Physical natural gas for delivery Tuesday soared 66 cents on average in trading Monday as the Arctic chill continued. Blizzard-like weather maintained a stranglehold on key eastern and Midwest energy markets.
At the close of futures trading January had added 11.8 cents to $4.232, a new six month high and February settled at $4.225. January crude oil fell 31 cents to $97.34/bbl.
Locations in New England showed meteoric advances, at some points in excess of $10, while California locations added as much as $2.00 and $3.00 to daily quotes.
"With much of the country encompassed by cold temperature anomalies of greater than 20-25 degrees F, huge natgas draws will continue for the next several days before gradually easing," said meteorologists at Natgasweather.com. "There will be several winter systems tracking across the northern half of the U.S. this week and again this weekend, with accumulating snowfall and strong winds, keeping much of the northern U.S. in an icebox.
“With bitter cold, snow on the ground, while going into the year's lowest sun angle, expect natural gas use to be quite high from now through Dec. 16 [Sunday]."
Freeze-offs were a hot topic amongst traders. Genscape Inc. analyst Jonathan Gould estimated Monday morning that at least some production was returning. Using Dec. 4 as a benchmark, when the Lower 48 produced 66.2 Bcf/d, freeze-offs peaked on Sunday when only 64.7 Bcf/d was produced. According to Genscape data, the Lower 48 inched higher to 65.1 Bcf/d on Monday.
The markets still are trying to determine what will happen in the second half of the month, said Natgasweather's Matt Clark. "The pattern should become very unstable from around the 15th-21st, leading to many differing views on how the weather plays out and some uncertainty on how much heating demand should be anticipated."
A Rockies producer reported that although total U.S. demand is down 6.4 Bcf/d from Sunday's 112.3 Bcf/d, demand is still up 1.7 Bcf/d from Friday's 104.1 Bcf/d. On Saturday, demand reached its highest point since Jan. 22, peaking at 115.1 Bcf/d. Production began to fall when frigid temperatures hit the United States last week, trending downward over the last seven days, but they rebounded slightly Monday.
Production remains 1.5 Bcf/d below the weekly average prior to cold temperatures. Declines are largest in the West.
At New England points, prices jumped as much as $10.00, but much of the gain appeared to be power-driven and a reflection of the weather. AccuWeather.com meteorologists forecast that Boston's high Monday of 40 would drop to 37 Tuesday and 34 Wednesday, about 9 degrees below the seasonal norm of 43. New York City's high Monday of 41 was anticipated to slide to 32 on Tuesday and Wednesday, well below seasonal norms of 45 degrees. Philadelphia’s 40 degree temperatures Monday were forecast to drop to 32 on Tuesday and 31 Wednesday. The normal mid-December high in Philadelphia is 46.
Next-day power prices in New England made Herculean leaps into triple-digits. IntercontinentalExchange reported that next-day peak power at the New England ISO's Massachusetts Hub soared $46.97 to $116.69/MWh. At PJM Interconnection, next-day power rose a more modest $4.64 to $50.37/MWh.
The National Weather Service in New York City indicated that cold temperatures might stay through the end of the week as low pressure begins moving into the middle-Atlantic Coast Monday night “and then passes south of Long Island on Tuesday. Outside of a weak cold frontal passage Wednesday night...Arctic high pressure then builds into the region for the rest of the week. Another coastal low pressure area approaches and moves near for the weekend."
Quotes for next-day gas delivery at the Algonquin Citygates vaulted $10.84 to $17.42 and gas upstream at Iroquois Waddington rose $1.76 to $6.73. On Tennessee Zone 6 200 L next-day deliveries jumped $9.60 to $16.28.
Prices on the West Coast soared as temperatures eased and power loads increased, but no outages were reported. "Prices are high out here, but there are no cuts or anything," said a San Diego-based power generator. "Pure gas load was high for heating, but at the same time the power side was a little more than what was expected. Gas load in Los Angeles was higher than normal as SoCal pulls normally 3.5 Bcf/d off the system in the winter and we were up to 4.5 Bcf/d, it was like an extra Bcf."
High temperatures can be deceiving, and overnight lows can have a major impact on West Coast heating load. "Some were saying that low temperatures in the Valley east of Los Angeles were in the 30s,” said the generator.
AccuWeather.com said the high of 59 in Los Angeles would climb to reach 65 Tuesday with a low of 41, while the high Wednesday was expected to hit 68 with a low of 45. The normal for Los Angeles in early December is a high of 68 and low of 48. San Diego's 60 degree high Monday was forecast to hit 63 Tuesday with a low of 42, while Wednesday was predicted to reach 65 with a low of 45. The seasonal high and low for San Diego are 65 and 49, respectively.
IntercontinentalExchange reported that next-day power at NP-15 jumped $3.42 to a stout $73.07/MWh, and at SP-15 next-day peak power rose $7.42 to $73.45/MWh.
Pipelines in the Southwest and California appeared to be having difficulty.
El Paso Natural Gas Co. LLC (EPNG) said in a Monday afternoon post that it was successful in stabilizing its linepack on Sunday and "continues to work toward maintaining a higher linepack until this winter weather pattern moves out of our service area toward the middle of the week...
"However, supply underperformance in both the San Juan and Permian basins [Monday] morning, in combination with higher loads (approximately 200-300 MMcf higher than Sunday) has resulted in a significant decrease in overall linepack.
"EPNG remains concerned about overnight temperatures in the Permian and San Juan basins, which are forecasted to remain below normal for the next several days. As such the potential would still exist for freeze-offs and supply underperformance. Delivery point operators should continue to review their scheduled supplies to ensure that they are aligned with their flowing quantities."
The San Juan supply basin "is currently performing at 86% of scheduled volume. Permian/Waha supply basin is currently performing at 87% of scheduled volume," EPNG said. "Underperformance caps will be placed on nonperforming supplies in Intraday 2 (Cycle 4) for gas day Monday as required. Imbalance payback off the system, such as make-up delivery transactions, may be limited or denied due to operational concerns related to maintaining adequate linepack.”
At Malin Tuesday gas was quoted at $6.75, up $1.22 and deliveries to PG&E Citygates added $1.14 to $6.33. Gas at the SoCal Citygates soared $2.96 to $7.63 and SoCal Border quotes gained $1.94 to $7.24. Deliveries on El Paso S Mainline rose $1.78 to $7.83.
Gas on El Paso Permian rose $1.03 to $6.11 and deliveries to El Paso non-Bondad surged $1.81 to $7.11. On Transwestern next-day deliveries jumped $1.57 to $6.66 and gas on Transwestern San Juan rose $1.68 to $7.08.
In the eastern markets, longer-term forecasts turned colder over the weekend. WSI Corp. in its morning six- to 10-day outlook said Monday’s forecast “has trended colder over the East and warmer over the interior Northwest and Plains/Midwest later in the period when compared to Friday's forecast. Forecast confidence is considered near average standards as models show reasonably good large scale agreement through day 10 with some localized technical differences."
Risks to the forecast include "models....expressing uncertainty with regards to the pattern over the East and a developing low-pressure system. Recent trends in the European op now support warmer temperatures when compared to [Sunday] over the East, with potential for a winter storm across the Northeast."
Western risk managers are utilizing the weather-driven market strength as a precursor to entering short hedges. "As sub-zero temperatures set over the western U.S. on Thursday, prices for Friday gas flows at Opal pushed higher by $0.27," said Devo Capital Management President Mike DeVooght. "This was only the beginning as Friday trading pushed Opal up to $6.07 for weekend gas flows...On a trading basis, we will look to add to our producer hedges if the balance of the winter reaches $4.30-4.40. We will sell next summer if the Nymex strip reaches $4.30-4.40.”
DeVooght recommended that producers and those with exposure to lower prices hold the balance of a short November-March strip established earlier between $4.50 and $4.60.
In its Early View Forecast Energy Metro Desk in a survey of 12 traders and analysts found an average 82 Bcf estimated for this week's storage report. The figure compares to last year's 8 Bcf pull and a five-year average of 76 Bcf.