Physical natural gas for Wednesday delivery managed only a modest gain in Tuesday's trading, but many, if not most, points scored healthy gains as cold weather was anticipated to rake across many Midwest and eastern markets in the following days with the potential for well freeze-offs to lower production just when it is needed most.
The NGI National Spot Gas Average rose 4 cents to $3.67, but widespread double-digit gains were common across the Midwest, Midcontinent, Rockies and Marcellus. Futures posted a new high, with January reaching $3.732 before retreating as the day wore on. At the close, January had given up 1.9 cents to $3.635 and February was lower by 1.5 cents to $3.626. January crude oil fell 86 cents to $50.93/bbl.
Industry observers are expecting stretched basis across many fronts as weather-driven demand increases and the possibility of production freeze-offs lurks in the background.
Major market centers posted stout gains. Gas at the Chicago Citygate rose 14 cents to $3.76, and deliveries to the Henry Hub gained 11 cents to $3.71. Gas on Panhandle Eastern rose 14 cents to $3.61, and packages at the SoCal Border Avg. added 19 cents to $3.81.
Industry consultant Genscape said "simultaneous demand increases across broad geographic areas can create a strain on supplies." The company pointed out that when demand gains in SoCal correspond with demand strength in Alberta, Chicago, Texas and parts of the Northeast, "the market did not run out of supply by any means (especially this early in the season with storage full), [but] last week's event provided a glimpse of the strain on supplies when demand occurs across a broad area.
"This week and early next should be a repeat of that, but with more intensity. Not only is demand on the rise in every basis region of Canada and the U.S., but production disruptions from freeze-offs are now a risk. Forecast temperatures this week in producing regions across the U.S. and Canada are falling to levels capable of triggering freeze-offs. The greatest risks are in Alberta, the Bakken and Rockies. There is slight risk to Permian, San Juan and Pennsylvania Marcellus," Genscape said.
In New England conditions became challenging when Tennessee declared a force majeure on its 200 Line. "Though actual flows have not been cut, the capacity reduction effectively means flows through those segments are now at capacity. With New England demand strong and rising with cold weather, New England imports via Algonquin were already at capacity," Genscape said.
Although nationally prices gained, several points in New England fell. Gas at the Algonquin Citygate fell $1.39 to $4.62, and deliveries to Iroquois, Waddington retreated 13 cents to $4.22. Gas on Iroquois Zone 2 dropped 45 cents to $4.27, but gas on Tenn Zone 6 200L fell $1.07 cents to $5.11.
"The TGP force majeure's tightening of capacity into the market is likely to heighten AGT basis volatility. New England demand is forecast to rise to a peak of 3.18 Bcf/d by Friday, and remain above 3.1 Bcf/d throughout next week," Genscape said.
If conditions on Tennessee were not complex enough, Rockies Express said it is delaying Tuesday's pig run on the E2W capacity enhancement, thus freeing up as much as 500 MMcf/d of eastbound flows.
Gas at Marcellus locations rose. Deliveries on Dominion South added 13 cents to $3.18, and packages on Tennessee Zn 4 Marcellus rose 11 cents to $3.10. Gas on Transco-Leidy Line added 13 cents to $3.17.
Overnight short-term weather models in key energy markets turned still colder. "The forecast trends significantly colder [Tuesday] in this period, particularly in the Upper Midwest and a result of a southward shift in the polar vortex feature over Canada," said MDA Weather Services in its Tuesday morning 6- to 10-day report. "This feature is now expected to support temperatures falling into the strongly below normal category in places like Chicago and Minneapolis within the latter stages; although, model volatility lends uncertainty with the expanse and intensity of this cold push.
"While some brief moderation remains forecast out ahead of this next cold shot, the period composite has temperatures averaging on the cold side of normal from the Midwest to the East."
For now the ongoing dynamic of continued and expanding forecast cold is likely to keep prices advancing. "[S]ome outlooks for next week are suggesting larger deviations from normal that appeared to be the case in some weekend models," said Jim Ritterbusch in closing comments Monday.
"[T]he colder views appear unusually broad based across the U.S. As a result, EIA storage releases beyond this Thursday will be indicating some much larger than normal seasonal withdrawals that will be shrinking the supply surplus appreciably. We will also note that physical pricing in most areas is still being ramped up considerably in driving further strengthening into the gas curve.
"We still favor bull spreads anywhere along the 2017 portion of structure. But we will continue to suggest accepting profits out of long March-short September 2017 spread positions at the 22-cent area. This particular spread inverted further today to the 20-cent area. On an outright basis we still view next resistance at the $3.67 area per nearby futures but would not be surprised by violation tomorrow if temperature views remain heavily skewed toward unusually cold patterns."