It had been a volatile day for nat gas traders.
As we reported this morning citing Bloomberg, "it’s almost time to put that snow shovel away and get out the gardening tools", because as the following weather forecast shows, March temperatures are expected to be considerably higher than expected across the entire US.
This led to some abnormal moves in natgas this morning:
The moves even prompted rumors that another commodity hedge fund had blown up:
- U.S. NAT GAS-FOCUSED HEDGE FUND COGENT ENERGY INVESTMENT MANAGEMENT SET TO CLOSE SHOP - RTRS
... a fund which according to our own sources had put on the ill-fated pair trade of being long April 2016 natgas futures vs short Jan 2017. The result of that particular trade is shown below.
And then, as natgas continued to drift ever lower, it suddenly spiked higher a little before 1pm as BBG diligently noted:
- NY NATGAS SPIKES TO SESSION HIGH, RISES AS MUCH AS 3.3%
... forcing even more people to scratch their heads: was the hedge fund net short and thus was forced to unwind positions?
As it turns out the answer is far less exciting, and has to do with a Force Majeure announcement by the Rockies Express Pipeline ("REX"), which for those who are unfamiliar, is a 1,680 mile high-pressure natural gas pipeline system from the Rocky Mountains of Colorado to eastern Ohio. The pipeline is one of the largest natural gas pipelines ever built in North America.
This is what Rex announced on its website:
REX FORCE MAJEURE – SEGMENT 390 LOCATION LIMITATIONS
On Tuesday, March 1, 2016, Rockies Express Pipeline LLC (“REX”) experienced an operational interruption at its mainline on Segment 390 in Monroe County, Ohio. REX is currently mobilizing repair crews however a return to service date is unknown at this time. REX will post updates as additional information becomes available.
Accordingly, REX is declaring a Force Majeure situation pursuant to Section 21 of its tariff, which requires a capacity reduction at the following points until the repairs are completed:
Receipts
- East Ohio Gas – Clarington (PIN 44490)- Ohio River System – Bearwallow (PIN 60060)- Eureka Hunter – Monroe (PIN 60059)- Rice – Gunslinger (PIN 60065)
Deliveries
- East Ohio Gas – Clarington (PIN 44490)- Dominion – Clarington (PIN 44424)- TETCO – Clarington (PIN 44425)
Effective for the ID 1 Cycle, Gas Day Tuesday, March 1, 2016, REX will schedule quantities at the points noted above to Elapsed Prorated Scheduled Quantities (“EPSQ”).
Effective for the Timely Cycle, Gas Day Wednesday, March 2, 2016 and until further notice, REX will schedule the points noted above to 0. Primary and secondary firm quantities, as well as AOR/ITS will not be scheduled.
For questions, please contact your Account Director or Scheduling Representative.
The reaction hit the NG contract like wildefire.
According to industry sources, the potential shutin amounts to 1.2-1.8bcf/day and thus immediately has impacted both supply and price dynamics.
Which explains the surge; now the question is how long until this particular, one time move which coincides with everything else in the market going ballistic, is faded, and whether any correlation algos will follow the inevitable natgas move lower.