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LNG Imports Keeping Eastern NatGas Spot Prices in Check; Futures Crawl Lower

Physical natural gas prices were widely mixed in Wednesday trading for Thursday delivery. On balance, the market decreased a few pennies, but gains in the Marcellus, Gulf and California weren't able to offset losses in New England, the Mid-Atlantic and Midwest.

Overall, the physical market was down 2 cents to average $4.15, but futures took it a step further, with February settling 6.7 cents lower at $2.871 and March dropping 5.9 cents to $2.865. February crude oil managed a gain of 72 cents to $48.65/bbl, the first advance in the last five trading sessions.

Next-day gas at eastern points eased as forecasters called for a warming trend to finish out the week, and liquefied natural gas (LNG) imports moved into East Coast ports.

Forecaster Wunderground.com predicted the high Wednesday in Boston of 23 would drop to 20 Thursday before reaching 32 on Friday. The normal high in Boston is 36. New York City's Wednesday high of 25 was expected to slide to 24 Thursday before advancing to 33 on Friday. The seasonal high is 38. Philadelphia's Wednesday maximum of 24 was forecast to slide to 21 Thursday then rise to 32 Friday. The seasonal high in Philadelphia is 39.

Next day gas at the Algonquin Citygates held its lofty levels but eased 33 cents to $12.54. Gas at Iroquois Waddington tumbled $1.79 to $9.90, and deliveries to Tennessee Zone 6 200 L fell 2 cents to $11.96.

Gas bound for New York City on Transco Zone 6 skidded $4.15 to $13.75, and packages on Tetco M-3 were quoted at $11.00, down $1.55.

In the Marcellus, next-day deliveries were mixed. Gas on Millennium was flat at $1.55, and on Dominion South Thursday parcels changed hands at $1.38, down 15 cents. On Tennessee Zone 4 Marcellus, however, gas rose 29 cents to $1.42, and gas on Transco Leidy gained 13 cents to $1.37.

Prices at the Algonquin Citygate remain tepid compared to this time last year, although demand is roughly the same.

"Algonquin demand remains above 3.8 Bcf/d with more cold in store, [and] on Tuesday, with the Boston daily average temperature at just 18°F, demand hit 3.86 Bcf/d, the second highest it has been in the past five winters," reported industry consultant Genscape Inc. "Last winter, on Jan. 3 a record-high 3.92 Bcf/d was recorded. The previous high was set in February 2011 when demand hit 3.88 Bcf/d on a day when the average temperature in the market was 21.6 degrees F."

Even with the near-record demand, prices have yet to come anywhere close to last year.NGI data shows Algonquin Citygate spot prices hit a peak on Jan. 21, 2014 of $95.00, well above current quotes. However, Genscape analysts said AGT Citygate cash and basis prices “have reached season-to-date highs at $12.87 and $9.91, respectively."

Imports in the form of LNG are aiding and abetting the cause of more moderate pricing, and New England imports are at record high rates. Genscape reported that 172 MMcf/d has been nominated for sendout from Excelerate LNG facilities offshore Boston, the first such deliveries to Algonquin since March 2010. The last time Excelerate delivered to Boston it lasted for 84 days, and its facilities have a capacity of 600 MMcf/d.

Everett, MA is also delivering higher volumes to Algonquin this winter.

"Since the beginning of December, Everett's deliveries to Algonquin have averaged 37 MMcf/d. Deliveries began ramping up on Dec. 30 and have averaged 120 MMcf/d since,” Genscape’s team said. “Everett scheduled 244 MMcf/d to flow on to Algonquin on Jan. 6 in anticipation of Thursday's cold weather.”

Well freeze-offs are in play in producing zones far removed from market zones. "The Permian Basin has been one of the harder hit basins," said Genscape senior analyst Rick Margolin. "With the freeze-offs, we've probably lost about 0.5-0.6 Bcf/d. Total U.S. is down about 2.3 Bcf/d, and we are assuming most of those are due to freeze offs. We are below 70 Bcf/d, whereas production was upwards of 72 Bcf/d.

“The geography of where these freeze-offs are occurring is important. They are not close to the Northeast consuming zones, and a lot of traders are shrugging it off and saying 'who cares?'.” There is plenty of production on the doorstep in the Northeast, he added.

Freeze-offs may not be important to spot prices, but they may play a part in Thursday's weekly Energy Information Administration (EIA) inventory report. Last week a paltry 26 Bcf was withdrawn from storage, but this week's report is expected to be nearly five times that amount. Last year 148 Bcf was withdrawn from storage and the five-year pace stands at 145 Bcf.

IAF Advisors is looking for a pull of 120 Bcf, and Wells Fargo analysts calculate a withdrawal of 132 Bcf. A Reuters survey of 21 traders and analysts revealed a sample average of 121 Bcf, with a range of 110 Bcf to 133 Bcf.

Short term traders see $2.80 technical support in play. "I think $2.80 support is vulnerable, but present thinking is that traders are wondering 'how low can we push the market?',” said a New York floor trader. “There is more incentive for the shorts from that angle than to try and take money off the table. There's a lot of money on the short side, and the bears are licking their chops.”

MDA Weather Services in its Wednesday morning six- to 10-day outlook showed an extensive fairway of below-normal temperatures from New England to Alabama and Minnesota to eastern New Mexico. "A similar outlook” was in place Wednesday to Tuesday “with ‘aboves' still in the West while the eastern two-thirds of the nation remains colder than normal.” Colder changes were in parts of the central and eastern United States, but “this cold remains substantially less intense than that seen in the one- to five-day period.

"A breakdown in the upstream Pacific pattern is expected with troughing set to replace ridging near the West Coast. An increase in Pacific flow yields a warm-up along the northern tier of the U.S. as the period progresses."

MDA added that risks to the forecast include the fact that high pressure keeps lingering cold risks over the interior East to the Great Lakes and the Ohio Valley. Also, the northern tier of the country could see a more expansive warm-up.

Once the cold dissipates, analysts see a warming trend. BNP Paribas analyst Teri Viswanath, director of natural gas trading strategy, told clients Tuesday that "there appears to be better model agreement now that the near-term cold will end, with temperatures moderating and returning to above-normal levels in the central U.S. by late next week. However, there are early signs that this warm-up may be short lived, as many models already showing some ridging trying to return to Alaska before month-end. 

"The combination of extraordinarily light destocking in December and the warm-up mid-January has reset the trading range for natural gas prices, with a $3.25 ceiling now developing. Yet, with more than half of the heating season ahead, the questions remain on how much further prices might fall in light of current fundamentals.

“In our opinion, end-of-winter inventories will need to approach 2 Tcf in order for prices to significantly deteriorate from current levels. Based on our estimates of supply and demand, we expect that working gas in storage will end the season at 1.76 Tcf, which suggests some level of support at current prices."

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