Cash natural gas prices Friday for Monday delivery followed the lead of Thursday’s futures and fell 16 cents on average. Almost all points fell into the loss column, and only a few market points escaped double-digit losses.
As bidweek reaches a conclusion, basis levels at eastern points have tumbled in large part due to an influx of gas from the Marcellus. August fell 1.7 cents to $3.565, and September was off by 1.8 cents to $3.559. August crude oil shed 49 cents to $96.56/bbl.
In the Northeast, basis differentials are crumbling as not only are traders having to deal with a declining market (the $3.526 low of the August contract Friday is the lowest spot futures have seen since early March), but pipeline modifications have made it attractive to move gas in different directions.
“Gas is being backhauled on Tennessee to Dominion, and that has enabled Marcellus gas to find a new home,” said a northeast marketer. “There are also indications that new capacity on Dominion will process gas and allow for ethane extractions. It’s very economical to extract ethane and put the gas back into the system, and gas is trading at a robust discount to get that done.”
Trends in basis differentials have been almost as dramatic as the overall fall in spot prices. A month ago, NGI reported Henry Hub daily at $4.16 and Dominion at $3.99. Monday gas at the Henry Hub is now $3.57, but on Dominion it is $3.06, meaning basis has blown out from minus 17 cents to minus 51 cents. Other locations have seen an even more dramatic price decline. Daily gas on Tennessee Zone 4 Marcellus a month ago was 58 cents under Henry and in Friday’s trading it was $1.09 under.
The marketer said in his dealings no one was talking all that much about the big basis changes. “Nobody is really chatting about it. There’s somebody on the other side of it [basis] that is not happy, I’m sure. Hopefully no one bought a lot of basis on Dominion,” he said.
Monday temperatures along the Eastern Seaboard were expected to hold mostly steady, but Monday gas elected to mirror Friday’s change in futures prices. AccuWeather.com reported that Friday’s high in Boston of 80 was expected to rise to 82 Monday, and in New York City the Friday high of 82 was forecast to rise to 83.
Gas for Monday at the Algonquin Citygates fell 27 cents to $3.64, and deliveries to Iroquois Waddington shed 11 cents to $3.98. On Tennessee Zone 6 200 L Monday packages fell 16 cents to $3.67.
Deliveries Monday on Dominion traded at $3.06, down 17 cents, and gas on Tetco M-3 fell 15 cents to $3.43. Gas headed for New York City on Transco Zone 6 dropped 10 cents to $3.60.
Major market centers also felt the wrath of futures’ Thursday free-fall. At the Chicago Citygates, Monday parcels were quoted at $3.58, 15 cents lower, and at the Henry Hub gas was seen at $3.57, about 16 cents lower. On El Paso Permian, Monday gas came in at $3.47, 13 cents lower, and at Opal quotes for Monday were at $3.37, down about 17 cents. SoCal Citygate prices for Monday packages were seen at $3.86, 12 cents lower.
In spite of Thursday’s 16-cent price plunge, analysts were looking for some modest price recovery. Jim Ritterbusch of Ritterbusch and Associates expected “some potential price firming [Friday] as existing short speculative position holders will be looking for reasons to lock in some profits prior to end of quarter. Furthermore, the short-term temperature views are always subject to significant revisions over a weekend, and the warming trends expected across much of the heavily populated northeast region could potentially expand.
“Otherwise, outlooks across a broad portion of the nation’s Midcontinent are still expected to see below-normal temperature readings well into the second week of July. These temperature forecasts would appear to auger in favor of some additional large EIA [Energy Information Administration] storage injections extending all the way out to the 18th of next month. While the huge supply shortfall against last year will remain substantial given the hot summer of 2012, the more salient comparisons against average levels will take on an increasingly bearish appearance. The deficit against five-year averages has narrowed to a mere 31 Bcf and will likely flip to a surplus next month, a fundamental development that will only enhance the confidence of speculative shorts.”
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