April natural gas prices got a reprieve from Monday’s downturn as a strong weather system with rain, snow and colder-than-normal temperatures tracked across the eastern half of the United States, lifting the prompt month 2.4 cents to settle Tuesday at $2.675. Spot gas prices were mixed but sharply higher in the Northeast as demand was expected to remain unseasonably strong for another day. The NGI National Spot Gas Average was up 9 cents to $2.65.
The weather data trended a little colder in the Monday overnight and mid-day data over the Midwest and Northeast, “giving it a somewhat bullish tilt,” NatGasWeather said. “But will it be cold enough to impress the markets when considering colder trends in previous weeks failed to push prices higher by more than several cents?” forecasters asked.
National demand was projected to hit above 80 Bcf/d on Tuesday, more than 5 Bcf/d higher than Monday, with most of the demand increase centered in the Northeast, according to PointLogic Energy. Demand levels on Wednesday were expected to remain elevated as temperatures in the densely populated region were forecast about 5 degrees below normal.
With lows in the teens to the 30s behind the current cold front, national demand will remain stronger than normal into Saturday, NatGasWeather forecasters said. Mild upper high pressure is expected to build across the southern and east-central United States late this weekend into early next week but not advance into the Northeast, maintaining regionally colder trends.
A mild ridge is still expected to build over the east-central part of the country during the middle and end of next week, March 27-30, and it was warmer trending Monday night and again Tuesday, said the forecaster. Cooler conditions, however, are expected to return across the northern one-third of the country March 31-April 3.
“Going forward, the markets are likely to remain focused on the amount of cold air arriving into the northern U.S. the first week of April, and with the overnight and mid-day data colder trending, we see this period as having a bullish lean due to the Midwest and Northeast seeing better opportunities for subfreezing air to release out of southern Canada,” NatGasWeather said.
If the markets wanted to use the early April period trending colder as reason to gain in price, they certainly could, “and it could be the reason” for Tuesday’s small gain. However, much of next week has been milder trending to counter, and any sustained rally would need to be done in the face of fresh all-time record Lower 48 production, the forecaster said.
U.S. dry gas production was reported to be around 78 Bcf/d on Tuesday, more than 1 Bcf/d lower than Monday’s final nominations. The declines are largely concentrated in the Northeast and Texas, which combined are off nearly 1 Bcf/d day over day, according to PointLogic.
Data and analytics company Genscape Inc. said it is possible that low temperatures hitting Appalachia are triggering production disruptions, possibly even freeze-offs. The company’s production team estimated East region production was down more than 0.65 Bcf/d day/day. While each sub-region is showing declines, the largest drops are in West Virginia (0.28 Bcf/d day/day) and Northeast Pennsylvania (0.24 Bcf/d day/day).
In West Virginia, Texas Eastern Transmission, Columbia Gas Transmission and Equitrans pipelines were posting declines, while in Northeast Pennsylvania, all systems were posting declines, with the largest coming off the Tennessee Gas, Transcontinental Gas Pipe Line (Transco) and Dominion Transmission pipelines, it said.
Still, any possible freeze-offs in the region would likely be short lived, and production is expected to continue climbing. Despite the recent dips in supply, the past week has seen four days of production above 79 Bcf/d. With about 6 Bcf/d of new pipeline capacity expected to be in service by the end of 2018, expectations are for U.S. production to push above 80 Bcf in the coming year, CenterPoint Energy fundamental analyst Gerald Wellman said this week.
“Although relatively mild conditions prevailed across the U.S. over the second half of February, comparisons to February 2017 show that demand this February exceeded last year by 9 Bcf/d,” he said. “However, the year-over-year production gains managed to keep prices below $3.00.”
Not even low storage inventories are doing much to sway gas traders to boost prices. Some early estimates show the U.S. Energy Information Administration (EIA) reporting a storage withdrawal on Thursday in the upper 80 Bcf range, which is slightly lower than last week’s draw of 93 Bcf, but it would reduce inventories to around 1,445 Bcf and widen the deficit to the five-year average to roughly 335 Bcf. For the comparable week last year, 137 Bcf was withdrawn from storage and the five-year average withdrawal stands at just 53 Bcf.
This week’s storage draw estimates moved lower after last week’s EIA report, which came in lower than expectations, and now reflect a level of demand growth that is lower than earlier this winter, Mobius Risk Group analysts said. Over the past several years, hitting new highs in production has been a “significant headwind for the market,” even in the face of low inventory levels and strong demand growth. The prompt April contract fell from its recent high of $2.811 to $2.651 on Monday, the Houston-based company said.
PointLogic Vice President Jack Weixel agreed, saying that despite the growing storage deficit this winter, prices have averaged $2.99/MMBtu season-to-date, which is actually 2 cents lower than last year, reflecting, in part, the tremendous growth in associated gas production out of the Permian. North American dry gas production has averaged 93.8 Bcf/d, or 7.9 Bcf/d stronger than last year.
As winter fades, robust production will remain and even grow as Energy Transfer Partners LP’s Rover Pipeline comes fully online and associated gas continues to make gains. “The elevated storage injections to fill the inventory deficit will provide a fortuitous outlet without needing price to move very much,” Weixel said.
Another Nor’easter Boosts Regional Prices Nearly $1
Spot gas prices in the Northeast put up stout increases Tuesday as temperatures from Tennessee to Maine were forecast to run as much as 15 degrees below normal through the end of the week. As with the last few storms that have hit the Eastern Seaboard, however, demand destruction is a possibility as heavy, wet snowfall is anticipated with the potential to once again knock out power lines, according to Genscape.
In New England, demand was projected to reach a 41-day high of 3.57 Bcf/d on Tuesday, with more gains expected as Boston area temperatures were forecast to be about 12 degrees below normal through Wednesday and remain below normal through Sunday. With the cold weather in store, Algonquin Gas Transmission (AGT) posted a notice that an operational flow order (OFO) that was originally declared on March 2 is to remain in effect until further notice.
Given the strong demand and limited flexibility on the AGT pipeline, Algonquin Citygate gas for Wednesday delivery shot up 96 cents to $5.50.
To the south, Transco declared an OFO for zones 5 and 6 as Transco zone 6 non-New York zonal demand returned above the 7 Bcf/d market for the first time since the middle of last week, and at the same time production hitting the system has dropped about 0.23 Bcf/d to reach 3 Bcf/d, Genscape said. As such, Transco Zone 6 non-New York jumped 83 cents to $3.67. Not to be outdone, Transco Zone 6-NY rose 96 cents to $3.84, while even Transco Zone 5 rose 81 cents to $3.63.
This comes as broader Appalachia demand is back to near 15 Bcf/d after bottoming out this past weekend at 14 Bcf/d. “This next demand push could bring March 2018 in line with the strongest March we have on record”, when demand averaged 14.48 MMcf/d in March 2015, Genscape said.
Most other pricing locations shifted only a few cents on the day, following the lead of the Henry Hub, which added 3 cents to hit $2.66.
On the West Coast, however, Southern California prices recovered much of Monday’s losses even as demand was set to fall in the next couple of days. Genscape showed California demand sliding back to just below 6 Bcf/d on Wednesday after peaking above 7 Bcf/d on Monday and Tuesday.
At SoCal Citygate, gas for Wednesday delivery jumped 48 cents to $3.39, while PG&E Citygate gas edged up 4 cents to $2.72.