After an up-and-down weekend for natural gas futures, cold temperatures in the long-term forecast helped the December contract trade higher Monday as it gets set to come off the board. In the spot market, widespread above-normal temperatures had most regions trading in the red, and the NGI National Spot Gas Average fell 5 cents to $2.69/MMBtu.
The soon-to-expire December contract settled 11.5 cents higher Monday at $2.928. Weather models showing cold temperatures in the outlook for mid-December helped the futures market rebound from a 15.5 cent sell-off on Friday that came amid near-term warming trends. The January contract tacked on 10.1 cents to settle at $3.017 Monday, while February added 9.4 cents to $3.023.
"December natural gas prices gapped up significantly Sunday night, and despite overnight and early morning declines, afternoon guidance supported prices so that they settled near their gap level," said Bespoke Weather Services in an Monday afternoon update to clients.
While near-term warm temperatures and near-record production weighed on cash prices on Monday and "appeared to dampen the expected weather-driven rally...we still think the market is discounting the extent of cold in the middle of the month, as traders may feel burned after long-range cold forecasts last week took a bit longer to materialize," Bespoke said. "We are finally seeing this cold risk move into the medium-term, and there remains a strong chance that cold remains locked in place for longer than we saw at any point last winter.
"Throw in that this market still remains fairly tight and stockpiles are below the five-year average, and we see very significant upside for prices over the coming weeks (and potentially months) should cold stick around."
FCStone Latin America LLC's Tom Saal, vice president, said long liquidation and short covering ahead of the December contract expiration likely contributed to Friday's 15.5-cent drop and the 11.5-cent rally Monday.
After a prolonged stretch of range-bound trading, natural gas is due for some volatility -- with upside potential -- as the market tries to figure out what to expect from winter weather, Saal told NGI.
"You're looking at what I would say is one of the most docile periods in natural gas history, and so I think the market's susceptible” to a move higher, he said. "You had two winters of warm weather, and then you had two mild summers, so there really hasn't been much stress on the system except for the increase in exports, both" through liquefied natural gas and to Mexico via pipeline.
"That's probably what's raising the bottom of the market to this $2.75-$2.80 area, is these new developments on the demand side,” Saal said. “And we really haven't seen any kind of very cold weather or very hot weather in the summertime" to test the underlying balance.
In the spot market Monday, most regional averages finished in the red, including declines of a dime or more in South Texas, East Texas, the Midwest, Louisiana, Appalachia, the Northeast and the Southeast.
Out West, prices strengthened, led by a $1.46 day/day jump at the constrained SoCal Citygate.
Near-term temperature forecasts generally look bleak for natural gas bulls, and the weakness observed across the cash market Monday followed broad-based declines last week ahead of the Thanksgiving holiday.
Over the weekend "unseasonably mild temperatures dominated much of the nation's heartland, which will continue to expand to most major areas of the U.S. in the days ahead," PointLogic Energy analyst Alan Lammey said in a note to clients Monday. "Weather-related natural gas demand will decline to start the current week and will continue" to decline through the six- to 10-day period.
In the one- to five-day period, PointLogic forecasts show a population-weighted nationwide temperature of 52.2 degrees, 5.6 degrees above normal, Lammey said, with above-normal temperatures expected to show up across most of the country, including from the Plains and Midwest to the Northeast and Mid-Atlantic.
"The warmer forecasts are stemming from near-record highs that might be possible across parts of the U.S., with readings rising into the 60s as far north as North Dakota, about 30 degrees warmer than average," he said.
In the Midcontinent, Northern Natural Demarcation fell 12 cents to $2.61, and Ventura dropped 14 cents to $2.60. In the Midwest, Chicago Citygate tumbled 13 cents to $2.70, while Joliet fell 10 cents to $2.71.
Northeast prices fell hard Monday, with Appalachia not far behind. Algonquin Citygate dipped 22 cents to $3.04, and Transco Zone 6 New York fell 25 cents to $2.75. Dominion South tumbled 13 cents to $2.29, while Columbia Gas fell 10 cents to $2.69.
A Transco expansion in the Mid-Atlantic region is poised to come online soon after FERC issued an in-service authorization Monday for the pipeline's Virginia Southside Expansion Project II. The authorization covers the Greensville Lateral in Virginia and additional metering and compression in Virginia, South Carolina and North Carolina. The project is designed to add 250,000 Dth/d to Transco's system to serve a 1,580 MW gas-fired power plant in Greensville County, VA.
Day-ahead deliveries at Transco Zone 5 fell 12 cents Monday to $2.86, while Transco Zone 4 fell 8 cents to $2.80.
In California, the constrained SoCal Citygate shot up yet again, with prices averaging $4.53 as SoCalGas was forecasting a small increase in system demand to around 2.3-2.4 Bcf/d Monday and Tuesday after totaling just under 2.1 Bcf/d Sunday. SoCalGas was still reporting no scheduled volumes for Tuesday through import points in Needles, CA, Topock, AZ, and across the Mexico border at Otay Mesa.
Natural gas analytics firm Genscape Inc. expect demand in California and Arizona to rise to almost 6 Bcf/d over the next few days, after totaling a little more than 5 Bcf/d over the holiday weekend. Genscape was also forecasting an uptick in the Rockies, where demand was expected to increase from around 1.4 Bcf/d over the weekend to 2.32 Bcf/d Tuesday.
Malin increased 12 cents to $2.62, while PG&E Citygate added 7 cents to $3.04. Kern Delivery jumped 17 cents to $2.74, and Kern River gained 15 cents to $2.61. Opal gained 13 cents to $2.61, and the Cheyenne Hub tacked on 10 cents to $2.56.
On the Gulf Coast, another Transco expansion took a major step forward last week after the Federal Energy Regulatory Commission issued a certificate to the proposed Gulf Connector Expansion Project.
The project would add up to 475,000 Dth/d of firm transportation service flowing south from the Transco Station 65 Zone 3 Pool in St. Helen's Parish, LA, to interconnects in South Texas with the Gulf South Pipeline Co. LP's Coastal Bend Header in Wharton County and Cheniere Inc.'s Corpus Christi Pipeline in San Patricio County.
In East Texas, Katy fell 12 cents to $2.76 Monday, while NGPL TexOk dropped 11 cents to $2.65.
In South Louisiana, day-ahead deliveries at Henry Hub fell 11 cents to $2.82, about a dime lower than the soon-to-expire December contract.