Physical gas for Thursday delivery vaulted higher in Wednesday's trading as cold and continued forecasts of temperatures as much as 20 degrees below normal at some market points kept buyers scrambling.
The greatest gains were posted in the Midwest, with Chicago markets posting multi-dollar gains, but those gains contrasted sharply with producing zones showing small losses. Overall the market jumped $1.70 to average $7.19. Several pipelines reported capacity constraints or force majeure conditions, and buyers were hoping to make it to the weekend when temperatures are expected to moderate somewhat. The high-water mark on the day was recorded at thinly-traded Transco Zone 6 non-NY North, which saw a high trade of $125 and finished the day with an average of $49.23, up $20.16 from Tuesday.
Futures prices managed to recover Tuesday's losses and then some, with March adding 7.2 cents to $2.831 and April rising 7.8 cents to $2.857. March crude oil fell $1.39 to $52.14/bbl.
Gas for delivery into the Midwest soared as temperatures throughout the region were seen as much as 30 degrees below normal. AccuWeather.com forecast that Wednesday's high in Milwaukee, WI of 7 would slide further to 4 degrees by Thursday before recovering somewhat to 17 on Friday. The normal mid-February high in Milwaukee is 33. Chicago's Wednesday high of 10 was predicted to drop to 6 degrees Thursday and recover to 19 on Friday, well below the normal high of 36. Detroit's 19 high on Wednesday was seen sliding to 5 degrees Thursday and recovering to 12 on Friday. The seasonal high in the Motor City is 33.
Gas for delivery Thursday on Alliance jumped $7.34 to $11.41, and packages at the ANR Joliet Hub added $7.10 to $11.35. Gas at the Chicago Citygates was quoted $7.57 higher at $11.51. On Consumers, next-day packages came in $8.18 higher at $12.20, and on Michcon, gas changed hands at $9.44, or $5.88 higher.
Market points aligned with the Midwest soared as well. Demarcation gas added $5.77 to $9.80, and gas on Northern Natural Ventura rose $6.36 to $11.29.
A Michigan marketer who had bought for the winter lamented, "it's not enough. We are trying to shuffle gas around between our customers because we don't want to pay these ugly prices. We are hearing up to $17 on Consumers, and we avoided buying gas today...
"We are trying to work with our storage gas, but we can't draw more than allotted. Then we have to pay penalties. We were really hoping to get through the winter without this type of thing happening, but it’s not to be."
Thursday and Friday “are supposed to be pretty cold, but the weekend is supposed to be better,” he said. “The cold for the two days might be offset by warmer conditions for the weekend. Going forward for next week at least we are not supposed to see negative temperatures for lows, but temperatures aren't rising very fast.”
Pipelines have also had their share of difficulties. Dominion Transmission Inc. reported a force majeure condition because of the unplanned shutdown of its No. 4 compressor near Dryden in upstate New York. The company said deliveries to Tennessee-Morrisville, as well as the citygates of Niagara Mohawk East, Niagara Mohawk West, and NYSEG and Rochester Gas and Electric would be impacted. The company expected service to be restored by Saturday.
In southeast Pennsylvania and eastern New Jersey, Transco reported no additional capacity on its Marcus Hook Lateral and Trenton Lateral pipelines.
Tennessee said there was no additional capacity at its junction with Transco at Rivervale, NJ and no additional pipeline capacity between Main Line Valve 324 and 326 in northeastern Pennsylvania, as well as between stations 245 and 249 in upstate New York.
Commenting on the current cold snap, Rick Margolin, senior analyst -- Natural Gas for Genscape, said, "We certainly have the potential for natural gas demand in New England and the Southeast to set record highs at least for this winter. We are seeing pretty strong demand. What is also notable about this event is the breadth of the cold this time. Previously this winter we've seen some pretty good cold shots hit some markets, but they've been relatively isolated and not so widespread. This current cold event appears to have a pretty good geographic extent and we would expect that to heighten volatility relative to what we've already seen this winter."
That said, Margolin believes the current cold blast doesn't come anywhere close to the multiple polar vortices last winter in terms of the effects on natural gas demand. "Last winter's polar vortices were so widespread as [the cold] stretched all of the way from northwestern Canada to southern Florida," Margolin told NGI. "It hit both coasts at the same time -- north and south. In addition, the cold snaps of last winter were accompanied by freeze-offs, which disrupted the supply-side of the equation.
“Also, in the New England market, we didn't really have LNG as a backstop like it has been so far this winter, and you have to remember that we are in a very different place in terms of natural gas storage levels. By this time last year, we had already drawn down storage to pretty good levels by the time the second intense cold snap hit. This winter to-date, we've been barely touching storage. We do expect some pretty robust 200-plus Bcf withdrawals to begin next week, which will be a product of what is going on right now."
The Midwest and East aren’t the only sections of the country shivering.
"Old Man Winter will be unrelenting across the Midwest and Northeast this week as yet another blast of arctic air rolls in and spreads deep into the South," said AccuWeather.com meteorologist Brian Lada.
"This next push of arctic air is expected to bring air that is just as cold, or even colder than the air that brought subzero lows to the Midwest and Northeast during the weekend. Millions will shiver from Chicago to New York City as record lows are challenged during this bitter blast. Records may also fall across parts of the South where temperatures manage to fall into the teens and single digits.”
Southern cities forecast to dip “into the teens or lower” include Birmingham, AL; Charlotte, NC; Columbia, SC; Nashville and Atlanta. Floridians will even experience a taste of the arctic chill with temperatures dipping down to the lower 30s in cities such as Orlando, Melbourne and Daytona Beach.
Outside of the refrigerated North and Midwest, next-day gas prices eased. Gas for delivery to Transco Zone 3 fell 5 cents to $2.92, and deliveries to Columbia Gulf Mainline slipped 3 cents to $2.93. Gas at the Henry Hub fell 2 cents to $2.93 and packages at Katy dropped 4 cents to $2.71.
Buyers for gas-fired power generation across the broad PJM footprint can expect bitter cold, but also hefty wind generation.
"A frontal system is expected to traverse the power pool” resulting in a “brief round of light snow,” said WSI Corp. in its Wednesday morning outlook. “A gusty northwest wind behind this system and low pressure off the New England coast will usher a reinforcing shot of near-record arctic air into the power pool for the end of the week. Lows may range from below zero to the mid-teens. Highs may range in the single digits, teens to low 20s, [and] a complex frontal system may develop late Friday night into the weekend. Precipitation may begin as a swath of snow and wintry mix, but this may transition to rain in many areas.
"A gusty northwest wind will lead to a period of elevated wind generation during the next couple of days at which point output may peak in excess of 4 GW. Wind generation may briefly drop off late Thursday but may rebound during Friday into the weekend."
In spite of the near-term cold pummeling the nation, analysts still see the longer-term price driver to be hefty production.
"This market is currently edging up to highest levels of this year as cold temperature views are now being stretched into the first week of March," said Jim Ritterbusch of Ritterbusch and Associates in a note. "Although some moderation is expected by the end of next week, views extending all the way out to about March 3 are still favoring significantly below normal trends across the eastern half of the U.S. However, the weather-related strength of the past week has been orderly as gains have been checked by a string of smaller than expected storage withdrawals that are still being influenced to some degree by a stronger pace of production than generally expected.”
Severe code “is expected to extend all the way into Texas during the next couple of weeks,” which may force some freeze-offs, but “the market will likely be shifting focus to the month of March when weather related curtailments generally prove negligible.
“In any event, nearby futures have proven a bit stronger than we had anticipated with the March contract advancing to around the high side of our suggested $2.80-2.88 sell zone. We remain of the opinion that it is premature to rule out new two and a half-year lows in this market based on outlooks for a continued strong production pace that appears capable of trending higher through this spring and summer period."
Strong production is seen as leading to a modest withdrawal in Thursday's Energy Information Administration storage report. Last year 247 Bcf were withdrawn, and the five-year pace is for 181 Bcf. ICAP Energy is looking for a 113 Bcf pull and Citi Futures Perspective calculates a 96 Bcf withdrawal.
Tom Saal, vice president at INTL FC Stone in Miami, in his work with Market Profile, expects the market to test Tuesday's value area at $2.781 to $2.721 and "then test" $2.608 to $2.582. Eventually, he said, the market should test $2.943 to $2.911. "Market participants' behavior continues to reveal horizontal pricing and possible 'bottoming' action. Buyers be ready for hedge trading strategies."