Natural Gas Futures Prices Go ‘Crazy’ As Tetco Restrictions Extend Through Summer
After a week of modest changes along the Nymex futures curve, price action on Friday was anything but as a major pipeline warned that the restrictions it put in place could last until the end of September. . The July Nymex gas futures contract began to climb overnight and continued to climb throughout the day, closing the week at $ 3.296, up 14.7 cents from Thursday’s close. . August prices rose 14.5 cents to $ 3,311.
In one look :
- Tetco’s problems could last until September
- Coal struggles to replace gas despite rising prices
- Warm weather fuels spot market gains
Equally important was the action of localized gases. Robust gains across much of the country eclipsed losses in the northeast amid a return of cooler weather. Spot Gas National Avg from NGI. climbed 16.0 cents to $ 3.060.
Nymex gasoline prices had held the $ 3.00 grip for more than a week, although the summer heat has so far failed to hold up across the country for more than a few days. However, market watchers said prices would struggle to gain much ground without more warm weather, or another supporting factor like a pickup in demand for liquefied natural gas (LNG).
Instead, Texas Eastern Transmission Co. (Tetco) provided the bullish catalyst.
In a post on its bulletin board shortly before 6 p.m. ET Thursday, Tetco announced a 20% pressure reduction that began this month on part of its 30-inch-diameter system – required by an order from the Pipeline and Hazardous Material Safety Administration (PHMSA) – could last until the end of the third trimester.
The restrictions were put in place after Tetco reported an anomaly which was identified during recent inspections. The PHMSA is working to further assess the findings of the inspections and their potential impact on other segments of Line 10 and Line 15 along the system.
Tetco said it continues to meet regularly with PHMSA and is in the process of conducting technical analysis to support a return to service. The pipeline said it “understands the importance of getting its system back to full service as soon as possible, and is working to provide a more specific schedule and potential scope of work by the end of the month.”
In a Friday note to customers, Bespoke Weather Services said that as soon as the Tetco news broke, things got “crazy in the natural gas market.” Based on the market chatter that some of the gas could be diverted, Bespoke questioned whether the rally was an “overreaction, especially in light of supply / demand balances which have not been impressive lately. “.
The market was unaware of the slack, even before Tetco’s problems first surfaced, “but it’s honestly difficult to have an advantage here, given that this issue is not yet clear,” Bespoke said.
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“The weather remains generally warm,” with a risk of cooler weather for a brief period over the next few days. However, the market “is definitely evaluating a lot of bullish news here,” Bespoke said. “Obviously, if Tetco’s problem turns out to be less than what the market is currently expecting, we’ll go down. “
However, “things revolve around a problem that is difficult to know everything at the moment,” according to the cabinet. “Sometimes it’s best to just sit on the sidelines until the smoke clears and a higher confidence game emerges, which will surely happen at some point here. Until then, it is a market in which we must walk lightly.
EBW Analytics Group said some of the gas could flow through an alternate route, but flows from the Appalachians to the south could be reduced for months. It is also possible that sections of the pipeline must be closed until the anomaly is corrected. This would further amplify the impact on gas prices, he said.
The rising power is burning
With news from Tetco dominating the market on Friday, the latest government storage data was left out.
Analysts from Tudor, Pickering, Holt & Co. (TPH) said the Energy Information Administration (EIA) ‘s 98 Bcf storage injection was not significant because it was close to consensus and did not does a lot to significantly improve sales. The story worth watching, analysts say, is power generation data for the past week (June 7-11), which gives a first indication that coal may struggle to substitute gas.
“Power generation is up nearly 7 billion cubic feet per day / week to levels normally reserved in late June / early July,” TPH analysts said. “But more importantly, gas’s share of thermal generation has averaged 61% this week compared to our modeling of 57% at current gas prices.”
Analysts have been careful to read too much in a small sample. However, the low coal production figures equate to additional electricity consumption of 3.5 Bcf / d. “If this trend continues into the summer, it would bring material to Henry Hub into territory over $ 3.50,” the team at TPH said.
If the share of gas in thermal electricity production remains around 60%, peak production in mid-summer should be around 40 Gcf / d, which should push total demand north of 96 Gcf / d, according to TPH. With production modeled at 92 Bcf / d and Canadian imports at 4.5 Bcf / d, this could bring the market closer to equilibrium. This can potentially open the door to a little withdrawal in the middle of summer.
“Some stars would need to line up, but the setup appears to be there for the possibility of the first summer draw since 2016,” the firm said.
Wood Mackenzie also detailed the details of the latest EIA storage report. The company said the 98 Bcf injection seemed tight 0.3 Bcf / d from the previous five-year average over degree days and normal seasonality. Injections in the past four weeks were slightly above the average for the past five years, according to the cabinet. This resulted in a cumulative injection of 382 Bcf, or 13 Bcf above the five-year average.
“The weather has been slightly bearish in those four weeks, with the total number of degree days updating six fewer than five years,” said Eric Fell, analyst at Wood Mackenzie. “On a weather adjusted basis, the past four weeks look very close to normal / neutral compared to the previous five years.”
Meanwhile, EBW analysts noted that the south-central region reported an injection of 24 billion cubic feet for the period ending June 4, reducing the deficit from the five-year average for the fourth week. consecutive (to 44 billion cubic feet). However, the south-central salt storage deficit has increased by 1 billion cubic feet over the past two weeks, while the non-salt storage deficit has lost 9 billion cubic feet.
Between Monday and Friday (June 7-11), the loss of demand for LNG supply gas from the Gulf Coast of 1.8 Gcf / d week / week and the absence of regional hot anomalies at the start season could lead to a continued weakening of the regional gas storage deficit, according to EBW.
“Over the next 30 to 45 days, however, as the summer weather warms, industrial demand remains strong, exports to Mexico increase seasonally, and LNG regains full strength, tightening regional fundamentals could help. to improve natural gas futures, ”the company said.
The lower demand levels that typically accompany the weekend had little impact on Friday spot gas prices. While temperatures are expected to continue to reach the mid-90s to 100s in the central and southern United States, significant gains have been seen in these regions.
However, the west was also due to “very strong regional demand” in the coming days as a dangerously warm upper ridge developed over the southwest in the plains, according to NatGasWeather. Maximums were expected to reach 115 degrees in less populous states. As a result, national cooling degree days were only close to normal to slightly above normal.
“After a first cold snap left the East late” over the coming week, “a second is expected to follow on June 21 and 23 for near normal national demand,” NatGasWeather said. Again, however, the models “favored high pressure on the west moving to the larger south and southeast on June 24-27 for an increase in domestic demand and where the trend would likely be sufficiently strong again. hot to be satisfied “.
Given the stifling outlook, California gas spot prices soared on Friday. The SoCal Avg. rose 63.0 cents to $ 3.645 for the three-day period through Monday. Malin climbed 30.0 cents to $ 3.235.
In the Rockies, Transwestern San Juan’s silver jumped 42.5 cents to $ 3.275.
In the western Texas part of the Permian Basin, Waha cost an average of $ 3,180, up 30.0 cents from Thursday. Houston Ship Channel only rose 10.0 cents to $ 3,190.
While the focus in Texas is mostly on building summer heat, regulators this week introduced a pair of bills designed to strengthen the state’s electricity grid and reform its operator.
Governor Greg Abbott signed Senate Bills 2 and 3 on Tuesday, June 8. Bills became legislative priorities in the wake of winter storm Uri, which left Texans without heat, electricity and water amid sub-zero temperatures. The Electric Reliability Council of Texas had cut power to parts of the grid to prevent what it said could have been a more widespread blackout that lasted for weeks.
Prices across the Midcontinent and in the Midwest increased primarily between 10.0 and 20.0 cents, while gains were smaller further east. Texas Eastern M-3 spot gas delivery prices rose 2.5 cents to $ 2.085. In the northeast, the approach of the cold front pushed prices down. Non-NY Transco Zone 6 slipped 2.0 cents to $ 2.045. Iroquois, Waddington posted a much steeper drop of 17.0 cents to an average of $ 2,920.