Physical natural gas for Wednesday delivery continued the ascent established in Monday's trading as weather forecasts continued to turn still colder and the expired January futures contract as well as the rest of the curve provided strong financial support for buyers to make incremental purchases.
Pipelines reported strong volumes, and the NGI National Spot Gas Average rose 22 cents to $2.45. January futures raced to the finish line and at expiration had settled 14.4 cents higher at $2.372, the highest in a month and a half. February managed an 11.4-cent gain to $2.370. February crude oil was seen $1.06 higher at $37.87/bbl.
The high volumes of gas out of Northeast basins has changed the traditional flow from Gulf to East and Midwest markets. "We are in fire hose mode," said an industry veteran familiar with numerous natural gas markets. "Every pipe is split. Any pipe in the Northeast is moving some gas to the Northeast market and the balance is moving south. Tennessee, Tetco and Transco are all doing that. Algonquin is fed by Tetco, and there is nothing going south on Algonquin.
"I guess if you were standing in the middle and the gas was tied around your arms you might get pulled a little bit. At some points there may be nodes where the flow is equally balanced in both directions," he said.
Midwest markets rose as weather forecasts called for a return to more seasonal temperatures. Wunderground.com predicted the Tuesday high in Chicago of 33 degrees would hold Wednesday and drop to 31 Thursday, one degree below normal. Milwaukee, WI's 35-degree high on Tuesday was forecast to slide to 29 Wednesday and 24 by Thursday, six degrees below normal.
Gas on Alliance rose 26 cents to $2.53, and deliveries to the Chicago Citygate came in 24 cents higher at $2.51. Deliveries to Joliet added 26 cents to $2.54, and parcels on Consumers gained 22 cents to $2.48. Gas on Michigan Consolidated changed hands 24 cents higher at $2.52.
Northern Natural Gas reported supply issues as cold weather was expected to affect receipts. "Northern expects to have limited operational flexibility to accommodate underperformance at receipt points due to cold weather conditions. Northern is monitoring receipt points across the system with particular focus on supply originating from the Rockies, Oklahoma, West Texas and New Mexico. In order to maintain the integrity of its system, effective beginning with Gas Day Tuesday, December 29, 2015, and continuing until further notice, Northern may be required to allocate scheduled quantities at individual receipt points if underperformance is experienced," the pipeline said.
NGPL also was experiencing constraints at certain points in its Midcontinent zone, notably in Custer and Washita counties, OK, where it said scheduled volumes were not fully available. Natural said it would schedule capacity at certain points at a level that reflects current physical flow. At those points "all transport services are at risk of not being fully scheduled." Oklahoma has been battered by rounds of freezing rain, ice and sleet in the western and central parts of the state, while heavy rains also flooded the eastern part of Oklahoma (see Shale Daily, Dec. 29).
Gas at eastern points was mixed as forecasts called for above-normal temperatures. Wunderground.com said the Tuesday high in Boston of 40 degrees would ease to 39 Wednesday, but rise to 45 by Thursday, eight degrees above normal. New York City's 47 high on Tuesday was seen rising to 52 Wednesday before dropping back to 50 on Thursday. The normal high in the Big Apple this time of year is 39.
Parcels at the Algonquin Citygate eased 11 cents to $4.43, and gas headed for New York City on Transco Zone 6 added 7 cents to $2.04.
Next-day power prices were also mixed at eastern delivery points. Intercontinental Exchange reported next-day on-peak power at the ISO New England's Massachusetts Hub fell $2.16 to $38.64/MWh yet Wednesday on-peak power at the New York ISO's Zone G terminal (eastern New York) rose $2.79 to $25.79/MWh.
Other major hubs reported double-digit gains. Gas at the Henry Hub rose 29 cents to $2.37, and gas at Opal gained 24 cents to $2.95. Deliveries to the SoCal Citygate added 16 cents to $3.01.
Overnight weather models trended significantly cooler out to mid-January. WSI Corp. in its Tuesday morning outlook said, "[Tuesday's] 11-15 day period forecast has trended much colder across the CONUS, focused about the East, when compared to yesterday's forecast. CONUS GWHDDs are up +16 to 155.9 for the period. Forecast confidence is considered near to slightly below average standards due to fair agreement with the models regarding the high-latitude pattern, but there is increased uncertainty across the U.S. late in the period regarding a possible arctic air mass intrusion.
"Colder risks are favored across the Plains and East during the period as models continue to resolve the -EPO [Eastern Pacific Oscillation]/North American pattern response."
Analysts readily acknowledge the weather component of Monday's 20-cent advance in the January contract but also see a long-awaited reduction in production due to sliding rig counts. "Although the market's response to colder temperature forecasts that have been evolving during the past week would appear much exaggerated, it should be kept in mind that the futures had become much oversold technically and that long-standing short position holders have been looking for a reason to book profits ahead of year's end," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning report to clients.
"This window dressing could be sustained through the rest of this week as daily updates to the short-term temperature views have been looking sequentially bullish. Despite the fact that broad-based below-normal trends are not anticipated out to about Jan. 11th, some longer-term models are beginning to favor some much below normal patterns across the second half of January that could make a significant dent in the large storage surplus.
"While we are not yet ready to take a season ending 2.4 Tcf storage level off of the table, we are forced to concede to some ongoing structural shifts that may force some downward adjustments in our longer-term supply expectation. The virtually uninterrupted decline in the gas rig count during the past year appears to be gaining momentum to the point where a production response is being evidenced."