Natural gas futures started the week on strong footing, supported in part by a hot late-August forecast and the potential for a material decline in the storage surplus. The September Nymex gas futures contract settled Monday at $2.725/MMBtu, up 14.8 cents from Friday.
At A Glance:
- Late August forecast trends hotter
- Temperature, power records may fall
- GTN declares force majeure
Spot gas prices also were on the rise, led by sharp swings in the Rockies. NGI’s Spot Gas National Avg. climbed 14.0 cents to $2.710.
Hellish temperatures are continuing unabated across Texas, and electricity demand records in the state are expected to fall again. The Electric Reliability Council of Texas (ERCOT) said peak power loads could reach close to 83,927 MW on Monday, surpassing the prior record of 83,593 MW set on Aug. 1. The grid operator has set seven all-time highs so far this summer. It set 11 records last year.
A Weather Watch issued by ERCOT was to remain in effect through Friday because of the extreme heat, higher electrical demand and the potential for lower reserves. Grid conditions are expected to be normal throughout the week, but ERCOT is monitoring conditions closely and said it would deploy all available tools to manage the grid, “continuing a reliability-first approach to operations.”
With early indications of continued heat into the second half of August across the country, futures prices soared early and settled near the intraday high of $2.752.
Maxar’s Weather Desk said population-weighted cooling degree (PWCDD) days are forecast to reach 183.1 over the next 15 days. For comparison, the 10-year norm is 170.2 PWCDD and the 30-year norm is 162.6 PWCDD. If temperatures were to actualize at this level, this would rank as the seventh hottest for the period among national records dating back to 1950. The same period last year was cooler, totaling 169 PWCDDs, according to Maxar.
Power burns already have set records this year given stifling, record heat in June and July. As a result of the heightened demand, smaller injections into storage have materialized. This has chipped away at the stout storage surpluses that have weighed on the market since the spring.
NatGasWeather cautioned that there is a risk that the forecast trends cooler in time, as it has done for much of the summer. Regardless, the storage overhang should continue to decline at a “slow but steady pace” in the coming weeks.
For now, estimates ahead of Thursday’s Energy Information Administration (EIA) inventory report show a possible injection in the low 20s Bcf. An early poll by Reuters showed injection estimates ranging from 17 Bcf to 40 Bcf, with an average increase of 28 Bcf. NGI modeled a 23 Bcf stockbuild.
This would compare with last year’s 44 Bcf increase in the same week last year and the 46 Bcf five-year average injection.
Inventories as of July 28 stood at 3,001 Bcf, 550 Bcf above year-earlier levels and 322 Bcf above the five-year average, according to EIA.
Based on the current weather outlook, NatGasWeather said the net result of the continued heat would be for the surplus to the five-year average to decline toward 275 Bcf. If the heat forecast is delayed, the market would need to wait a bit longer for the inventory overhang to drop to 250 Bcf. However, if September trends hotter than normal, surpluses could ease toward 200 Bcf.
“As we’ve been mentioning, surpluses of plus-200-250 Bcf would present a much more interesting situation going into early winter,” NatGasWeather said.
The current El Nino backdrop has the market expecting a warmer-than-normal winter, according to the forecaster. If early winter were to play out colder than expected, though, this could lead to a strong price reaction higher. “This makes weather patterns for the coming months still quite important, especially if just enough heat lasts into early fall,” NatGasWeather said.
Cash Ignited By Heat
Spot gas prices were on the rise Monday as sweltering temperatures extended the rally across most U.S. locations.
Though wet weather systems saturated large swaths of the northern United States, solid price gains were seen there as well. Algonquin Citygate cash jumped 21.0 cents from Friday to average $1.795 for Tuesday’s gas day, and Transco Zone 6 NY edged up 11.0 cents to $1.280.
Smaller single-digit increases were seen in Appalachia.
AccuWeather said thunderstorms on Monday were producing localized torrential downpours and incidents of damaging winds in the Appalachians and points to the west into the early afternoon hours. Showers arrived early after hitting the Midwest on Sunday.
The storms were increasing in intensity as they continued to move eastward, according to AccuWeather. Wind gusts could reach 70 mph. The worst of the storms should hit on Tuesday evening.
“Robust southwesterly winds will transport abundant moisture up the Eastern Seaboard, providing the potential for a washout in some interior sections of the Northeast as thunderstorms produce impressive downpours,” said AccuWeather meteorologist La Troy Thornton.
Farther inland, prices picked up anywhere from a few pennies to nearly 20.0 cents amid little reprieve from the furnace-like temperatures in the region. Transco Zone 5 spot gas climbed 15.0 cents to $2.985 for Tuesday gas delivery, while Henry Hub tacked on 12.5 cents to $2.650.
Similar price moves extended into the Midwest, the Midcontinent and across Texas. Houston Ship Channel cash averaged 17.0 cents higher than Friday at $2.410.
Houston forecaster Space City Weather said highs would remain around 100 each day this week. What’s more, if it takes into account humidity, winds and other variables, it is forecasting daily heat will reach extreme levels.
“Sorry, it’s going to be pretty miserable,” Space City forecaster Eric Berger said.
At least on the pricing front, though, the Rockies had it worse. Several locations jumped more than 50.0 cents from Friday. Kingsgate, however, led the region as cash shot up $2.450 from Friday to average $4.500 for Tuesday’s gas day.
Interestingly, the stunning price increase at Kingsgate occurred well before Gas Transmission Northwest (GTN) announced a force majeure because of an unexpected equipment failure at the Sandpoint Compressor Station 4 on unit A. The force majeure event was expected to reduce capacity at Flow Past Kingsgate to 2,400 MMcf/d, effective Tuesday’s timely cycle through Aug. 17. GTN said the reduction in capacity may result in firm primary, firm secondary and interruptible curtailments during the effective period.
