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Weak Winter, Record 4 Tcf Storage Combine to Tamp Down NatGas Forwards

Another build in natural gas storage inventories and a winter that refuses to stick around longer than a few days at a time pushed already weak natural gas forwards markets even lower for the period between Nov. 13 and 19, according to NGI’s Forward Look.

December fixed prices were down around 7 cents on average, and the balance of winter (January-March) fell about 9.5 cents on average, Forward Look data shows.

The ongoing weakness comes as natural gas inventories reached an unprecedented 4 Tcf for the week ending Nov. 13 (see Daily GPI, Nov. 19a), elevating stocks to 11.2% over year-ago levels and 5.5% over the five-year average.

And weather forecasts, while showing colder air reaching some parts of the United States during the weekend and into Thanksgiving week, have yet to indicate truly cold temperatures that will stick around longer than a few days.

“Trends in both the medium and long-range towards less heat, especially across almost all of the East Coast, have lowered confidence that heating demand will be elevated enough in the end of November and beginning of December to significantly support natural gas prices,” said forecasters with Bespoke Weather Services.

Bespoke said Friday morning that GFS models showed all the cold being restricted to the Great Plains down to the South. Meanwhile, a strong trough in the West captured almost all of the cold, boosting natural gas demand only in low-population areas that do not support prices.

And while long-range outlooks do show colder air arriving with each weather system, it appears the pattern of wild temperatures swings every three to five days will continue, said forecasters with NatGasWeather.

“When a prolonged period of cold weather finally sets up to last, weather patterns are likely to turn bullish fairly quickly, especially as the markets realize how much tightening is occurring within the supply/demand balance,” NatGasWeather said.

“But until colder weather patterns show they will convincingly last, we expect weather sentiment to remain somewhat bearish to neutral,” the agency said.

The possibility that El Nino conditions will persist into December is now anticipated to curb gas demand in December, limiting the ability of the industry to address the current supply situation and keeping gas prices low, said Teri Viswanath, director of commodity research at BNP Paribas.

“With the futures strip now trading below $3 until 2018, it appears that the increased likelihood that high end-of-winter stock levels next year is weighing down the market’s expectation for recovery this season as well as next winter,” Viswanath said.

Indeed, the Nymex balance of winter sat Nov. 19 at around $2.45, down about 11 cents from Nov. 13. The winter 2016-2017 strip fell 10 cents during that time to $2.84.

But there are some positive signs for pricing looming, according to NGI’s Patrick Rau, director of strategy and research.

For one, 2015 and 2016 has been and will be busy year for coal plant retirements, which should boost baseload power burn both this winter and next. 2016 should also bring about signs of slowing production, at least on a year-over-year basis, Rau said.

Already, total U.S. production is showing signs of slowing, falling about 1.6 Bcf/d since early October, according to analysts at Goldman Sachs (see Daily GPI, Nov. 19b).

Goldman Sachs analysts agree the slowdown in production and increased power burn should be catalysts for prices. They’ve forecast gas to average $2.85 in 2016 amid coal plant retirements, new petrochemical plants, liquefied natural gas exports and continued growth in exports to Mexico.

These demand boosters should also prevent a total collapse in the spread between this winter and next, but weather will be the key factor in determining that happens, Rau said.

“An extremely warm winter could cause the spread to contract some since it would put supply behind the eight ball going into next summer, but those factors should keep the spread from imploding too much,” Rau said.

Low Prices in New England Still Attractive for LNG Supplies

And while low gas prices are being felt across the country, even in the typically premium-priced New England, it appears prices there still could be attractive enough to LNG suppliers this winter.

The Algonquin Gas Transmission citygates balance-of-winter strip, which sat Nov. 19 at $7.265, has continued to trade nearly $2 above the UK’s national balancing point benchmark and several cents above Japan’s JKM.

For LNG suppliers looking for a home for their supplies, New England appears to be sending out the appropriate market signals to attract those supplies, according to Matthew Hoza, an energy analyst at Lakewood, CO-based BTU Analytics, an energy fundamentals analyst group.

“That signal very well could be answered by Excelerate’s 3.1 Bcf Express FSRU tanker, which according to ship tracking data, is sitting in the Caribbean just off Trinidad and Tobago,” Hoza said.

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