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Natural gas futures added close to a nickel Monday as medium-range forecasts turned notably colder over the weekend -- and winter looked to hold on a while longer. In the spot market, Northeast and Mid-Atlantic prices strengthened on yet another East Coast storm, and the NGI National Spot Gas Average climbed 19 cents to $2.68/MMBtu.
The April contract settled at $2.778 Monday, up 4.6 cents on the day. The May contract settled 4.1 cents higher at $2.800.
“The latest midday weather data was colder trending for late this weekend into Saturday, seeing a reinforcing shot of colder air out of Canada push deeper into the Northeast,” NatGasWeather.com said. “The data was also colder for the middle of next week, but then mixed between a few milder days and a few colder days after March 24.
“...The data has been colder in Sunday night’s European model, and now also colder in the latest midday Global Forecast System data, which could give reason to hold” Monday’s gains, the firm said.
Bespoke Weather Services said following the close that afternoon guidance continued to confirm the cold trends that showed up over the weekend.
“We see recent guidance as cold enough to at least easily bring a test of the $2.82 resistance level for the April contract, something we have been watching for over the past week,” the firm said.
“...Thursday’s Energy Information Administration (EIA) print is likely to show enough tightness that we are not yet turning bearish at these price levels...However, the strip is indicating that a few warmer weather model runs would be able to rather quickly take prices 8-10 cents lower should they get up to or above the $2.82 level.”
The weather, combined with expectations for a storage withdrawal approaching 100 Bcf in this week’s report, has the market looking a little tighter, INTL FCStone Financial Inc. Senior Vice President Tom Saal said Monday.
“The market is focused on what type of injections we’re going to see in April. If this weather hangs around, maybe those injections may not look so robust,” Saal told NGI. That said, “we’re still below $3, so it’s not like the market’s exploding into orbit here. It’s still pricing in plenty of supply in the market.”
Last week’s Commitment of Traders report suggested “the funds are still kind of unsure what to do here,” he said. “They’re not really committed to the long side or the short side...A lot of this action now is people trying to buy gas for hedging.”
The Desk’s Early View storage survey issued last Friday showed respondents on average expecting EIA to report a 93.5 Bcf withdrawal for the week ending March 9, with estimates ranging from -63 Bcf to -109 Bcf. Last year 55 Bcf was withdrawn during the period, while the five-year average is a 97 Bcf withdrawal.
Stephen Smith Energy Associates on Monday forecast a 99 Bcf draw for the period, versus a seasonally normal draw of 12 Bcf based on 2006-2010 norms. Taking a longer-term view, the Smith team said in its latest Monthly Energy Outlook issued last week that 2018 gas prices should average $2.90/MMBtu, “barring a much hotter-than-expected summer.”
The firm’s base case for 2018 “assumes a 6% hotter-than-normal 3Q2018, but also a strong gas production ramp-up as the year progresses. We estimate that the net effect is likely to keep gas storage somewhat below 2006-2010 weekly norms until early fall 2018.
“But fall heating degree days are currently expected to be below normal and gas production growth should be strong at least through year-end 2018,” Smith analysts said. “This suggests an increasing storage surplus as winter 2018/19 approaches. Annual production growth for 2018 is likely to be near 7 Bcf/d per year. This should be partially offset by increased exports to Mexico and increased liquefied natural gas exports (our combined estimated annual increase is 1.5 Bcf/d.”
In the spot market Monday, prices strengthened by double digits across most regions as another winter storm worked its way along the East Coast to help boost Lower 48 demand.
Another “rapidly developing nor’easter” was expected to pass over the western Atlantic Monday before “reaching the Canadian maritimes by Tuesday night,” according to the National Weather Service (NWS). “This is in response to a strong upper level shortwave disturbance crossing the southeast U.S. on Monday, and widespread rain is expected from Florida to central Virginia.”
Parts of Virginia and West Virginia were expected to see moderate to heavy snow on Monday, according to NWS.
“After the precipitation ends in the Mid-Atlantic region Monday night, attention turns to New England as the third nor’easter in two weeks is expected to bring significant snow from Connecticut to Maine, with some locations possibly getting in excess of a foot of snow,” NWS said. “Parts of upstate New York are also likely to get heavy snow through the middle of the week. With the forecast track expected to be farther southeast than the last two events, the highest winds and waves should remain over the offshore waters.”
“Over the past week and for the next three days, residential/commercial demand will exceed 30 Bcf/d as a last gasp of cold weather strikes the Lower 48,” OPIS analyst Jack Weixel said in a note to clients Monday. “Temperatures are not necessarily below normal in all locations, but it’s a colder March than the past two winters.
“Domestic demand will average 79.2 Bcf/d for the week ending March 15, its highest level in a month, since the week ending Feb. 15,” Weixel said. “The week ending March 22 sets a different tone as temperatures across the Lower 48 will rise to average 53 degrees, and demand will soften to 73.3 Bcf/d.”
By region, demand in the Northeast is expected to increase by around 1 Bcf/d or more week/week to 22.4 Bcf/d for the current week, according to Weixel. “Demand in the Midcontinent region also shifts upward this week, but not to the same degree as the Northeast.”
In the West, NWS said the region “will be increasingly wet/snowy and unsettled as a front approaches and moves inland” over the next few days. “The greatest rainfall should be focused over the favored terrain of Northern and Central California, with some locations receiving 2-4 inches of rain through Wednesday morning. Heavy snow is expected across the higher mountainous terrain, with the greatest amounts likely for the Sierra Nevada mountains.”
Further upstream, a number of points in the Rockies gained around 20 cents or more on the day.
In Southern California, the often volatile SoCal Citygate jumped 91 cents to $3.42, while SoCal Border Average added 33 cents to $2.48, including a 39.5 cent surge at SoCal Border-Ehrenburg observed in NGI’s MidDay Alert prices.
Utility Southern California Gas Co. (SoCalGas) said over the weekend that it would begin limiting capacity through its Southern Zone to a total of 700 MMcf/d until further notice. SoCalGas said the reduction is “due to current maintenance activities and low system demand” in the utility’s southern system. “The capacity will increase as conditions allow for more receipts into the Southern Zone,” it said.
In Canada, an improvement in AECO hub basis differentials over the past few weeks is likely to come to an end this week, according to Genscape Inc. “Intra-provincial Alberta demand will weaken with forecasts calling for notably warmer-than-normal temperatures at the same time production is on the uptick,” the firm told clients Monday.
“AECO basis had been moderately supported the last few weeks with cold weather and a production retreat enabling basis to lurk around” negative US$1.00, “but in the waning days of last week’s trading, basis started to slip, falling to a 30-day low of negative US$1.24, with more to come.
“Production is showing signs of recovery,” Genscape said. “Volumes are up to 12.37 Bcf/d after dropping to a two-week low at 12.25 Bcf/d last Tuesday, which was about 0.2 Bcf/d off the prior 14-day average. Despite the recent retreat, month-to-date production is still averaging more than 0.91 Bcf/d over last March month-to-date, sustaining this winter’s trend for production averaging more than 0.95 Bcf/d of winter/winter growth.”
AECO pricing could benefit this week from an increase in exports to U.S. markets along the Pacific coast, but demand in other key export markets, such as the Midwest, is expected to remain flat week/week. Meanwhile, demand in Alberta is projected to fall about 0.82 Bcf/d from last week’s peak as temperatures climb into the mid-40s there, according to Genscape.
“Of note, however, is that Alberta demand is on track to record its largest winter-over-winter increase in consumption, with demand averaging more than 6.26 Bcf/d, a nearly 0.57 Bcf/d winter-over-winter gain,” the firm said.
Some of this is because of colder winter weather, some from structural demand growth from new oilsands facilities and some from the power sector, Genscape said. But “despite the demand growth, production growth is expected to continue outpacing, weighing heavily on the AECO forward curve.”
Basis prices for NOVA/AECO C forwards were approaching negative $2.00 for the May, June and July contracts Friday, according to NGI’s Forward Look. As of Friday trading, May was the most heavily discounted at negative $1.985, followed by June at negative $1.953.
Day-ahead prices at AECO added 10 cents Monday to average C$1.95/GJ.
Analysts with the BMO Capital Markets said in a note Monday that “Canadian natural gas prices have decoupled from U.S. natural gas prices over the past year. We believe that the primary reason is excess supply, a situation we do not see changing over the next two years.”
BMO analysts lowered their 2018 AECO estimate to C$1.82/Mcf from $1.88 and for 2019, prices were cut to C$2.04 from $2.15.