With former Hurricane Isaias in the rearview mirror and hot weather back in the near-term and long-range forecasts, natural gas futures quickly recouped Thursday’s losses, and then some. The September Nymex gas futures contract settled Friday at $2.238, up 7.3 cents. October climbed 7.1 cents to $2.376.
Spot gas prices were mostly lower outside of the Northeast, where power restoration efforts continued in the wake of the East Coast storm. NGI’s Spot Gas National Avg. slipped 3.5 cents to $1.795.
Tudor, Pickering, Holt & Co. (TPH) analysts viewed the past week’s natural gas roller coaster ride as being “commonplace” for the next couple of months, with significant volatility expected as the United States manages storage risks.
“As we see it, the market is caught between two very different outcomes,” analysts said. “Storage is OK and should allow the market to price a more normal summer/winter spread, which would price the prompt month closer to $2.50, or storage is a problem, and we need to price supply out of the system and/or stimulate power demand, pricing the prompt month in the $1.50-1.60 range.”
The TPH team currently forecasts the storage carryout at 4.06 Tcf, “which leaves a reasonable amount of wiggle room,” but said things are more problematic on a regional level, with South Central, Midwest and East regions all facing a potential storage crunch. Given the vastly different outcomes depending on whether we can clear storage or not, we suggest tightening the shoulder straps as we ride out the next couple months.”
The market appears to be getting mixed signals.
Although temperatures were forecast to start rising with the departure of Isaias, technicals warranted a correction, according to EBW Analytics Group. Support for the September contract was seen at $2.11, which is near the 200-day moving average, “but if that fails, support could be tested at $2.05, and conceivably even $1.96. Our overall prognosis, however, remains bullish.”
Bespoke Weather Services chief meteorologist Brian Lovern shared that view, especially in light of Thursday’s storage report, in which the Energy Information Administration’s 33 Bcf injection disappointed traders who were expecting a slightly lower number. Salts also were a concern, and the 3 Bcf withdrawal “was weak enough for us to be concerned that we may have rallied a little too much, too soon.”
Meanwhile, one of the primary drivers of the week’s rally were higher global prices. However, TPH analysts said European storage was beginning to accelerate again, which should be cause for concern for both European benchmark Title Transfer Facility and Henry Hub prices, given how tightly tethered the two markets are.
Since the Yamal liquefied natural gas (LNG) returned from maintenance, “builds have averaged 8 Bcf/d, compared to just 3 Bcf/d during the outage, pushing storage to 87% of capacity,” the TPH team said. “We still model storage balances eking their way through October, but it’s going to be touch and go, with the risk of a significant pricing response if either supply or demand slips the wrong way.”
On a more macro level, recent traffic data indicates continued economic recovery across the country amid the Covid-19 pandemic, according to TPH. The U.S. TomTom Congestion index was up to 24% for the Aug. 3-7 week versus 20% the prior week. New York was the biggest driver, with congestion rising to 45% from 33%, but Houston recorded one of the sharpest week/week declines as it fell to 19% from 22%.
“With the rise in U.S. congestion, our traffic index is now at roughly 40% of 2019 levels,” said TPH analysts, who noted that after this week’s increase, Colorado Springs was the city nearest to 2019 levels, lagging by only 2%.
Looking ahead to Monday’s open, NatGasWeather said LNG demand could take the front seat when it comes to driving the market following the weekend, with the firm looking to the critical 4 Bcf/d level as a key level for feed gas deliveries to hold.
EBW said the ability of gas to rally despite repeated bearish storage data this summer is indicative of the momentous change in underlying market sentiment, “potentially suggesting further sharp increases in natural gas prices later this fall.”
Softening Cash
Light weekend power loads took spot gas prices across the Lower 48 down another few notches Friday, especially on the East Coast, where highs are expected to hold in the 70s and 80s for another few days. Losses were rather small, however, as heat was forecast to continue in the southern United States.
Katy hub spot prices fell 6.5 cents to $2.100, while pipeline maintenance continued to impact West Texas markets. Transwestern cash jumped 27.5 cents to average 75.0 cents, likely as a result of restored flows at a previously restricted compressor station in New Mexico. However, other pricing hubs in the region continued to slide amid new and ongoing work on El Paso Natural Gas.
In the Midcontinent, Panhandle Eastern cash was down 6.5 cents to $1.705, while farther east, Transco Zone 5 slid 7.0 cents to $2.195.
Appalachia pricing was mixed amid the ongoing power restoration efforts in the region, while gains were more widespread in the Northeast, where Algonquin Citygate climbed 6.0 cents to $1.460.
Prices may fluctuate more than usual over the next few days given the slate of maintenance scheduled. Genscape Inc. reported that from Tuesday-Sunday (Aug. 16), Columbia Gas Transmission (TCO) planned work on MXP Line 100 in West Virginia. As a result, operational capacity through MXPSEG MA42 was to be reduced between zero and 194 MMcf/d for the duration of the event, depending on operating capability and market conditions.
“As a result, flows could be cut by up to 1,936 MMcf/d, posing a significant deliverability risk to Columbia Gulf Transmission,” said Genscape analyst Preston Fussee-Durham. Furthermore, the Corral gathering system interconnect would be completely shut in for the duration of the event, curtailing as much as 248 MMcf/d of receipts onto the pipeline.
During a similar maintenance event on MXP Line 100 last November, flows on Columbia Gulf Transmission’s northern portion (near StanSEG) declined by nearly 1,070 MMcf/d, while total Appalachian exports to the Gulf Coast fell by around 1,890 MMcf/d. Furthermore, overall gas production within the Appalachian basin declined by 380 MMcf/d at that time.
“While Columbia Gas has aligned the upcoming maintenance with similar flow-impacting events on Columbia Gulf (the largest consisting of mainline pipeline work affecting flows through StanSEG from Aug. 11-21 by as much as 450 MMcf/d), significant additional flow and production impacts are likely,” Fussee-Durham said.
Tennessee Gas Pipeline also has planned work Monday-Friday at the station 860 compressor station, potentially impacting flows through STA860TOSTA87 near Hickman, TN, by as much as 452 MMcf/d based on their prior seven-day average, according to the analyst. However, historical flow impacts in the region have not materialized in full and storage options could come into play, limiting the impact.
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August 08, 2020 at 05:28AM
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Summer Heat Drives Rebound for Natural Gas Futures, but Cash Still Soft - Natural Gas Intelligence
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