With sizzling temperatures in the southern United States, and cheap natural gas prices driving strong power burns elsewhere, weekly cash prices rallied strongly the first week of August. Driven by 30-cent-plus gains in Texas and Louisiana, NGI’s Weekly Spot Gas National Avg. climbed 9.5 cents to $1.850.
As daytime temperatures soared into the 90s and 100s across Texas and the Southeast, spot gas prices rallied for much of the week, moving above the $2 mark at several key locations. Benchmark Henry Hub jumped 33.5 cents week/week to average $2.090, while Houston Ship Channel shot up 30.0 cents to $2.090.
West Texas prices were a glaring exception as several pipeline maintenance events reduced flows out of the region. Transwestern prices plunged 44.5 cents from last week to average only 75.0 cents after a brief outage at a compressor station along the pipeline in New Mexico.
Gains across the country’s midsection were capped at less than 20.0 cents given the cooler weather there, and smaller increases were seen farther east as the region suffered extensive power outages in the wake of Hurricane Isaias, which washed ashore North Carolina late Monday but continued to wreak havoc up the Eastern Seaboard in the days following.
Restoration efforts continued throughout the rest of the week, with New York utility Consolidated Edison projecting that all the outages in its territory would be restored by Sunday.
Summer Rally for Futures
After a mostly sleepy summer, futures prices kicked off August with a 30-cent rally that lifted prompt-month prices back above the $2.00 mark.
Several factors aided the surge: hotter weather outlooks, stronger export demand and lower production to name a few. But none of those factors, even when taken as a whole, justified such a pronounced move, according to market experts.
Instead, many suggested that a bit of technical trading came into play, as gas was likely heading toward being oversold. Analyst Stephen Schork of The Schork Report said brokers also indicated that “new money” was coming into the market, not just in natural gas but across commodity markets, which forced shorts to cover.
“We’re guessing there were a lot of buy stops around the $2 threshold…the market really seemed to take off on Monday once this psychological level was breached,” Schork said.
Futures continued to climb on Tuesday, adding another 9 cents to the September contract, a level which held until Thursday’s Energy Information Administration (EIA) storage report put a damper on the rally.
The EIA said that Lower 48 inventories increased by 33 Bcf for the week ending July 31, right in line with the five-year average. However, the figure was less supportive for a market that was expecting a slightly lower injection. Nevertheless, Tudor, Pickering, Holt & Co. (TPH) analysts said the 33 Bcf build implies a roughly balanced market on a weather-adjusted basis.
Broken down by region, the Midwest led with a 15 Bcf injection into stocks, while the East came in with the second-highest build of 12 Bcf, according to EIA. Mountain inventories rose by 6 Bcf, and the Pacific withdrew 2 Bcf. The South Central reported a net injection of 3 Bcf, but salt facilities fell by 3 Bcf while nonsalts added 6 Bcf.
Total working gas in storage as of July 31 stood at 3,274 Bcf, 601 Bcf higher than last year and 429 Bcf above the five-year average, EIA said.
September Nymex futures went on to slide about 2 cents Thursday, a move that perplexed Bespoke Weather Services chief meteorologist Brian Lovern since the reported injection was not a large miss by any means. However, salts were a weak spot, as they posted a smaller-than-expected draw, he noted, and after such a strong run higher, “it doesn’t take much to convince some longs to step in and take profits.
“We would again stress, however, that timing moves in this market has been very difficult, as moves have been occurring without a clear catalyst.”
Consensus for the upcoming EIA report appears to be building near an injection in the 50 Bcf range, although TPH analysts are calling for a plumper 60 Bcf build. This, they said, could combine with other factors such a temporary near-term bump in production and a looser European market to drive prices back lower in the coming days.
Meanwhile, the latest weather forecasts were a touch hotter, particularly with the Global Forecast System data, which aligned better with the European model. Lovern said the picture of a hotter-than-normal pattern setting up for the balance of August, focused in the northern half of the nation, remains the story, with higher confidence given the model shifts.
“We are in an interesting dilemma where we continue to have a bullish longer-term lean, but suspect there can be a near-term pullback, as Thursday’s report, especially where the salts are concerned, was weak enough for us to be concerned that we may have rallied a little too much, too soon,” Lovern said. “First support level if we do pull back would be around $2.15.”
As it turns out, Nymex futures quickly recovered, with the September contract settling Friday up 7.3 cents day/day at $2.238. October climbed 7.1 cents to hit $2.376.
Cash Slides Ahead of Weekend
Light weekend power loads took spot gas prices across the Lower 48 down another few notches Friday, especially on the East Coast, where highs are expected to hold in the 70s and 80s for another few days. Losses were rather small, however, as heat was forecast to continue in the southern United States.
Katy hub spot prices fell 6.5 cents to $2.100, while pipeline maintenance continued to impact West Texas markets. Transwestern cash jumped 27.5 cents to average 75.0 cents, likely as a result of restored flows at a previously restricted compressor station in New Mexico. However, other pricing hubs in the region continued to slide amid new and ongoing work on El Paso Natural Gas.
Appalachia pricing was mixed amid the ongoing power restoration efforts in the region, while gains were more widespread in the Northeast, where Algonquin Citygate climbed 6.0 cents to $1.460.
Prices may fluctuate more than usual over the next few days given the slate of maintenance scheduled. Genscape Inc. reported that from Tuesday-Sunday (Aug. 16), Columbia Gas Transmission (TCO) planned work on MXP Line 100 in West Virginia. As a result, operational capacity through MXPSEG MA42 was to be reduced between zero and 194 MMcf/d for the duration of the event, depending on operating capability and market conditions.
“As a result, flows could be cut by up to 1,936 MMcf/d, posing a significant deliverability risk to Columbia Gulf Transmission,” said Genscape analyst Preston Fussee-Durham. Furthermore, the Corral gathering system interconnect would be completely shut in for the duration of the event, curtailing as much as 248 MMcf/d of receipts onto the pipeline.
During a similar maintenance event on MXP Line 100 last November, flows on Columbia Gulf Transmission’s northern portion (near StanSEG) declined by nearly 1,070 MMcf/d, while total Appalachian exports to the Gulf Coast fell by around 1,890 MMcf/d. Furthermore, overall gas production within the Appalachian basin declined by 380 MMcf/d at that time.
“While Columbia Gas has aligned the upcoming maintenance with similar flow-impacting events on Columbia Gulf (the largest consisting of mainline pipeline work affecting flows through StanSEG from Aug. 11-21 by as much as 450 MMcf/d), significant additional flow and production impacts are likely,” Fussee-Durham said.
Tennessee Gas Pipeline also has planned work Monday-Friday at the station 860 compressor station, potentially impacting flows through STA860TOSTA87 near Hickman, TN, by as much as 452 MMcf/d based on their prior seven-day average, according to the analyst. However, historical flow impacts in the region have not materialized in full and storage options could come into play, limiting the impact.
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