Natural gas forwards were up by the double-digits for the period between Dec. 24 and 30 as more sustained cold weather finally arrived, dropping temperatures, bolstering demand and causing freeze-offs in parts of the country.
The Nymex February gas futures contract climbed 13.5 cents during the three-business-day period, settling Wednesday at $2.216. Markets were closed Dec. 25 and again Jan. 1, 2016.
Most other gas markets followed suit, putting up gains of around 18 cents on average, according to NGI’s Forward Look.
A handful of markets, however, experienced more pronounced strength as demand soared due to falling temperatures.
Most notably, New England’s Algonquin Gas Transmission (AGT) citygates saw the February fixed price jump about $1.13 to $7.51 on Dec. 30, only about 7 cents below where it traded at the start of December, Forward Look data shows.
AGT March was up 43.6 cents to $5.18, while the summer 2016 package was up 8.6 cents to $3.075.
The rapid rise in prices at AGT comes as daytime temperatures in the region, which rose to almost 70 degrees on Christmas Eve, dropped to a normal 37 by Dec. 30 and were expected to fall to 27 by Jan. 5, according to AccuWeather.
The colder weather has been a boon for demand in the region.
Genscape projected demand to reach 3.20 Bcf/d on Dec. 31 and then climb to 3.75 Bcf/d by Jan. 4. During the past seven days, demand averaged just 2.65 Bcf/d.
Genscape, based in Louisville, KY, provides real-time data and intelligence for energy and commodity markets.
Beyond the first week of January is where weather outlooks remain somewhat unclear.
Forecasters are focusing on whether a pool of Polar air over Canada will surge aggressively into the U.S., with the most recent models suggesting a good chance of that happening.
“However, the consequences of it failing to do so would be extremely bearish and could lead to a sharp gap lower if the data were to trend warmer over the long weekend break,” forecasters with NatGasWeather said.
“Simply put, it’s critical sub-freezing temperatures arrive for mid-January if prices are going to continue to find support, which is the more likely scenario. Although, the failure to do so would leave the natgas markets very disappointed,” it said.
Despite the recent cold blast, a Northeast trader said the dramatic run-up in prices that has occurred over the past two weeks has more to do with short-covering than the turn to “normal” weather.
“That’s a pretty impressive run for just normal temperatures. The market got caught too short and ran out a bunch of funds,” the trader said.
New York markets also saw a substantial rise in prices for the last week of December, though not on the same level as its neighbor to the north.
Transco Zone 6-New York February rose 52 cents to $5.95, while March moved up 27.5 cents to $2.99. The summer 2016 was up just 2 cents to $1.75, according to Forward Look.
The price hike comes as New York temperatures, which hit 72 on Christmas Eve, are expected to drop to 33 by Jan. 5, AccuWeather forecasts show.
“The markets are too jacked up for normal weather,” the trader said.
Still, the cold is expected to bring about more sustained demand, with Genscape projecting Appalachian demand to rise from an average 11.04 Bcf/d during the past seven days to a peak of 17.58 Bcf/d for the first week of January and an average 16.30 Bcf/d for the period between Jan. 11 and 14.
Markets in and serving the West also rose slightly more than the national average, due to both high demand and the loss of production because of freeze-offs.
An estimated 2.5 Bcf/d of production was offline due to freeze-offs as of Dec. 30, spread out across the San Juan, Anadarko and Permian basins, according to Bentek Energy.
The cut to supplies sent El Paso non-Bondad and EP-Permian February fixed prices up about 20 cents between Dec. 24 and 30, settling at $2.284 and $2.23, respectively.
Meanwhile, Southern California Border’s February package jumped 22.5 cents to $2.474, while March climbed 15.4 cents to $2.32.
The overall market strength seen over the past week appeared poised to continue just before the New Year’s holiday break.
The Nymex was up about 14 cents just before 1 p.m. EST, even after the U.S. Energy Information Administration’s storage report offered no real surprises.
The agency reported a 58 Bcf withdrawal from storage for the week ending Dec. 25, in line with market expectations.
Stocks were 532 Bcf higher than last year at this time and 448 Bcf above the five-year average of 3,308 Bcf. At 3,756 Bcf, total working gas is above the five-year historical range, the EIA said.