For all the madness that consumed the spot natural gas market in the past few days and sent prices in New York to the highest level ever recorded, forward gas prices averaged more than 10 cents lower amid relief ahead from the biting temperatures starting mid-January, according to NGI Forward Look.

Northeast market hubs, meanwhile, posted steeper declines, with February coming off more than 80 cents in New England, as a very strong upper ridge expanding over the entire continental United States in the Jan. 16-20 time frame is expected to bring about much lighter demand.

“The longer this mild period lasts, the more likely the nat gas markets are going to be frustrated; cold weather patterns won’t be able to capitalize on the recent rapid sharp increase in deficits,” forecasters at NatGasWeather said.

The latest weather data continues to suggest the next decent chances of cold returning to the North and East would be during the last week of January, but with more work to be convincing, the forecaster said.

Even as heavy snow and blizzard conditions gripped much of the East Coast Friday, traders were quick to warm up to the idea of softer demand in the coming weeks. After settling higher for four straight days, the Nymex February gas futures contract shed 4.8 cents on Wednesday and another 12.8 cents on Thursday to settle at $2.88.

From a technical perspective, NGI’s Patrick Rau, director of strategy and research, said near-term support is around $2.72. But slow stochastics aren’t anywhere close to being oversold, so if $2.72 fails to hold, “there is really nothing from a technical standpoint to keep February from testing its previous all-time low of $2.56.”

At midday Friday, the Nymex February futures contract had dropped as low as $2.743. The prompt month eventually ended the day at $2.795, down 8.5 cents.

“It’s a great buying opportunity. I wish I had a bunch of money lying around,” said natural gas analyst Zane Curry of Mobius Risk Group.

Even as parts of nation are struggling to see high temperatures move past the single digits, and gas pipelines have struggled to maintain flows, it appears traders are so laser-focused on the upcoming break in frigid weather that they are dismissing the quickly deteriorating storage picture.

The week’s surprise bearish miss on the U.S. Energy Information Administration’s (EIA) storage report perhaps gave the market all the confidence it needed that the temporary surge in demand would ultimately prove no match for rampant production growth.

The EIA reported a net 206 Bcf withdrawal from U.S. gas stocks for the week ended Dec. 29, about 15 Bcf less than what the market had been expecting, and the bears, perhaps skeptical of the lasting impact of the recent cold, seemed to take it as validation.

The latest storage report was the first to gauge the impact of the extreme frigid temperatures that began moving in over the Christmas holiday, driving up heating demand and cash prices for most of the eastern two-thirds of the Lower 48 states.

However, Houston-based Mobius said expectations for the most recent storage report, and subsequent ones, are so lofty that there was little to no chance for a larger-than-expected withdrawal and even an on-target report would likely have yielded little reaction from the market.

Meanwhile, production growth has been so robust the last few months that the market continues to ignore the counter punch that bitterly cold temperatures and strong weather-adjusted demand are providing. Gas stockpiles stood at 3,126 Bcf, a 192 Bcf deficit to the year-ago inventory level, which coincidentally is the same as the deficit versus the five-year average.

Still, even as end-of-March inventory is tracking for a 700 Bcf year-over-year deficit, the March/April Nymex futures spread sat Thursday at a meager 11.7 cents. It was less than 5 cents during the last week of 2017.

“Interestingly, while last year’s market sentiment was one of optimism due to being at the five-year average, this year’s sentiment is bearish despite being below the five-year average,” the Mobius team said.

The storage report for the week ending Jan. 5 is expected to be the largest withdrawal ever reported, and yet once again, market expectations are so lofty that it will be difficult to manage a “bullish surprise,” said Mobius analysts.

Early estimates show the inventory decline could exceed 300 Bcf, a level that would push the year-over-year storage deficit beyond the 300 Bcf mark. IntercontinentalExchange storage futures show a draw of 330 Bcf.

“I’m not sure February approaches $2.56 at the same time we have one of the largest storage withdrawals of all time,” Rau said. For reference, the largest single weekly withdrawal since 2010 is 288 Bcf, which occurred the week ended Jan.10, 2014, as much of the nation was in the grips of a polar vortex.

Given the coming week’s storage draw estimate, the deficit could reach 500 Bcf by the first full week of February based on normal weather, according to Mobius.

Early indications show the next three storage reports after the whopper scheduled for next Thursday (Jan. 11) could average 180 Bcf. That is around 40 Bcf more than the same period last year, Mobius analyst Curry said. “That puts us around 1.3 Tcf for the end of winter. How much downside risk is there really?”

While injecting enough gas in the summer months to put the market at a comfortable 3 Tcf by the start of the 2018-2019 winter season is not unheard of, it has not done so since the summer of 2014, when it injected 2.747 Tcf, Curry said.

Since the freezing temperatures gripped the nation, there have been a slew of freeze-offs that have curtailed production. While warmer weather is expected in the weeks ahead, production assets don’t always bounce back as quickly as some would like to believe, he said.

In the Rockies, for example, when production goes offline during the winter, it isn’t until the spring when output returns and sustains prior peaks. The same could be true for Appalachia as production in the region has grown so swiftly that the market doesn’t quite have a firm handle on how long production could remain offline, Curry said.

“But I will say the producing community has become much more adept at managing output through these types of weather events,” he said.

Meanwhile, near-term futures price direction could be determined by how gas plays out in the cash market, Curry said. While the Monday-Wednesday time frame is one of the warmest portions of the current weather forecast, “if Henry Hub prices remain supported well above $3, it is hard to understand why the prompt month contract would slip much further.”

NGI’s MidDay Alert on Friday showed Henry Hub cash prices averaging $2.902.

Northeast Forward Prices Thaw Even As Snow Remains

Much like Nymex futures, Northeast pricing locations began softening mid-week and never looked back. The steepest declines occurred in New England, where shortages of fuel oil followed by Thursday’s shut-down of the 680 MW Pilgrim Nuclear plant from the stack have helped regional demand sustain record levels, according to data and analytics company Genscape Inc.

Pilgrim was taken offline as a safety precaution given its placement on a north-facing shoreline along Cape Cod, MA, and the associated storm surge, Genscape said. The unit’s return to the generation stack was not known, but it normally takes at least two days to return to regular operating capacity after being at total shut-down.

While New England historically would make up the lost capacity with fuel oil generation, oil shortages within the Independent System Operator New England, the regional electric grid operator, and emissions caps being reached at some generators have made this impossible.

The loss of Pilgrim means an incremental gas demand increase of 125 MMcf/d on an already highly utilized pipeline system, Genscape said. From Dec. 28 to Jan. 3, gas demand has averaged 3,390 MMcf/d, 927 MMcf/d higher than the five-year winter average.

Still, with warmer weather ahead, traders quickly took some weight off the forward curves in New England. At Tennessee zone 6 200 leg, February forward prices plunged 82 cents from Dec. 29 to Jan. 4 to reach $9.916, according to Forward Look. March was down an impressive 34 cents, while the February-March strip was down 58 cents to $8.05. While the summer 2018 strip slipped less than a nickel, the winter 2018-2019 package dropped 24 cents to $7.07.

Algonquin Gas Transmission City-gates February forward prices tumbled 75 cents during that time to reach $9.911, while March plummeted 28 cents to $6.049 and the February-March package dropped 52 cents to $7.98. The winter 2018-2019 strip also posted a double-digit decline.

Genscape showed demand for the region falling to an average 3.44 Bcf/d in the week ahead and then holding relatively steady at 3.45 Bcf/d for the Jan. 15-19 work week. Demand surged above 4 Bcf/d on Jan. 2.

In New York, where cash prices skyrocketed to $175 during the week, February forward prices shed 22 cents to hit $7.134, Forward Look data show. The rest of winter dropped the same amount, with March sliding to $3.814 and the February-March strip falling to $5.47. Even the winter 2018-2019 strip came off 13 cents to reach $4.78.

At Transco zone 5, where demand set a new record of 4.63 Bcf/d on Jan. 4 and gas prices soared as high as $127.57 the same day, the declines in forward prices were even more substantial. February forward prices tumbled 37 cents from Dec. 29 to Jan. 4 to reach $6.074, March dropped 17 cents to $3.527 and the February-March strip slid 27 cents to $4.80.

Genscape showed Transco zone 5 averaged 3.06 Bcf/d in demand for the month of December. The bulk of the record-setting demand was accounted for by three massive meters: Piedmont, Duke Energy North Carolina and Public Service North Carolina, which collectively nominated 2.96 Bcf/d in demand, a staggering 1.72 Bcf/d higher than its December average. The rest of zone 5 combined for 1.67 Bcf/d, and timely cycles showed slightly more modest aggregate zone 5 demand of 4.38 Bcf/d.

AECO’s Fairytale Rally Comes To End

After surging in recent weeks due to oilsands production growth and bitter cold weather, AECO forward prices started the new year on a soft note. AECO February forward prices fell 29 cents from Dec. 29 to Jan. 4 to reach $1.369, according to Forward Look. March dropped 31 cents to $1.155, while the February-March package slid 30 cents to $1.26.

The steep declines come as Genscape shows demand tumbling to an average 5.946 Bcf/d for the week, down from the recent seven-day average of 6.82 Bcf/d. The following week, demand is projected to average 5.79 Bcf/d.

The Western Canadian benchmark remained the lowest price point in North America that is tracked by NGI as stout gas supplies, strong regional demand and limited export demand have strained pipelines in the province.