As some teachers and students returned to class, traders also appeared to be ending summer for natural gas markets. With the latest weather patterns further reducing expected demand compared to the 15-day forecast, the September Nymex gas futures contract fell 47.5 cents to $7.589/MMBtu on Monday. October futures fell 47.3 cents to $7.578.
In short :
- Production close to its record level
- Cooler weather expected this week
- Spot prices extend losses
After countless bouts of 90 degree temperatures popping up in the Lower 48 this summer, the latest weather models have shown that cooler weather is expected to begin this week for most of the month. NatGasWeather said the Global Forecast System (GFS) lost 3 cooling degree days (CDD), while the European Center model dropped 9 CDD heavier.
The upcoming 15-day trend is still “slightly bullish,” according to the forecaster, with domestic CDDs expected to be above normal on most days. However, with much more comfortable temperatures expected to arrive in the East from August 10-20, domestic demand will not be as daunting as it has been for the past six weeks.
“At this point, weather conditions could disappoint,” NatGasWeather said.
Meanwhile, production hit an all-time high of 98 billion cubic feet per day last week and held near that level early Monday. The supply and demand balance may already be showing signs of loosening based on the most recent storage inventory data. Any cooler weather on the horizon could lead to further downside in the near term.
EBW Analytics Group agreed that signs are mounting that the short-term heat wave has peaked, with bearish forecast shifts over the weekend wiping out 11 CDDs in the last three weeks of August. As the risks of shortages diminish alongside the peak of summer heat, high electricity prices throughout the summer could begin to decline, the company said. It could also lead to lower gasoline prices.
He noted that technical indicators were similarly pointing in a bearish direction, with deeper consolidation still favored after July’s monstrous $4.00 rally. However, the potential for a return of 2.0 billion cubic feet per day of demand to Freeport LNG by early October – ahead of consensus analysts’ expectations – remains the most important fundamental development in recent days, according to EBW.
“As the market shifts focus over the next 30 to 60 days from slumping demand from the power sector at the end of summer to fully focusing on the coming winter, a Further increases in natural gas seem increasingly likely to send prices skyrocketing,” said EBW senior analyst Eli Rubin.
The potential return of the liquefied natural gas export facility in October effectively lowered the storage trajectory through the winter and therefore lifted EBW’s price forecast. He sees prices potentially climbing to $9.170 over the next 45 days and then possibly rising to $9.730 over the next three months. Its planned winter release target, meanwhile, fell below 1.0 Tcf.
Spot gas prices continued to fall on Monday, extending their losses from late last week as the midsection of the country is expected to see more rain.
NatGasWeather said high temperatures are expected to peak in the 60s to 80s in the Midwest over the next few days, while highs in the mid-90s will continue for major cities on the East Coast. Wind generation in Texas was also weak.
As such, Chicago Citygate next-day gas plunged 40.0 cents from Friday to average $7.455 for Tuesday’s gas delivery. Michigan Consolidated fell 41.0 cents to $7.385.
Similar losses were seen in the Midcontinent, while NGPL-Midcontinent fell 46.5 cents to $7,200.
Wood Mackenzie said as of Tuesday, Natural Gas Pipeline of America (NGPL) is declaring force majeure due to pipeline cleanup on the Gulf Coast Mainline No. 3 between Compressor Station 304 ( CS 304) in Harrison County, TX, and Compressor Station 303 (CS 303) in Angelina County, TX on Segment 26. This would limit operating capacity to 1,252,940 MMBtu/d versus 1,586,000 MMBtu/d.
According to Wood Mackenzie, forecast flows through CS 303 have currently peaked at 1,471,968 MMBtu/d and averaged 1,313,165 MMBtu/d. This suggests an impact of up to 219,028 MMBtu/d and as little as 60,225 MMBtu/d.
Several locations are to be unavailable for the duration of the force majeure, scheduled to end on Friday. Combined, up to 274,732 MMBtu/d would be closed based on the maximum scheduled flows at these locations over the past seven days.
East Texas markets also saw steep declines after scattered showers over the weekend left partly cloudy skies to start the week. Carthage fell 60.5 cents to $6.980 on average for Tuesday’s gas day, while Katy slipped 33.0 cents to $7.355.
Meanwhile, Wood Mackenzie said Gulf South Pipeline Co. will begin maintenance on the Harrisville Compressor Station and Index 129 on Tuesday. Harrisville maintenance will continue through Aug. 30 and may reduce the group of delivery of expansion zone 19 up to 100,000 MMBtu/d.
Index 129 maintenance is a one-day event for Tuesday, which could limit the East Texas/North LA revenue group to up to 100,000 MMBtu/d.
“For the past 30 days, both sites have been operating at full capacity,” Wood Mackenzie analyst Kara Ozgen said.
Pipeline work had a greater impact on cash markets across the border in Canada.
Spot gasoline prices at Westcoast 2 station jumped $2.485 from Friday to average C$4.435/Gd for Tuesday delivery.
Westcoast is to perform a cap installation on the Alberta Mainline, cutting off 168 MMcf/d of eastbound flow through the 26 Alberta East constraint from August 8 through October 8. 7. This point represents eastbound flows from Westcoast to delivery points with Nova Gas Transmission Ltd. and the Canadian portion of the Alliance Pipeline.
According to Wood Mackenzie, the maximum flows of the last 30 days at this constraint were 167 MMcf/d and maximum at 263 MMcf. During the duration of this maintenance, eastbound flow restrictions are to be enforced at business locations MS-165, 84, 134, as well as Fort St. John and Ft. Nelson Main Lines. However, from August 14 to October 14. 1, several other locations would be permitted to drive only to Gordondale delivery points.