The uncertainty created by a sharp decline in production proved too much to bear (no pun intended) for the natural gas market on Thursday. Traders eventually brushed off a large miss in the latest government storage report, sending the August Nymex gas futures up another 1.1 cents to $3.661. The September contract tacked on eighth-tenths of a cent to $3.632.
At A Glance:
- TCO issue maintains upper hand in latest price rally
- Storage injection surpasses expectations
- Cash continues steep slide; eyes on Elsa
Spot gas prices continued to tumble from recent highs. NGI’s Spot Gas National Avg. plunged 19.5 cents to $3.415.
With temperatures starting to retreat from historic highs in the Pacific Northwest, and the East Coast expected to be downright cool in parts of the region over the Independence Day weekend, all attention was on the Nymex futures market Thursday. After seven straight days in the green, market observers were eager to see whether news of a major production drop in the Northeast could fuel another rally.
The August Nymex contract indeed spiked, rising above $3.750 early in the session. However, futures began to soften ahead of the latest round of storage data, likely because cash trading was underway and decreases were widespread.
‘Bear Bomb’
The Energy Information Administration (EIA) launched a “bear bomb” on the natural gas market, reporting a much larger-than-expected 76 Bcf injection into storage for the week ending June 25.
The EIA figure was slightly outside the range of expectations in major surveys and 3 Bcf above last year’s build for the similar period. The five-year average stood at 65 Bcf.
August futures, which had softened to around $3.640 in the minutes leading up to the EIA report, sank to $3.629 as the print crossed trading desks. It then briefly slipped below $3.600.
Bespoke Weather Services said the 76 Bcf injection was roughly 3 Bcf/d looser than last week’s 55 Bcf build, “which is a lot.” Still, considering how strong last week’s number was, the firm did not view the EIA report as “inherently bearish.” Per its data, the figure remained “a little tighter” than the five-year average.
“We feel a little more loosening is needed in order to lower concerns about potentially not going into winter with a sufficient amount of gas in storage,” Bespoke said.
[View Pricing Now: NGI’s Mexico Gas Price Index calculates natural gas pricing on the border and within Mexico daily.]
Participants on The Desk’s online energy chat Enelyst noted that wind generation in the EIA reference period made up for what it failed to produce in the prior week’s more bullish report. However, “it’s come right back off” this week.
Enelyst managing director Het Shah said wind is currently off around 26 GWh on average week/week. This adds about 4 Bcf/d of power burns, though some is slightly offset by increased solar generation.
Broken down by region, the Midwest added 28 Bcf into inventories, and the East added 25 Bcf, according to EIA. South Central stocks rose by 14 Bcf, including 12 Bcf into nonsalt facilities and 1 Bcf into salts. Pacific inventories rose by 5 Bcf, while Mountain stocks increased by 4 Bcf.
Total working gas in storage rose to 2,558 Bcf, which is 510 Bcf below last year at this time and 143 Bcf below the five-year average, EIA said.
Next week’s report is likely back tighter, given the low wind generation this week and the unexpected production decline on Columbia Gas Transmission (TCO), according to Bespoke.
Tumbling Output
In pipeline notices issued Wednesday, TCO and EQM Midstream Partners LP said a MarkWest operational event was affecting the Sherwood and Mobley processing plants in West Virginia. That is limiting receipts onto TCO and EQM Midstream by up to 2.4 Bcf/d.
For TCO, four receipt locations were affected, with scheduled volumes set to zero from Thursday (July 1) until further notice: Sherwood1 (meter: 642645) Smithfield-Mobley (meter: 642824) Sherwood-MXP (meter: 643185) Braxton (meter: 842867).
Over the past 30 days, the four locations combined have averaged 2,341 MMcf/d and maxed at 2,429 MMcf/d of receipts onto TCO, according to Wood Mackenzie analyst Anthony Ferrara.
For EQM, the event would limit scheduled volumes through the Plasma Compressor Station, which would reduce these downstream locations to primary receipt paths only: Isaly to REX (meter: 60062D), Traveler to Rover (meter: 70007D), and Steiger Ridge Road (meter: 75884D).
“This will restrict gas from coming onto Equitrans as well as being delivered to interconnects with Rockies Express Pipeline and Rover Pipeline at the western end of the Ohio Valley Connector,” Ferrara said.
The last event of this magnitude was in May 2019, when another MarkWest-related operational event cut more than 2 Bcf/d of receipts onto TCO and EQM. This affected many of the same locations, according to Ferrara.
“In May 2019, the event only affected three gas days before being resolved,” he said. “We do not have any other clues as to how long this event will last.”
Depending on the specifics of this operational event, which remain unknown at this time, MarkWest may have the ability to reroute a significant amount of production onto other pipelines in the region, Ferrara said.
During the May 2019 event, there were no major price impacts over the three days. On Thursday, however, Columbia Gas spot gas prices did not see the same level of steep declines as the rest of Appalachia. Columbia Gas fell 8.0 cents day/day to $2.960, the highest price in the region. Texas Eastern M-3, Delivery plunged a much steeper 21.0 cents to $2.810.
Let The Storm Rage On
Elsewhere in the country, prices continued to slide across the Gulf Coast ahead of Tropical Storm Elsa. If the storm is anything like the Disney character, she may cause some mayhem on any natural gas infrastructure in her path.
In a 1 p.m. ET update, the National Weather Service (NWS) said Elsa was moving toward the west-northwest near 28 mph, with a faster track expected over the next day and a half. On the forecast track, Elsa could move into the eastern Caribbean Sea by Friday night and be near the southern coast of Hispaniola on Saturday. By early Sunday, Elsa could approach portions of eastern Cuba.
NatGasWeather said the storm has the potential to bring rain and cooling to the southern United States.
On the pricing front, Florida Gas Zone 3 slipped 3.5 cents day/day to $3.645. Transco Zone 5 dropped 8.0 cents to $3.710.
Houston Ship Channel was down 3.5 cents to $3.580, and El Paso Permian was down 5.0 cents to $3.465.
Northeast spot gas prices continued to slide as temperatures are expected to continue retreating through the weekend. Tenn Zone 6 200L next-day gas tumbled $1.445 to $2.800. Transco zone 6 NY cash was down 27.5 cents to $2.910.
In the Pacific Northwest, Kingsgate spot gas dropped 28.0 cents day/day to $3.140.
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July 03, 2021 at 12:10AM
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Lack of Clarity on TCO Issues Drives More Gains for Natural Gas Futures; Cash Slides Again - Natural Gas Intelligence
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