As the gas futures market continued to fall Monday, approaching the $6/MMBtu area, eastern cash markets tumbled another 25-45 cents on below-normal temperatures and plenty of rain. Perhaps the best bearish indication available was the 40-cent price drop in the New England market despite the complete shut-down of the Sable Offshore Energy Project’s 400 MMcf/d of gas production.

Maritimes & Northeast Pipeline said Sable producers shut down their production facilities May 13 and will keep them out of service through May 20. No gas supply will be available from the Sable project during the outage, which will be used to add compression and potentially increase supply. The only receipt point that could be used by Maritimes shippers during the outage is the Westbrook interconnect with the Portland Natural Gas Transmission System.

Nevertheless, New England marketers saw little reason to expect any rebound in the marketplace. “Sable was a pretty big hit, but we’ve been aware of it for so long that people have adjusted to it, and there’s no demand out there anyway,” said a New England-based trader. “A lot of generation is just turned off right now. I think Sable producers plan to bring even more production on when they return. We’ll have to wait and see on that. But by and large, I would expect continued downward pressure on the market going forward.”

Bentek Energy’s Natural Gas Hub Flows report Monday showed flows down nearly across the board. Transco Zone 6 New York was down 3% to 1,426,000 MMBtu/d. Niagara was off 15% to 793,000 MMBtu/d (see https://intelligencepress.com/features/bentek/).

“It couldn’t be more bearish in the cash market right now,” said a Northeast marketer. “Outside of storage injections there is nothing out there to support this. There’s no cooling demand; there’s no heating demand, except maybe a very small amount at night. It’s the one time of the year that you can have no gas coming in on Maritimes and there’s no impact. This rain is really keeping temperatures down.”

Heavy rain and major river flooding continued to plague New England. Flood warnings and watches were widespread Monday. The Merrimack River in Lowell, MA, was expected to reach its second highest crest on record, exceeded only by the flood triggered by the Great New England Hurricane of 1938, Weather.com reported. The heaviest precipitation was focused on northeastern Massachusetts, southern Maine and southern New Hampshire, where more than eleven inches of rain have already fallen in some spots. An additional inch or two was expected to come down Monday.

“Basis is 30-40 cents, so it just can’t get out of its own way falling down,” the Northeast marketer said. “You are basically at the bottom with basis. It is going to stay soft like this at least for the week. But in terms of basis, it would be tough to say we will get much weaker than we were today.”

Nevertheless, he predicted forward markets would continue to fall. “It is going to get to a point where unless there are some major supply interruptions or a severe uptick in demand we are going to run out of room for gas. We’re not bringing really any LNG into the country so you can’t turn that off. Gas is going to have to get down and compete with coal-fired generation in the South toward the third quarter. So there’s a least another couple bucks to the downside on the out-months [in the futures market].

“It’s funny that the market is still telling us to inject gas into storage; there’s still a massive premium to do so,” he said, noting that there is a $2.86 price spread between June and November futures. “It would make you think that the storage situation is just the opposite of what it is (currently it’s 56% above the five-year average). Prices are going to have to fall a whole lot more to draw that next tranche of gas demand, possible the $4.50 to $5.00 level.”

He said the futures market currently seems to be tied too tightly to fears of summer heat and hurricanes to realize the magnitude of the storage situation. The crude oil market finally gave a little ground Monday, dropping $2.63 to end the day at $69.41. Gas futures slipped 15.7 cents to end at $6.123. “I think we’ll hover around this $6 area for at least a few more days, maybe a week before we see another step down in prices,” said a futures broker.

The futures market continues to get a steady supply of information to fuel hurricane fears. AccuWeather forecaster Joe Bastardi released his hurricane forecast Monday, calling for an active hurricane season with six tropical cyclones that will make landfall in the U.S., five of them likely to be hurricanes, with three being major hurricanes of Category 3 or greater.

“Early in the season — June and July — the Texas Gulf Coast faces the highest likelihood of a hurricane strike, possibly putting Gulf energy production in the line of fire,” Bastardi said. “As early as July, and through much of the rest of the season, the highest level of risk shifts to the Carolinas. From mid-August into early October, the window is open for hurricane strikes to spread northward to the more densely populated Northeast coast. At the very end of the season, southern Florida also faces significant hurricane risk.”

“There are few areas of the U.S. East Coast and Gulf of Mexico that will not be in the bull’s eye at some point this season,” said Ken Reeves, AccuWeather’s director of forecast operations. “Ironically, though, the region that was hammered the hardest last year — the central and eastern Gulf Coast — has one of the lower probabilities of receiving another major hurricane strike in 2006.

“This is not to say that hard-hit New Orleans has nothing to worry about. Because the city’s defenses have been so compromised by Hurricane Katrina, even a glancing blow from a hurricane elsewhere could spell trouble for the city.”

It’s hard to tell how much of that is real weather data and how much is a sales pitch, said a western gas marketer. “They rarely get week-ahead forecasts right, let alone the landfall of an Atlantic hurricane months ahead of schedule,” he noted.

With hurricane fears continuing to prevent a major collapse in prices, the market has overlooked the significant storage surplus, he noted. For example, last week Southern Natural informed its shippers its storage already is 70% full. Bentek Energy President Porter Bennett said on Monday that under several likely scenarios Southern’s storage will be full well ahead of schedule. If Southern maintains the storage injection pace it set last year, its 60 Bcf of storage will be full by Sept. 14, a month and a half ahead of the end of the injection season, Bennett said. In perhaps the worst case scenario, if Southern maintains its maximum weekly average injection so far this season of 1.9 Bcf/week, its storage will be full by July 13.

Furthermore, no one would believe that Southern is alone in being well ahead of schedule. Multiple other storage operators are in the same boat and are likely to have their storage full and unavailable for injections well before Nov. 1.

“SoCal is already limiting the amount of park and loan deals that they are willing to do so that’s telling me they are way ahead of schedule on storage,” said a Southern California marketer. “Hydro also is in a very solid situation right now in the West. The norther tier of states have been getting drenched. Meanwhile, we have several nukes coming back online. San Onofre came back last week in San Diego County. And it’s pretty cool in Southern California. I have some heating load rather than air-conditioning load. Everything indicates this market will move lower.”

But in the West on Monday, spot prices surprisingly moved higher. Although, parts of Southern California were cool, it’s hotter than normal in the Southwest. Permian and San Juan Basin prices moved up about a quarter Monday. Several Rockies points added more than 20 cents, and Southern California Border prices advanced nearly 30 cents to the upper $5.20s.

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