter, according to Garcia.
“The maintenance is part of Enbridge’s Pipeline Integrity Program,” the analyst said, noting that this comes in the wake of four explosions on the company’s lines over the past year, including a fatal explosion last month on Tetco’s 30-inch diameter Line 15 near Danville, KY.
Another explosion occurred on Tetco’s system in Ohio last January. A line on Enbridge’s Westcoast Energy system suffered an explosion near Prince George, British Columbia, last fall. An explosion occurred last December on Enbridge’s East Tennessee Natural Gas pipeline in Smith County, TN.
“A recent Enbridge presentation showed updates to the Pipeline Integrity Program, where Enbridge stated that most of Line 15 is largely comprised of pipe manufactured by the A.O. Smith Corp. and built between 1952 and 1957,” Garcia said. “In fact, A.O. Smith pipe can be found throughout the Tetco system.
“As a result of the Danville explosion, Enbridge is reevaluating additional threats associated with A.O. Smith pipe…Enbridge has placed restrictions on 95 segments on Tetco for various remediation work, with 39 of those segments being restricted by 10% due to A.O. Smith pipe.”
Meanwhile, in California, with Maxar calling for highs in Burbank to rise into the 90s Tuesday and Wednesday, SoCal Citygate spiked $1.375 to average $4.175 Monday.
In a letter last week to Southern California Gas (SoCalGas), the California Public Utilities Commission (CPUC) directed the utility to “take immediate action to increase injections at all available storage facilities” in order to ensure it can “maintain reliable delivery to both core and noncore customers during the winter.”
The letter noted that “maintenance work on Lines 235-2 and 4000 greatly reduces flowing pipeline capacity in the Northern Zone” and that “this limitation is further exacerbated by the shortfall in storage inventory.” The CPUC said the 70.5 Bcf SoCalGas had in storage as of Sept.13 compares with 78.2 Bcf in storage at the same time last year.
“The CPUC’s analysis indicates that, if present trends continue, the non-Aliso storage fields will not be filled before winter,” the commission said. “With Aliso Canyon at its maximum authorized inventory, its injection capacity is no longer available. Given this situation, the CPUC recognizes the difficulty in building up storage inventory at the non-Aliso fields because the remaining injection capacity is reserved primarily for balancing.”
SoCalGas notified shippers that in order to comply with the CPUC’s instructions it will “release storage injection capacity allocated to the system balancing function each day” for injection nominations during the Timely Cycle as conditions allow.
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