Natural Gas Intelligence
Mild Cash Strength Overshadowed by Futures Free-Fall

Wednesday, July 11, 2012

July 7, 2012 

Mild Cash Strength Overshadowed by Futures Free-Fall

The cash market overall Tuesday was on average a penny higher with mild strength evident in most regions. More than a handful of Northeast points weakened. Futures found the rarefied air of Monday's gains unsustainable and recorded a double-digit loss. At the close August had dropped 14.6 cents to $2.737 and September had lost 14.8 cents to $2.728. August crude oil dropped $2.08 to $83.91/bbl.

Weakness at northeast points was seen as a weather response. "It's a mild 79 to 80 degrees [in Boston], and that's probably a heat wave for most of those guys, but it is just normal," said an eastern marketer.

"They are doing some allocations on Tennessee, otherwise prices would be even lower. They are doing maintenance on Tennessee until mid-August and you can still move gas if you have firm transportation and are using primary path, but if you have to go to a different cycle, you will probably not get transportation."

A lower open tomorrow will likely pale in comparison to market adjustments in store for northeast and eastern markets as Marcellus production kicks in. If analysts are correct, the expected volumes coming out of the Marcellus Shale have the potential to turn supply and consumption patterns in the Northeast on their ear. "Over the next five years, natural gas production in the Marcellus is expected to double, from just less than 8 Bcf/d today up to almost 16 Bcf/d in 2016," said Rusty Braziel in his blog at

Utilizing a Bentek Energy LLC flow model, Braziel demonstrates that regional Northeast production last winter "averaged 6.9 Bcf/d, Canadian imports were 1.3 Bcf/d, the region received 1.5 Bcf/d from the Rockies/Midcontinent and another 6.2 Bcf/d from the Southeast/Gulf region. Storage made up 2.9 Bcf/d of supply for the season, and there was a tiny volume of LNG imports. In total, it was an average demand of about 19 Bcf/d."

Braziel said, "there will no longer be a need for any LNG imports, Canadian imports, inflows from the Rockies/Midcontinent, or eventually even from the Gulf. By 2016, most of these flows will be history except for some inflows from the Gulf during the winter months."

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