After an early dip into the red, natural gas futures swung higher Monday as weather models continued to show bursts of heat over the next couple of weeks. Volatility remained front and center, however, with big gains nearly erased by the close of the session.

california forward basis

At A Glance:

  • Weekend forecast mild
  • Storage surpluses to grow
  • West Coast cash climbs

As the dust settled, the September Nymex gas futures contract expired only 5.7 cents higher at $9.353/MMBtu. The October contract, which is set to take the prompt-month position on Tuesday, settled at $9.336, up 6.7 cents.

Spot gas prices were mostly higher on Monday, with West Coast markets netting the most significant increases on yet another heat wave in the region. NGI’s Spot Gas National Avg. climbed 16.0 cents to $8.975.

Although cooler weather is likely to emerge in the coming weeks for most of the Lower 48, a notable gain in cooling degree days (CDD) in one of the major weather models proved too much to ignore on the day of expiration for Nymex futures. The Global Forecast System added a hefty 15 CDDs for the next 15 days, according to NatGasWeather. The model has tended to run a little too hot in recent weeks, but the European models also added a few CDDs to the outlook.

A couple bouts of stronger national demand are expected through the middle of this week and again over the Labor Day weekend, the forecaster said. Daytime temperatures are forecast to reach the low 90s again across the southern two-thirds of the country. However, coverage of highs of 95-105 degrees is minimal and why national demand isn’t as intimidating as it’s been, according to NatGasWeather.

That said, wind generation has been low the past couple of weeks and is expected to remain so this week. This could lead to stronger power burns than temperatures alone may otherwise suggest, according to the forecaster.

“Also of consideration, we expect the weather models are going to perform poorly in the coming weeks as they attempt to resolve numerous tropical waves tracking across the Atlantic and Pacific Basins,” NatGasWeather said.

The National Hurricane Center (NHC) on Monday was monitoring the potential development of a broad area of low pressure over the central tropical Atlantic. Although conditions were only marginally favorable, the agency said gradual development was expected over the next several days. The NHC gave the system a 50% chance of formation through Wednesday and an 80% chance through Saturday.

Meanwhile, EBW Analytics Group noted that production recovered over the weekend following weeks of pipeline maintenance that had at one point sent output back below 96 Bcf/d. Pipeline nominations suggested more than 1.0 Bcf/d of supply gains over the past two weeks.

“Output appears likely to clear 100 Bcf/d by October – if not sooner,” EBW senior analyst Eli Rubin said.

If that theory proves to be true, it’s possible that the higher supply levels and moderating weather would sap some of the upward momentum in Nymex futures. After all, storage inventories could see a string of stronger injections much like they did last September.

The Energy Information Administration reported a 60 Bcf injection into storage for the week ending Aug. 19, lifting stocks to 2,579 Bcf. This is 353 Bcf (12%) lower than the five-year average and 268 Bcf (9%) lower than last year at this time.

Powerhouse Brokerage LLC noted that the average rate of injections into storage is 6% lower than the five-year average so far in the refill season, which runs through the end of October. If the rate of injections into storage matched the five-year average of 9.8 Bcf/d for the remainder of the refill season, total inventories would reach 3,292 Bcf on Oct. 31. This is 353 Bcf lower than the five-year average of 3,645 Bcf for that time of year.

As such, the balance of price risks for gas on a seasonal basis remain high, according to EBW. Rubin said traders generally remain reluctant to short futures with exorbitant upside risk. “If bullish catalysts can ignite upward momentum, substantial gains are possible later this fall.”

Roasting West Coast

U.S. spot gas prices were a mix of gains and losses on Monday, but with the majority of changes capped at around 25 cents or so. West Coast prices were a glaring exception as a prolonged heat wave sent next-day gas prices surging.

AccuWeather said an impressive ridge of high pressure was forecast to build across the West this week, allowing temperatures to steadily rise over time. With the jet stream pushed well to the north, the chances for meaningful, widespread rain were to be close to zero. 

Although above-average temperatures are in the forecast for Monday, more notable heat is expected to hold off until Tuesday and Wednesday, and potentially beyond, according to AccuWeather. Some of the most intense heat should be in the Desert Southwest and California’s Central Valley, where high temperatures are forecast to soar well above the century mark. In Fresno, CA, high temperatures were likely to reach the low 100s on Tuesday and Wednesday, potentially climbing even higher by the end of the week.

In Death Valley, CA, highs were forecast to reach 117 on Wednesday and 119 on Thursday and Friday. Portland, OR, may hit 96 on Tuesday before tapering off the remainder of the week.

“By Wednesday and Thursday, these high temperatures will begin to spill eastward into the northern Plains, all while continuing across the Southwest,” AccuWeather senior meteorologist Mike LeSeney said. “After what may be a brief break on Friday, another strong push of hot conditions will overspread the western half of the United States.”

The heightened cooling demand lifted prices at Malin up 36.5 cents from Friday’s levels to average $9.175 for Tuesday’s gas day. SoCal Citygate jumped $2.050 to average $10.980.

El Paso S. Mainline/N. Baja also picked up more than $2 from Friday, rising $2.170 to average $11.135.

In the Rockies, Opal next-day gas climbed 17.5 cents to $8.775, while Northwest Sumas tacked on 34.0 cents to reach $8.800.

Elsewhere across the country, Texas locations sported mostly $8 handles for spot gas, while most of the western part of the state remained slightly below that level. Waha cash edged up only 7.0 cents from Friday to average $7.790 for Wednesday’s gas day.

Prices throughout the Midwest and Midcontinent picked up less than a dime or so, while the potential for rain along the Gulf Coast sank prices across most of Louisiana. Henry Hub was down 25.0 cents to $9.250.

Wood Mackenzie said Cameron Interstate Pipeline on Monday began the first round of maintenance on the Holbrook Compressor Station. The work is scheduled to be carried out in phases throughout the month of September, reducing operational capacity through Holbrook by 180,000 MMBtu/d.

This has resulted in a reduced operational capacity at the Cameron liquefied natural gas delivery meter, as well, according to Wood Mackenzie analyst Kara Ozgen. “However, flows to Cameron LNG are being re-routed via ANR Pipeline instead, which posted a day-over-day increase of 119,537 MMBtu/d.”