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NatGas Futures Surge on Forecast Cold, Cash Too; SoCal Spikes in Forwards, Bidweek

Natural gas futures picked up steam Tuesday, climbing by double digits for the second straight day on forecasts for cold temperatures arriving after Dec. 7. Cash markets followed the futures higher, with the bears losing their grip after near-term warmth drove widespread losses the prior two trading days. The NGI National Spot Gas Average climbed 12 cents to $2.81.

The December contract came off the board on a high note Tuesday, settling 14.6 cents higher at $3.074 after trading as high as $3.102. December gained more than 26 cents in its final two trading days after settling at $2.813 Friday. The January contract added 11.1 cents Tuesday to settle at $3.128, while February settled 10.8 cents higher at $3.131.

The weather models continued to show confidence Tuesday in a cold pattern developing across most of the country late next week, according to NatGasWeather.com.

"Minor changes in the latest weather data, and this time colder trending for the middle of next week around Dec. 6 to add a few heating degree days (HDD), while most importantly holding onto a frigid U.S. pattern Dec. 7-13 besides portions of the West," the firm said in a midday update to clients.

"...There's another six days of milder than normal conditions and lighter than normal demand to get through before this major pattern shift takes place, but it remains solidly on track." Focus will soon shift to whether "additional cold blasts can continue into the northern and eastern U.S. past Dec. 14, which we expect is likely."

The cold spelled out in the longer-term forecast, and the upward momentum in futures, appeared to have the cash market's attention even as near-term weather offered little to excite the bulls.

In Tuesday's spot market, points across the Midwest, Gulf Coast, Northeast, Southeast and Appalachia firmed by a dime or more following broad-based losses going back to last week.

Day-ahead deliveries at Henry Hub added 9 cents to $2.91 Tuesday, still lagging the December contract by 16 cents.

In the Northeast, Algonquin Citygate added 10 cents to $3.14 as Transco Zone 6 New York jumped 22 cents to $2.97. In the Midwest and Midcontinent, Chicago Citygate added 15 cents to $2.85, while Northern Natural Demarcation jumped 14 cents to $2.75.

In Appalachia, Dominion South gained 12 cents to $2.41, while in Texas, Katy added 12 cents to $2.88.

Meanwhile, in Day 3 of Bidweek Tuesday, gas traded for December delivery reflected the bullish response to the forecast cold observed in the futures market. Averages at many points were tracking more than $1.00 higher month/month.

Northeast bidweek prices led the way, with Algonquin Citygate bidweek trades averaging $5.80/MMBtu cumulatively after trading as high as $6.38/MMbtu Tuesday. Tennessee Zone 6 200L bidweek prices were averaging $6.31 after trading as high as $7.08 Tuesday, according to NGI's Bidweek Alert.

Then there's SoCal Citygate, which has been hit with multiple ongoing supply restrictions and which continued to show signs of volatility Tuesday. Day-ahead deliveries jumped 36 cents to $5.03.

Sempra Energy’s gas utility Southern California Gas (SoCalGas) continues to report zero scheduled volumes through key import points at Topock, AZ, and Needles, CA, and more recently imports across the Mexico border at Otay Mesa have also been restricted. This is on top of limited availability of storage withdrawals from Aliso Canyon in the aftermath of the leak discovered in 2015.

Anxiety over potential supply shortages has manifested in Bidweek and Forward Look prices this week as potential December demand increases loom on the horizon.

Bidweek trades at SoCal Citygate surged as high as $7.55 Tuesday and have averaged $6.19 through three days. Meanwhile, fixed price forwards at SoCal Citygate jumped 10.21% on Monday’s trade date to average $6.206, according to NGI's Forward Look.

SoCal Citygate prices for December have now surpassed the perennially constrained Algonquin Citygate, where fixed price forwards traded at $5.563 on average Monday, Forward Look data show.

"It makes sense that December would be coming in higher given the continued restrictions at those import points and the continued limitations at Aliso, when also considering that December and January have historically been two of the most significant demand months for SoCal," Genscape Inc. analyst Joseph Bernardi told NGI Tuesday.

"Other than the continued unavailability" of imports through Otay Mesa, "which had previously served as an outlet for SoCal to continue receiving some rerouted Permian Basin molecules, we aren't seeing any additional current maintenance events." As for when the restrictions at Topock, Needles and Otay Mesa could be lifted, "SoCal has not provided any updated information on potential end dates."

The restrictions on imports into the SoCalGas system have been severe enough that state regulators are concerned. A report issued Tuesday by California energy agencies and the Los Angeles Department of Water and Power highlighted the uncertainty of natural gas supply availability this winter.

Officials predict that supplies from Aliso Canyon, the state's largest gas storage facility, would be needed this winter. "Under extreme cold weather events, there may be insufficient gas supplies to meet demand even relying on withdrawals from all of the other storage fields," the report noted.

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