Natural gas futures treaded water early Friday as weather models backed off the intensity of a coming heat wave and as cash prices continued to fall. Traders also had time to fully digest another loose government inventory report. However, it was lingering pipeline issues and a warmer move in the latest weather outlooks that ultimately sent the July Nymex futures contract up 5.6 cents to close the week at $3.097.
At A Glance:
- Weather models easing projected heat
- Early EIA estimates point to tighter storage figure
- Western heat fuels cash price gains
Spot gas prices continued to soften ahead of the weekend, but big gains on the East Coast tempered the declines. NGI’s Spot Gas National Avg. edged up 1.5 cent to $2.760.
Friday’s early range-bound trading is consistent with how trading behavior typically goes at the end of the week. NatGasWeather said the midday spike may have been because of reports that the Texas Eastern Pipeline (Tetco) force majeure could remain unresolved for “a little longer.”
The critical piece of natural gas infrastructure reinstated a 20% pressure reduction and reduced southwest flows out of Pennsylvania following an amended corrective action order from the Pipeline and Hazardous Material Safety Administration (PHMSA). Although PHMSA had “temporarily approved” the pipeline company’s ability to recommence operations at its “full maximum operating pressure” late last year, regulators had declined to renew the temporary approval. Tetco may need to reapply for permits.
Still, given recent changes in the weather models, a subtle change in the latest data also could have aided in the rally, according to NatGasWeather. It said after the Global Forecast System (GFS) and European models disagreed on the amount of heat expected June 12-17, the mid-day GFS added several cooling degree days (CDD) by showing less cooling over the northern and eastern United States. This put the model better in line with the already warmer European model.
“Essentially, the weather data wasn’t sure if there would be enough heat June 13-17,” NatGasWeather said. However, when the GFS added several CDDs, both models now are likely viewed as “hot enough to satisfy, albeit not by much.”
With heat only now beginning to build in portions of the United States, storage builds have tracked ahead of historical levels so far this injection season. That could soon change.
The Schork Group said the Energy Information Administration’s (EIA) 98 Bcf injection was the 10th of the season and only 2 Bcf above the five-year mean. Refills are running 74 Bcf (97%) above the five-year average, 61 Bcf (68%) above the seasonally adjusted time series and 26 Bcf (21%) above last year’s Covid-19-addled pace.
“Keep in mind, toward the end of this month, start of July, utilities will start drawing down their inventories as demand for cooling Btus enters peak season,” The Schork Group said in a note to clients on Friday.
Inventories as of May 28 stood at 2,313 Bcf, which is 386 Bcf below year-earlier levels and 61 Bcf below the five-year average, according to EIA.
Looking ahead to the next EIA report, The Schork Group said a “peculiar” spike in heating demand over the Memorial Day weekend in the East and Midwest segued to a temperate week. The typical injection for the Memorial Day holiday report is 86 Bcf, plus or minus 24 Bcf, and the five-year mean is 92 Bcf. Early whisper numbers range between 85 Bcf and 105 Bcf. “We are currently at 95 Bcf.”
There are a few important factors to consider for the upcoming EIA report, according to Mobius Risk Group. The firm said wind generation for the combined power regions in the Electric Reliability Council of Texas, Midwest Independent System Operator and Southwest Power Pool fell by almost 20 GWh versus the prior week. In addition, degree days were predominantly unchanged. Liquefied natural gas (LNG) feed gas demand also moved back up to 11 Bcf/d and “did not suffer any sub-10 Bcf days like the prior two weeks did.”
What that could mean for price action is still unclear. Mobius noted that despite the persistent cooler-than-normal temperatures in Texas and much of the Southeast, spot prices have been fairly resilient.
“If Henry Hub spot prices are supported above $3.00” through the coming week, “it could prompt another test of resistance near $3.15 for the nearby contract (July),” Mobius said. “Conversely, a break in spot prices toward the $2.75 mark would undoubtedly drag July futures and possibly the balance-of-summer strip back below $3.00 — and present a compelling buying opportunity for consumers or sidelined market bulls.”
Spot gas prices continued to weaken Friday amid light weekend demand. Though temperatures were set to rise early in the week, the only gains mounted were on the East Coast.
Texas Eastern M-2, 30 Receipt reversed course amid the lingering pipeline constraints. Spot gas prices fell 6.5 cents to $1.815. Prices also softened along Eastern Gas Transmission.
Elsewhere in Appalachia, Tenn Zone 4 200L climbed 16.0 cents to $2.720 for gas delivery through Monday.
On the pipeline front, Columbia Gas Transmission is scheduled to perform planned pigging on Line LEX, spanning West Virginia into Ohio. Wood Mackenzie analyst Anthony Ferrara said impactful restrictions were to be put in place for gas days Tuesday and Thursday, limiting up to 272 MMcf/d of receipts and 1,180 MMcf/d of westbound flow.
Prices on the West Coast also softened as the region was set to get a reprieve from the early summer heat, with the upper high pressure finally heading eastward.
Meanwhile, Wood Mackenzie told clients on Friday that an administrative law (AL) judge recently said a full comment period would be required for a proposal to increase the Aliso Canyon storage facility’s allowable working inventory this summer.
The AL judge overseeing the California Public Utility Commission proceeding determining the future of the Southern California Gas facility responded to a petition that asked for Aliso’s inventory to be increased to 55 Bcf from 34 Bcf. The facility has been operating at a reduced capacity following an explosion in 2015.
Shippers on SoCalGas had requested the increase and asked for a shortened time to take comments, indicating it was necessary to start injecting in July to take advantage of the additional working inventory when it is increased, according to Wood Mackenzie analyst Joseph Bernardi.
“The judge responded by saying that the normal 30-day period would apply, allowing other parties to file responses to the shippers’ petition, followed by an additional period when shippers can respond to the replies,” he said. “The next update would come July 8 following both of these comment periods.”
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