With less than two weeks before Halloween and only a blip of cold weather on the radar, natural gas forwards markets were nothing to write home about as most points shed about 5 cents while Northeast points gained about that much amid a fast-moving cold front in the region over the weekend.
“The first significant cold blast of the season is barreling down on the Midwest and Northeast and will bring a surge in heating-based nat gas demand through this weekend, with lows dropping into the 20s and 30s while bringing a mix of rain and snow showers into the coldest air,” forecasters with NatGasWeather said.
The chilly conditions are indeed expected to temporarily boost demand in the region.
Genscape projects demand in New England to peak at 2.86 Bcf/d on Oct. 19 before sliding back to 2.40 Bcf/d on Oct. 23. Appalachian demand is expected to reach 12.19 Bcf/d before tumbling back to 9.73 Bcf/d over the same time frame.
Genscape, based in Louisville, KY, provides real-time data and intelligence for energy and commodity markets.
The brief bump in demand was enough to boost gas markets in the Northeast.
At Transco zone 6-New York, the fixed price for November climbed about 7 cents from Oct. 9 to $2.701 on Oct. 15, according to NGI’s Forward Look. The balance of winter (December-March) also picked up about 7 cents to reach $6.817.
Tetco M3’s November fixed price sat Oct. 16 at $1.691, a gain of 5.4 cents from Oct. 9, while the balance of winter hit $3.836, up 4.4 cents.
Meanwhile, New England’s Algonquin Gas Transmission city-gates saw November climb 4.1 cents to $5.302 and the balance of winter jump 13.8 cents to $8.545, Forward Look data shows.
Both Tetco and Algonquin imposed restrictions on their pipelines this weekend due to the high demand.
But any support prices seen this week could prove to be short lived as long-term forecasts show temperatures remaining mild for the remainder of the month.
“We continue to expect additional weather systems over both the western and northern U.S. to end October, but they would need to trend significantly colder or the markets will need to wait into early November for more intimidating temperatures,” NatGasWeather said.
Forecasters at Bespoke Weather Services agreed that models are showing virtually no cold weather past this weekend’s cold snap.
“Overall, this pattern is seen as slightly bearish for the natural gas market, potentially bringing us to a retest of $2.403, or even slightly lower, as we have already seen intense selling this morning,” the agency said in a Friday morning note to clients.
“The market is back in oversold conditions, however, and much of this mild weather is priced in, likely limiting downside despite the forecast being relatively bearish,” Bespoke said.
The Nymex November contract was trading just a few pennies lower around midday Friday.
“Prices are starting to reach the bottom of the barrel, so to speak, and at some point, it just won’t make sense to keep producing at these levels,” said NGI’s Patrick Rau, director of strategy and research.
Rau said that while the natural gas rig count remains depressed, a meaningful drop in production likely won’t be seen until hedges roll off at the end of the year.
“Given where prices are these days, that might not cause another large downturn, but it’s certainly not going to help them either,” Rau said.
U.S. production reached a year-to-date record of 72 Bcf/d, up 4% from 2014 thanks to increased drilling efficiencies; improving completion technologies and practices; decreased drilling costs; a move by producers to focus drilling in high output areas; producers locking in last year’s higher prices through hedging; and bringing uncompleted wells into production, according to FERC’s 2015-2016 Winter Energy Market Assessment, which was released Thursday.
Meanwhile, a healthy storage picture provided additional market confidence for the upcoming winter.
Inventories grew by a surprising 100 Bcf for the week ending Oct. 9, elevating stocks to 447 Bcf over year-ago levels and 168 Bcf over the five-year average, according to the U.S. Energy Information Administration.
“We're just 196 Bcf below the all-time storage record of 3,929 Bcf,” said Nate Harrison, NGI markets analyst. “If we get injections of just 66 Bcf (per week) over the next three weeks of expected warm weather, then we'll set a new storage record.”
Meanwhile, FERC said propane storage at the wholesale level is filled far above the five-year range. Coal stockpiles and deliveries are also at or above normal due to improved rail deliveries, as well as capital improvements to railroad tracks and locomotives.
In fact, the low price environment and lack of volatility is likely to continue through most of the winter, even at markets in the Northeast and Midwest thanks to increased takeaway capacity in those regions.
New England, meanwhile, could continue to see some spikes during high-demand periods, but it appears the market has confidence that liquefied natural gas (LNG) imports as well as dependence on other fuel types will be enough to cope with demand.
“In New England, 34 Bcf of liquefied natural gas imports from Everett and Canaport helped moderate natural gas price spikes in the region last winter,” FERC said in its recent winter assessment. “With global LNG prices currently below $8/MMBtu, we expect that New England will be able to attract LNG cargoes again this winter.”
Meanwhile, the Commission in September approved a three-year extension to the ISO-New England’s Winter Reliability Program, which is designed to prevent overreliance on natural gas-fired generators, as well as to implement other proactive measures during the winter months.
The three-year term is intended as a bridge to the initiation of the pay-for-performance, capacity market reform.
Last year, coal- and oil-fired power plants contributed 6% of all the energy produced in New England, but when demand peaks and when natural gas-fired generators cannot get fuel, they are crucial for reliability, FERC said.
“During last winter’s extreme cold weather, they contributed 24% of the energy in January and 18% in February,” FERC said.
Once pay-for-performance has been implemented, ISO-NE believes the winter reliability program will no longer be needed.