Even with warmer risks in the latest weather models, cold shots that could continue well into November led to a more than 10-cent swing in prompt-month natural gas prices on Tuesday. The Nymex November gas futures contract eventually settled at $3.212, up 7.4 cents on the day. December was up 6.9 cents to $3.283, and the winter strip (November-March) climbed 5.5 cents to $3.228.
Spot gas prices were mostly higher as reinforcing cold fronts forecast for the Midwest and Northeast for the rest of the week continued to drive up prices there, while chilly, wet conditions in Texas led to smaller gains in that region. The NGI National Spot Gas Avg. climbed 10 cents to $3.335.
The Nymex November contract opened the session right at $3.13 support, briefly dipped into negative territory but then charged higher as buyers swept in as they have anytime prices have moved to this level, according to NatGasWeather.
Overnight weather forecasts were quite mixed as Global Ensemble Forecast System guidance maintained long-range warm risks, while European guidance modestly decreased them, but only after significantly warming the short and medium range, Bespoke Weather Services said. Canadian guidance remained the most bullish, showing risk for a more sustained negative Eastern Pacific Oscillation ridge upstream in the long range that could sustain cold in the middle of the country, the firm said.
“We cannot rule this out, but with far more limited downstream blocking, thanks to a Madden Julian Oscillation movement toward Phase 3, we would look for ridging across the East to at least temporarily win out through early November, and also would expect any cold shot to not be sustained,” Bespoke chief meteorologist Jacob Meisel said.
Therefore, Bespoke said it could see transient cold shots continue through the first couple weeks of November “but nothing like what we have seen in October.”
Still, some market observers weren’t quite as convinced as weather models have flipped almost daily for the last several days. “Weather model volatility remains sky-high today,” EBW Analytics CEO Andy Weissman said Tuesday.
Indeed, midday data Tuesday maintained a chilly Midwest and East pattern into early next week, although it wasn’t quite as cold. It was, however, a touch colder again over the Midwest, NatGasWeather said.
Meanwhile, some forecasters have predicted the return of seasonally normal weather by Day 15 and colder-than-normal weather in mid-November. “If the 15- to 21-day forecast continues to trend in this direction, the November natural gas contract could find support above $3.00/MMBtu,” Weissman said.
Bespoke agreed that “colder long-range risks may be spooking the market” and said with power burns revised tighter and Canadian imports remaining off, this could keep a bid under the market. “In fact, with cash firm, this fits with our idea of model volatility increasing opportunities as prices are unlikely to trade in a straight line here, but with warmth likely winning out and production at record highs, bounces likely fail and $3.10 is still in play,” Meisel said.
Meanwhile, storage deficits appeared set to increase after Thursday’s Energy Information Administration weekly storage report, and therefore, the background state remains bullish, according to NatGasWeather.
The weather firm expected storage deficits to grow by more than 30 Bcf after the report, with further increases next week as cool conditions this week are accounted for, increasing deficits to more than 650 Bcf.
“Deficits are likely to improve at least some on the milder first week of November pattern, but still not an exceptional amount,” NatGasWeather said.
The weather data remains critical as the markets search out for when the back end of the 15-day forecast will again become colder than normal across the northern and eastern United States, “since it’s possible the milder pattern might only last around five days, although needing to prove it,” the forecaster said.
Cold Fronts Drive Northeast Rally
Spot gas prices were mostly higher Tuesday as a reinforcing cool shot was forecast to sweep across the Midwest, Mid-Atlantic and Northeast through Wednesday, making for stronger-than-normal demand, according to NatGasWeather. A second reinforcing cold shot was expected to follow across these same regions this weekend into early next week, likely slamming into remnants of Hurricane Willa, which was expected to make landfall Tuesday evening as a Category 3 storm along the west-central coast of mainland Mexico.
In its 3 p.m MT update, the National Hurricane Center said the eye of Willa was approaching the west-central coast of Mexico, about 70 miles south of Mazatlan. Maximum sustained winds were near 120 mph with higher gusts, and little change in strength was expected before landfall. Rapid weakening was expected after landfall, however, and Willa was forecast to dissipate over northern Mexico on Wednesday.
Already, the Southwest and Texas were seeing increased tropical showers from Willa, and the rains were expected to continue for the next several days. As the storm moves across Texas, that is where the transition from tropical storm system to Nor’easter was expected to begin, according to forecasts.
Even though the upcoming Nor’easter was not likely to rank among the worst for the time of the year, it was expected to still pack a punch, according to AccuWeather.
How close to the coast the storm tracks and how quickly the storm strengthens will ultimately determine the force of the winds and the rate of rainfall and snowfall. Forward speed of the storm will also determine whether much of the weekend is a washout or only lasts one day, the forecaster said.
“At this time, it looks like this storm will bring a general one-to-two inches of rain and a period of 40- to 50-mph wind gusts to the coast, and there will be some sort of wet snow over the interior,” AccuWeather senior meteorologist Dave Dombek said.
In the wake of the storm, enough residual cold air was expected to remain over the interior to allow snow showers to occur from the Great Lakes to the Appalachians from later Sunday into Tuesday, the forecaster said. Rain showers may be accompanied by the first wet snowflakes of the season along part of the Interstate-95 corridor as well early next week.
The potential snow this weekend will follow a locally heavy snowfall in northern New England that was expected beginning Tuesday night into Wednesday.
Northeast spot gas prices began strengthening on Monday in response to the coming cold fronts and continued on Tuesday. Meanwhile, possible restrictions on the Tennessee Gas Pipeline (TGP) led to a sharp $2.69 gain at Tenn Zone 6 200L, which shot up to $6.54.
TGP on Tuesday said because of continuing high nominations on the laterals and in an effort to protect system integrity, effective the Oct. 24 gas day, it anticipated possible restrictions at the Concord Lateral (Segment 284 FH), as well as possible restrictions at the Fitchburg to Gloucester Lateral (Segment 268 FH), which are located throughout New England. Based on current nominations, secondary out of the path nominations may be at risk, TGP said in a notice to shippers.
The pipeline on Tuesday operated under an operational flow order for all areas south of Station 9 for “under-deliveries into the system and overtakes out of the system for all balancing parties.”
Appalachia points also strengthened, although gains there were limited to less than a dime. Meanwhile, Texas Eastern Transmission (Tetco) combined several maintenance events along the northern segments of its 30-inch diameter line in Market Zones 1 and 2. In addition to the maintenance announced at its Owingsville, KY, and Wheelersburg, OH, compressors that began Monday, the pipeline has indicated it will also conduct maintenance at its Holbrook and Danville compressors.
The first maintenance event reduced capacity from its Berne, OH, to Barton, AL, compressors by 108 MMcf/d, or as much as 224 MMcf/d compared to October month-to-date max flows, according to Genscape Inc. The new event comes with further cuts. From Wednesday (Oct. 24) to Dec. 5, operational capacity from Berne to Barton will be further reduced by another 105 MMcf/d, Genscape said.
Meanwhile, later this week, Tetco was expected to conduct a pipeline replacement between its Union Church, MS, and Clinton, MS, compressor stations on its 30-inch diameter line in its East Louisiana tariff zone. This event was originally supposed to run earlier in October and has been rescheduled to run between Friday (Oct. 26) and Nov. 9, Genscape said.
Capacity through Union Church was expected to be reduced by 171 MMcf/d for the duration of the event, translating to a cut in flows of 128 MMcf/d compared to the previous 14-day average, Genscape natural gas analyst Josh Garcia said.
“Flows through the 30-inch line have been near or above operational capacity for most of the month, although there was a significant drop in flows” on Monday and Tuesday because of “increased receipts within Louisiana. Combined with the ongoing maintenance further upstream between the Berne and Barton compressors on the 30-inch line, this further creates pressure for increased spreads as export capacity is restricted out of M2 into its Louisiana demand centers,” Garcia said.
Given the unseasonably mild temperatures expected in the South Central region during the next week, a drastic increase in spreads is unlikely to materialize until South Central temperatures plummet, he said.
Texas Eastern M-2, 30 Receipt next-gas day traded at $3.115, a 7-cent gain that was generally in line with the rest of the region.
Enbridge News ”Still the Headline’ For PacNW
On the West Coast, prices were generally higher as the implications of reduced Canadian imports this winter continued to resonate. Enbridge Inc. said late last week while the 36-inch diameter line on the Westcoast Transmission that was damaged in an Oct. 9 blast would return to service by mid-November, it would operate at only 80% capacity. The pipeline company expects gas flows on its T-South line to be only between 0.9 Bcf/d and 1.3 Bcf/d.
Despite the pullback in the Sumas cash market, forward prices have held their foot on the gas pedal, with winter contracts posting substantial gains in Monday trading. NGI Forward Look data showed Sumas November prices shooting up $3.47 to $11.218 and December surging $3.36 to $7.93. The full winter strip (November-March) was up $2.39 to $8.84.
Market observers quickly pointed to the Enbridge news as the reason for the dramatic rally. “The outage on West Coast and the corresponding lack of import capacity at Sumas is certainly still the headline and driving strength in both the spot market and winter forwards,” Mobius Risk Group’s Zane Curry told NGI.
In conjunction, AECO forwards remained weak, and arguably could see further downside if the outage is extended. As a result, the price signal for Western Canada producers is anything but strong. Indeed, NOVA/AECO C November sat Monday at $1.597, while the winter strip sat at $1.79, Forward Look data show. NOVA/AECO cash prices, meanwhile, averaged just C80 cents on Tuesday after plunging C43 cents.
Also of importance are the relatively low storage levels in Western Canada, Curry said. “The lack of import capacity, potentially sluggish Western Canadian production, and a year/year storage deficit of significant magnitude likely have participants in western U.S. gas markets concerned,” he said.
Also weighing in on these pricing dynamics is a forecast for a winter El Nino. “While the statistical significance is certainly debatable, the probability of a colder-than-normal and wet Pacific Northwest in such a weather pattern is meaningful,” Curry said.
North of the border, utility FortisBC told customers that regional natural gas supply, including the entire province, would be limited to 50-80% of normal levels, meaning that “the natural gas system will be challenged in times of high demand throughout the winter.”
As such, FortisBC asked customers to be conscious of their natural gas use and “conserve energy wherever possible.”
In the meantime, FortisBC was actively working to make more gas available for its customers, including by working with TransCanada Corp. to maximize output of the Southern Crossing pipeline that feeds into the Interior from Alberta. In addition, the utility was working with industrial customers to optimize their energy use, keeping them running while minimizing system impacts.
“We are also working on securing additional natural gas in the open marketplace to best support the province’s gas supply,” FortisBC said.
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