Market and supply hubs down 15 to 25 cents, August 16
Electricity consumption falls below 10 Bcf/d, the lowest level since June
Milder weather is forecast for the Northeast U.S. for the week beginning August 19, pushing regional demand for gas-fired power plants to their lowest levels since late June, posing a potential downside risk to spot gas prices.
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From August 20 to 23, population-weighted temperatures in the Northeast will be more than seven degrees below average, briefly dipping to a projected ten degrees below normal on August 21. In Boston and New York City, daytime highs will drop to around 24 degrees, while nighttime lows are expected to drop to around 15 degrees, according to forecast data from AccuWeather and S&P Global Commodity Insights.
As temperatures drop across the region, power generators are expected to curb gas demand, pushing Northeast electricity use below 10 Bcf/d for the first time in seven weeks. Regional use will average 9.6 Bcf/d from Aug. 20-25. By comparison, Northeast electricity demand has averaged 12 Bcf/d so far in August and was nearly 12.8 Bcf/d in July, data from Commodity Insights shows.
Prices
At market centers throughout the Northeast and at supply centers in the Appalachians, cash prices in trading had already fallen by about 15 to 25 cents on August 16 as spot demand for gas declined against the backdrop of cooler weather.
At the Algonquin City Gates, gas prices for weekend delivery were around $1.60/MMBtu, down from a previous day’s close of $1.78. At Transco Zone 6 New York, spot prices fell to around $1.50, down from a previous day’s close of nearly $1.74. In Appalachia, prices at the Eastern Gas South regional hub fell about 15 cents to settle at around $1.45, data from Intercontinental Exchange and Commodity Insights showed.
As summer heat in the Northeast U.S. subsides by late August, the region’s tightening supply balance could pose a more sustained risk to gas prices as gas injection gains momentum in the fall.
storage
On August 15, the US Energy Information Administration released another surprisingly optimistic report on natural gas storage in the US, reporting only 4 Bcf of injection into the eastern region for the week ending August 9.
After hitting a yearly high in mid-June, excess storage in the East region is now just 65 Bcf — down from over 120 Bcf just two months ago. Over the past week, slowing demand in the Northeast gas market has freed up more supply for injection. According to an early forecast from Commodity Insights’ gas storage model, the East could see 13 Bcf of injection in the week ending August 16 — still less than the average injection of 18 Bcf reported over the past five years.
However, heading into storage week ending August 23, the EIA is likely to report an even larger injection, potentially fueling a rebound in the Eastern region’s gas storage surplus just ahead of the fall off-season of lower demand. In the gas futures market, traders are already bracing for broad basis discounts at Northeast hubs – particularly in Appalachian, where deep discounts are commonplace in the fall.
Although September base discounts at Northeast hubs have actually declined since mid-summer – about 10 cents at Algonquin and 35 cents at Transco Zone 6 New York and Eastern Gas South – a recovery in storage surplus in the eastern region could easily wipe out recent gains.
