Cash natural gas prices fell on average just over a nickel Thursday as weather continued to moderate and buyers balked at buying spot gas and resorted to storage gas withdrawals. Nearly all points experienced losses, and the biggest declines were seen on New England pipelines. Eastern points were also weak, and in the Midwest, prices slipped just under a nickel.
The Energy Information Administration (EIA) reported a withdrawal from storage of 94 Bcf, the largest March week 4 withdrawal ever, and after trading as low as $3.861 May futures managed to settle well into the black. At the close May was up 4.7 cents to $3.947 and June had gained 4.0 cents to $3.990. May crude oil continued its trek lower losing $1.19 to $93.26/bbl.
“We’re just trying to get our storage empty,” said a Midwest utility buyer. The buyer admitted that purely from a cost basis it would be better to use spot gas rather than the higher WACOG inventory gas. “We incurred additional cost from last year for having too much gas left in storage, and we are trying to get rid of all those costs and start over fresh. We hope to have a better WACOG going forward.”
The buyer reported that their March sales were 25% over budget. “It’s like a 180 degree change from last March, and for April we won’t have as much gas coming at us. We are also filling a large LNG tank that we will use for peak shaving this summer and also to supply LNG for trucking.”
Moderating temperatures throughout the Plains and Midwest tempered any early spring heating needs. Wunderground.com forecast that the high in Omaha Thursday of 67 would rise to 70 on Friday and make it up to 72 on Monday. The normal high in Omaha this time of year is 60. Kansas City’s 63 high Thursday was anticipated to reach 66 Friday before reaching 70 on Monday. The seasonal high in Kansas City is 62. Denver’s 72 high Thursday was predicted to jump to 77 Friday before slipping to 70 on Monday. The normal high in Denver is 59.
Gas for delivery Friday on Alliance slipped about three cents to $4.08, and at the Chicago Citygates next-day deliveries were down 4 cents to $4.06. At Northern Natural Ventura Friday parcels were seen 5 cents lower at $4.00, and at Demarcation prices slid 4 cents to $3.99. Gas on ANR SW was down a cent at $3.77, and on NGPL Amarillo Line Friday gas fell a nickel to $3.86.
New England pipelines led the parade lower with their signature volatility. At Algonquin Citygates, Friday packages were seen 45 cents lower at $4.85 and gas into Iroquois Waddington fell 29 cents to $4.97. On Tennessee Zone 6 200 L, Friday deliveries tumbled 54 cents to $4.82.
High temperatures in the East were expected to be well above normal. Wunderground.com forecast that the high in Boston Thursday of 56 would reach 57 on Friday and 61 Monday. The normal high in Boston is 51. In New York City, high temperatures Thursday of 59 were expected to rise to 66 Friday and ease slightly to 64 on Monday. The seasonal high in New York is 57.
Gas on Dominion was seen 6 cents lower at $3.98, and deliveries to Tetco M-3 slipped about 5 cents to $4.20. Gas headed for New York City on Transco Zone 6 fell 40 cents to $4.70.
The main price driver of the day as far as futures traders were concerned was the morning release of inventory data by the EIA, and to some degree analysts were in uncharted territory. Those attempting to estimate the storage withdrawal were finding shoulder season conditions tricky as expectations put the figure at the highest ever week for withdrawal during March. In addition the long term storage surplus was expected to fall into deficit, a condition not seen since September 2011.
“Operators are operating in a typically confusing manner at the moment — standard fare as we edge into the shoulder period again,” said John Sodergreen, editor of Energy Metro Desk (EMD). “We see a confusion of economic and physical impulses driving this behavior, making forecasting a little sketchy. We note that the three categories we track [surveys, banks and individuals] has a modest 2.7 Bcf between the highs and lows (well short of the 3 Bcf necessary to point to a surprise).”
The actual 94 Bcf pull was close to what analysts had predicted. The EMD survey showed an average pull of 92 Bcf, and Drew Wozniak at United-ICAP calculated a 90 Bcf withdrawal. A Reuters survey showed a 91 Bcf average, and Bentek Energy calculated a 94 Bcf pull. Last year, 43 Bcf was injected and the five-year average stands at a 4 Bcf build.
Even with the unseasonal withdrawal, traders are looking for a spot to sell. “It’s just a matter of time before we trade lower. This market is extremely long,” said John Woods of J. J. Woods and Associates. “What we are looking at is a market that needs a correction and it hasn’t had it yet. I’d love to sell up against $4.”
The withdrawal for the week was large enough to swing the year-on-five-year average surplus to a deficit. Inventories now stand at 1,687 Bcf and are 779 Bcf lower than last year at this time and 37 Bcf below the five-year average. In the East Region 48 Bcf was withdrawn, while the Producing Region withdrew 42 Bcf. Inventories in the West Region came off by 4 Bcf.
The Producing region salt cavern storage figure decreased by 12 Bcf from the previous week to 166 Bcf, while the nonsalt cavern figure declined by 29 Bcf to 529 Bcf. The EIA first split Producing Region facility types in storage report footnotes in March 2012 in an effort to give analysts and industry more comprehensive information on the relationship between natural gas inventory changes and types of storage facilities (see Daily GPI, March 26, 2012).
Weather forecasters reported only a slight change in their six- to 10-day outlook. WSI Corp. said Thursday’s forecast was “slightly warmer over the Northeast early, but slightly colder over the East late in the period.”
Addison Armstrong of Tradition Energy in comments to clients Thursday contended that the market is now shifting “its focus to the drop-off in demand from the arrival of warm weather and the restart of a number of idled nuclear power plants as spring maintenance and refueling programs wrap up. Weather forecasts continue to provide growing resistance to gas market rallies, with normal to below-normal temperatures expected across the East in the next five days followed by a shift warmer during the middle part of April.”
Traders may have an eye on recent gains coal has been making over natural gas in the power demand sector. While March electricity demand was driven by colder weather to a 2% gain over March last year, natural gas-fired generation plummeted 11% below March 2012 levels, according to Genscape, an energy information and analysis provider. The company’s Generation Fuel Monitoring Service said renewable energy generation also decreased 14% in March of 2013 versus last March.
“Coal-fired generation captured nearly everything lost by renewables and natural gas, surging 21% higher in March of 2013 compared to March 2012,” the company said.
Blame rising gas prices. Genscape estimates that over the past year gas prices have risen more than 60%, while coal prices are only up about 2%. As a result, in March coal-fired generation was 53% higher than gas fired generation. “At this point last year, natural gas was economically competitive with nearly every delivered coal — even low cost Powder River Basin coal. Now only higher heat content coal delivered to the Southeast U.S. remains out of the money,” said Genscape analyst Stephen Maestranzi.
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