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November natural gas holds upside amid tighter balance

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November natural gas holds upside amid tighter balance

NYMEX November natural gas futures pulled back to near unchanged after posting early gains to a $3.036/MMBtu high early Friday, Oct. 13. The contract settled 1.1 cent higher at $3.000/MMBtu.

A pullback in natural gas production resulting in part from shut-ins in the wake of Hurricane Nate, rising demand from lingering cooling load and an increase in pipeline and LNG exports has tightened the market, supporting natural gas futures recent gains.

"Demand is up overall, though there are sector differences. Warmer temperatures have lessened residential and commercial heating demand relative to October 2016; however, gas flows to power generation are up 12 percent for the month from last year despite a similar pricing environment," the American Gas Association, or AGA, said Oct. 13 in a Market Indicators report.

Weather forecasts from the National Oceanic and Atmospheric Administration support additional weeks of strong demand as the six- to 10-day and eight- to 14-day weather maps point to above-average temperatures for nearly the entire country.

Warm weather through much of the fall season thus far has propped up power-sector consumption of natural gas to fuel power generators, but the AGA said overall volumes of gas to power generation are down about 2.7 Bcf/d on average year-to-date.

"The major incremental change in demand has come from pipeline and LNG exports," the association said.

LNG exports, at 6.6 Bcf/d, are up 66% this month compared with October 2016, the AGA said. The U.S. Energy Information Administration forecasts LNG exports to climb from 0.41 Bcf/d in 2016 to 1.84 Bcf/d in 2017 and increase by 66% year on year in 2018 to 3.05 Bcf/d.

In production, producers are continuing to ramp up operations at facilities downed ahead of, and as a result of the arrival of, Category 1 Hurricane Nate in the Gulf of Mexico on Oct. 7.

Approximately 7.39% of the current natural gas production in the Gulf of Mexico, or 0.2 Bcf/d, is shut-in, down from a peak of 2.5 Bcf/d reported offline Oct. 8.

The loss of production against a backdrop of strong demand is expected to slow the pace of storage building in the remaining weeks of the injection season.

Helping to limit the upside potential, natural gas inventories built by 87 Bcf in the week to Oct. 6, bringing the total working gas inventory to 3,595 Bcf, or 153 Bcf below the year-ago level and 8 Bcf below the five-year average storage level of 3,603 Bcf.

Although trailing the five-year average, the EIA expects inventories to end the refill season near the five-year average.

So far during the 2017 refill season, net injections into storage are 15% lower than the comparable five-year average at 1,544 Bcf during the 2017 refill season, compared with the five-year average increase of 1,817 Bcf.

If net injections continue to be 15% lower than the five-year average, then working gas stocks will reach 3,834 Bcf by the end of the refill season, the EIA said. However, working gas stocks will total 3,842 Bcf if net injections into working gas match the five-year average for the remainder of the refill season.

Trading a three-day package in the day-ahead markets to accommodate for the weekend, prices were mixed with a bias to the upside given the strong demand anticipated as warm weather engulfs much of the U.S.

Weekend inclusion and an abundant supply of natural gas in the Northeast kept pressure on values as Transco Zone 6 NY shed nearly 90 cents to an index near $1.30 and Tetco-M3 slipped more than 5 cents to an index near 50 cents.

Conversely, overall demand despite the lower demand weekend days in the offering, supported a near 10-cent gain at the benchmark Henry Hub to an index atop $3.00, Waha added about 1 cent to an index near $2.55, and Chicago inched higher to an average atop $2.75. In the West, while SoCal Border traded about 1 cent lower to an index below $2.70, PG&E Gate added about 1 cent to an index atop $3.15.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities Pages.