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Natural gas futures finished near even Friday, with the market content to remain range-bound as forecasters hinted at potential upside risks from a chilly outlook for the first half of March. In the spot market, Southern California points surged, while a storm that swept through the Northeast and Mid-Atlantic Friday had a muted impact on prices; the NGI National Spot Gas Average climbed 3 cents to $2.46/MMBtu.
The April contract settled at $2.695 Friday, down 0.3 cents on the day after trading as high as $2.728 and as low as $2.686. May settled at $2.727, down 0.2 cents.
NatGasWeather.com noted Friday that “the weather data trended colder Thursday and overnight, which continued in the latest midday, especially across the East, with cold lingering March 12-15 instead of ending by March 11-12, as the data was suggesting earlier in the week.
“Prices failed to sell off on” previous milder trends “but haven’t really added much now that notably colder trends have occurred in both the Global Forecast System and European models,” the firm said. “...Going into the weekend, we see the bias as being toward colder trends since there are ways additional reinforcing cold shots can continue into the East past March 15.”
That said, recent changes to guidance haven’t been producing strong movements in the market, the firm added.
Bespoke Weather Services observed an overnight rally before prices “pulled back at the pit open and into the settle. This appeared to be producers using high volume periods to hedge, as volume increased and contracts later in the strip (especially Winter ‘18/19) declined more.
“Those later contracts lagged through the day while summer contracts once again led, indicating structural tightness continues to allow for a very tight floor for prices at the front of the strip,” the firm said. “We see this combining with recent colder risks over the next couple of weeks to open up a bit more upside towards the $2.75 resistance level into early next week.”
On Thursday the Energy Information Administration (EIA) reported a 78 Bcf withdrawal for the week ending Feb. 23, which was tighter versus the 7 Bcf withdrawn a year ago, but looser than the five-year average pull of 118 Bcf.
The withdrawal fell in line with market expectations, though analysts with Tudor, Pickering, Holt & Co. (TPH) noted “a slight boost” to futures “as six- to 10-day weather forecasts show below-average temperatures across most of the U.S. and a winter storm is predicted to hit the northeast, a departure from the mild weather seen in February.
“Interestingly, this week’s draw indicated a weather-adjusted undersupply level of around 3 Bcf/d, moving further out of balance from” the prior week, the TPH analysts said. “We’re looking for the production side to begin to come into play in the coming weeks, with the full in-service of the Rover Pipeline driving a step-change in supply/demand dynamics.”
Meanwhile, natural gas bulls got some potentially good news during the week as a liquefied natural gas (LNG) tanker owned by a subsidiary of Royal Dutch Shell plc loaded up with the first export cargo from the Dominion Energy Cove Point LNG LP terminal at Lusby, MD.
Cove Point now joins Cheniere Energy Inc.’s Sabine Pass LNG terminal in a growing list of export projects poised to create additional demand for surging domestic natural gas supply.
The timing could be good for Cove Point’s first shipment, according to Genscape Inc.
“European market demand has spiked and is expected to remain high as an intense cold front has extended out of Siberia over the continent,” the firm told clients Friday. “Parts of Britain are reportedly breaking snowfall records set 30 years ago, and daytime highs in Britain and Scotland have failed to break out of the teens.
“...The UK’s primary gas provider, National Grid, has issued warnings of strained operating conditions and potential shortages as system demand on Wednesday set a 10-year high, and storage inventories have plummeted,” Genscape said. “Demand has been met with heavy storage withdrawals, but this has also pushed LNG storage inventories to year-to-date lows.”
In the spot market, prices in Southern California shot up as Southern California Gas Co. (SoCalGas) reported another withdrawal from the Aliso Canyon storage facility amid chilly conditions in the region.
SoCalGas and San Diego Gas & Electric (SDG&E) said Friday they were continuing to operate with a system-wide curtailment in place for electric generation customers due to cold temperatures and high demand.
“SoCalGas and SDG&E continue to meet system demand utilizing storage withdrawal and flowing supplies, and are closely monitoring out of state supplies and system demand,” the utilities said. “System conditions remain dynamic and are subject to change.”
SoCalGas was forecasting system-wide demand to increase through the weekend, climbing to around 3.5 Bcf/d by Sunday, up from around 3.2 Bcf/d on Thursday.
SoCalGas notified customers that last Wednesday it pulled another 0.24 Bcf from Aliso Canyon -- the site of a high profile leak in 2015 -- “to support system reliability.”
“This is the second withdrawal from Aliso Canyon in under a week,” Genscape said, pointing to an earlier withdrawal on Feb. 24. “The total 320 MMcf made across these two withdrawals represents the first gas SoCalGas has taken out of Aliso in over a year, since last January.
“...Over the last week and a half, with Southern California experiencing considerably colder-than-normal weather, SoCalGas’s average net storage withdrawal has been 777 MMcf/d,” the firm said. “Every day within this period has seen a net withdrawal...This activity represents a significant contrast with previous winter-to-date storage behavior, when only about 66% of days featured net withdrawals, averaging 247 MMcf/d.”
Further upstream, West Texas prices fell sharply as a force majeure event on El Paso Natural Gas (EPNG) pipeline’s Tom Mix compressor station in Arizona looked to have a greater impact than previously thought.
“Instead of a flow cut of about 25 MMcf/d under the initial operating capacity limit, there will now be about a 500 MMcf/d flow cut in place this Saturday and Sunday,” Genscape said. “...Flow through Tom Mix and its corresponding high pressure meter, Oracle, correlate with EPNG’s deliveries at the California border to SoCalGas and North Baja, so whatever flow cut ultimately occurs this weekend due to this force majeure could be felt downstream in deliveries to SoCalGas.”
Meanwhile, a Nor’easter bringing rain, snow and heavy winds to the Northeast and Mid-Atlantic Friday had a limited impact on spot prices.
On Friday, the National Weather Service said, “Strong winds, heavy rain and accumulating snow will continue across the Northeast and northern Mid-Atlantic states Friday evening, but then conditions should gradually improve as a powerful storm system pulls away from the coast Friday night.
“High pressure building in behind the exiting storm should keep much of the region dry through the weekend, with the exception of some light snow showers across the Lower Great Lakes and interior New England.”
On Friday, Genscape said the system, besides lacking extreme cold, presented downside risks from possible “demand destruction. The storm will feature fierce winds that will generate increases in wind power and may” cause power outages. The storm could also limit travel, reducing commercial demand.