Outside the turbulent trading in the Northeast, physical gas for Wednesday delivery was down close to 20 cents at most market points, but multi-dollar gains at eastern locations were enough to pull the day's average into the black.
The NGI National Spot Gas Average rose 3 cents to $2.63, but once the smoke cleared the overall average gain in the East, largely driven by pipeline restrictions and colder weather, was close to $1. Futures continued to struggle with weather outlooks that by late January are having a hard time discerning the type of cold that is likely to have any meaningful impact on supply. At the close, February had dropped 13.9 cents to $2.257 and March had skidded 12.8 cents to $2.261. February crude oil traded below $30 but at the close was down 97 cents to $30.44/bbl.
Transco Pipeline reported a major restriction on gas flowing east out of the Marcellus into eastern Market Zones. According to industry consultant Genscape, Monday saw Transco posting a notice "highlighting possible reductions in west-to-east flows through Compressor Station 515 [located south of Scranton, PA].
"Citing high utilization rates amid colder weather in major demand areas, Transco estimates reductions up to 150 MMcf/d are possible for Tuesday, Jan. 12th and reductions up to 350 MMcf/d for Wednesday, Jan. 13th. Based off of the maximum flow value observed on Jan. 5th, the first day in service day of the Leidy Southeast Expansion, these restrictions would reduce overall capacity by 4.7% and 11%, respectively. While flows along Leidy have been markedly lower than the seasonal peak, temperatures throughout the region will potentially be colder than on Jan. 5th."
The market lost no time reacting. Marcellus pricing points weakened, while downstream points surged.
Pipeline customers need to be careful when restrictions are in place. "When there are OFOs, LDCs, power plants, etc., have to be very careful they don't pull more than what they nominated. Everybody who is pulling gas during an OFO has to match what they scheduled, and if they don't, there are penalties," said an industry veteran.
"Customers can increase their gas above and beyond what they nominated the day before in a subsequent cycle, but customers will also look at other options to bring gas in at alternate points. In the New England area, that's when points like Dracut will come into play," he said.
Major market hubs fell hard. Gas at the Chicago Citygate fell 16 cents to $2.41, and packages at the Henry Hub changed hands 15 cents lower at $2.38. Gas on El Paso Permian came in 18 cents lower at $2.23, and Wednesday parcels priced at the SoCal Border Avg. Average shed 18 cents to $2.39.
Forecasters are calling for temperature moderation for the latter parts of the month. WSI Corp. in its Tuesday morning report to clients said, "[Tuesday's] 11-15 day period forecast depicts a moderating trend and less anomalous conditions. The forecast is warmer or not as cold as yesterday's forecast over the eastern two-thirds for days 11-14, [and] CONUS GWHDDs are down 4.3 and are now forecast to be 141.1 for the period. Forecast confidence is near average today given the better model agreement during the six-10 day period, as well as reasonably good agreement with the pattern change for the end of the month.
"A more El Nino- or positive PNA- [Pacific North American] driven pattern offers a risk to the cooler side across the southern U.S. The northern tier has a slight upside risk."
Analysts don't see weather patterns going forward as capable of sustaining further price advances. "[W]e are having some difficulty associating nearby gas futures in the $2.40-2.50 zone with updated temperature forecasts that are not indicating any broad-based much below normal temperature trends," said Jim Ritterbusch of Ritterbusch and Associates in closing comments Monday.
"Deviations from average appear modest, and a sizable supply surplus remains in place as a cushion against the inevitable and occasional HDD spikes that tend to develop during the month of January. While conceding that the dynamic of surplus expansion has stalled with Thursday's EIA release likely to come in at about the five-year mark of 178 Bcf, we have yet to see enough production or electric generation response to low prices to maintain last week's price up move. For now, we are maintaining a bearish stance and would suggest holding any short positions established at around current levels with stops above $2.50 in referencing the February contract."