Natural gas prompt-month futures traded about a penny higher ahead of expiration Monday, with the market’s attention turning to injection season as weather models pointed to some lingering cold risks for March. In the spot market, changes were mixed against a backdrop of generally lackluster Lower 48 demand; declines in California and West Texas countered gains along the East Coast, and the NGI National Spot Gas Average added 3 cents to $2.43.
The March contract expired at $2.639 Monday, up 1.4 cents on the day. That’s a drop of nearly $1.00 from February’s expiration at $3.631 as a lack of heating demand -- combined with strong production -- helped put the bears firmly in control for much of the month. The April contract added 2.9 cents Monday to settle at $2.686.
“It pretty much traded in an area where it had already traded for the last couple days,” INTL FCStone Financial Inc.’s Tom Saal, senior vice president, told NGI. “Usually the last day or two it’s about who wants to make or take delivery at Henry Hub and people exiting contracts.”
From here, the markets will focus will be end-of-March inventories, he said.
“How much gas is going to get pulled out of the ground and how much are we going to start filling it?” Saal said. “If that number’s low, probably at the beginning it will look like it’s not much of a challenge, but if it gets hot in the summer,” cooling demand could compete with injection to create “price pressure to the upside.”
Bespoke Weather Services noted “supportive late morning and afternoon model guidance” on Monday. “The April contract takes over as prompt trading at around a 5-cent premium to March, which seems to make sense given current cash weakness but expectations for more significant heating demand in the first half of March.
“Still, this is a decent premium, and if cash weakness persists through the next few days it could limit gains at the front of the natural gas strip,” although weather guidance showed “sizable cold risks in the medium- and long-term that have become even more pronounced on afternoon model guidance.”
In the spot market, prices in the Northeast and Mid-Atlantic strengthened Monday after mostly selling off heading into the weekend. Algonquin Citygate added 45 cents to $2.60 after giving up 36 cents on Friday.
Further south, Transco Zone 5 climbed 15 cents to $2.66 after shaving off 7 cents in Friday’s trading. In Appalachia, Dominion South gained back the 19 cents it lost in deals done prior to the weekend, adding 20 cents Monday to average $2.15.
NatGasWeather.com said the midday guidance Monday continued to point to milder than normal conditions in the East this week before giving way to colder conditions March 6-11.
“A weak boundary will push through the eastern U.S. Monday with showers, although remaining milder than normal with relatively light late February demand,” the firm said. “Overall, the eastern half of the country will warm further Tuesday through Thursday as high pressure re-strengthens.”
While parts of the West and Northern Plains should see “regionally strong demand,” the focus remains on the eastern United States, NatGasWeather said.
“We continue to expect the eastern U.S. ridge to weaken late this week and into the weekend as a weather system tracks through, although not impressive as it fails to tap much subfreezing air,” the firm said. “The data remains on board with stronger cold blasts into the eastern half of the country March 6-11...while there’s likely to be at least some cooling across the country March 12-15, right now we view it as neutral unless colder trends were to show up.”
PointLogic Energy’s forecast Monday showed Lower 48 demand declining slightly for the current week before increasing for the week ending March 8. “After a docile February, domestic demand is set to ramp up slightly during the first full week of March,” Vice President Jack Weixel said.
“While average demand this week will come in at 74.7 Bcf/d, the week ending March 8 is forecast to average 80 Bcf/d, driven by residential/commercial gains of 5.2 Bcf/d week-on-week. Population-weighted temperatures across the Lower 48 will go from an average 49.9 degrees down to 46.5 degrees the week ending March 8…
“The last time domestic demand averaged greater than 80 Bcf/d for a week was the week ending Feb. 15,” said Weixel. “While neither week was staggeringly cold, this will likely be the last blast from an up and down winter withdrawal season. Expect storage inventories for the week ending March 8 to be impacted by the extra 5.3 Bcf/d of demand.”
Bidweek traders as of Monday appeared to be pricing in some moderate heating demand for the month of March, according to NGI’s Bidweek Alert.
Through Day 3 of bidweek, fixed and basis trades at Algonquin Citygate were averaging $3.42, down $9.91 from February bidweek but still a more than 80-cent premium to Monday’s day-ahead average.
Bidweek trades at Transco Zone 5 were averaging $2.97, down $7.08 from February but about 30 cents higher than day-ahead deals.
Meanwhile, grid operator PJM Interconnection said Monday its grid performed well during the Dec. 28-Jan. 7 cold blast that caused price spikes along the East Coast. In a report, PJM said a major increase in related uplift charges showed the need to reform pricing for energy and reserves.
PJM's system has seen an increase in natural gas-fired power generation in recent years, driven largely by the low prices created by Appalachian shale production. From 2010-2016, the system was 33% coal-fired, 33% natural gas, 18% nuclear and 6% renewables. That's compared to 2005, when coal and nuclear resources generated 91% of the electricity on the PJM system.
In the West, prices in Southern California moderated further Monday, although temperatures in the region were expected to remain chilly. SoCal Citygate continued to trade at a premium but saw prices slip 73 cents to $3.36 Monday. This comes less than a week after prices there traded as high as $25.
Southern California Gas Co. (SoCalGas) reported actual system demand Sunday of just under 3 Bcf/d, less than the roughly 3.5 Bcf/d forecast prior to the weekend. The utility on Monday was projecting demand to total around 3.7 Bcf/d on Tuesday, with receipts expected to total 2.9 Bcf/d.
SoCalGas said it withdrew 0.08 Bcf over the weekend from its Aliso Canyon storage field, which has been operating under restrictions in the aftermath of a high-profile 2015 leak. Meanwhile, maintenance on its Line 3000, affecting about 270 MMcf/d of imports through the Topock receipt point in SoCalGas’s Northern Zone, is expected to be completed by May 1, according to the utility.
“Once Line 3000 is put back into service, the Topock receipt point will be available for gas receipts into the Northern Zone with a projected receipt point capacity of 270 MMcf/d,” SoCalGas said. “The outage of Line 235 and the restricted operation of Line 4000 will continue to limit the capacity of the Needles/Topock Area Zone to 270 MMcf/d, and the total Northern Zone capacity will remain at 870 MMcf/d.”
Elsewhere in the region, SoCal Border Average fell 7 cents to $2.41. Southern Border PG&E dropped 15 cents to $2.24, while El Paso S. Mainline/N. Baja dropped 10 cents to $2.52.
El Paso Natural Gas said a force majeure event declared last week that impacted volumes flowing into California via the Topock Compressor Station was resolved over the weekend.
Further upstream, El Paso Permian sank 28 cents to $1.96 as West Texas saw broad declines Monday.