Baby, it's cold outside.
Thanks to the arrival of sustained winter weather, lifting heating demand in the Midwest and East Coast, natural gas spot prices surged Tuesday. A few Northeast price spikes hearkened back to the polar vortex winters of years past, and the NGI National Spot Gas Average gained a whopping $2.32 to finish at $5.35/MMBtu.
Meanwhile, double-digit day-ahead prices across the East Coast didn't mean much in the futures market, and the soon-to-expire January contract shed 2.4 cents to settle at $2.643. February settled 0.4 cents lower at $2.654.
Major markets across the Midwest and East Coast were looking at seriously cold temperatures in the forecast Tuesday. MDA Weather Services was calling for Boston to see temperatures around 15-20 F below normal starting Wednesday and continuing well into next week, with New York City expected to be almost as cold.
MDA was similarly forecasting lows in the teens and 20s over the next several days for Philadelphia and Washington, DC, with temperatures further south in Atlanta expected to dip below freezing this week and next.
Unsurprisingly, East Coast prices surged Tuesday.
The often-constrained AGT Citygate led the way, spiking $22.76 Tuesday to average $34.03. Tuesday's high of $55/MMBtu marked the most expensive trade at AGT Citygate since a high of $80/MMBtu set on Jan. 27, 2014.Daily GPI historical data show. That winter, the polar vortex brought unusually frigid temperatures into the United States, leading to record high spot prices at a number of points covered by NGI.
Day-ahead deliveries at Transco Zone 6 New York jumped $17.15 to average $20.92 after trading as high as $25. Tuesday’s high marked the most expensive trade at that point since February 2015.
For the week ended Friday, domestic demand "will average 99.3 Bcf/d," PointLogic Energy Vice President Jack Weixel said in a note to clients Tuesday, about 8 Bcf/d higher than previously forecast, "as a blanket of cold air and lower realized temperatures has wrapped itself around much of the Lower 48 U.S. over the holiday weekend.”
Weixel expected domestic demand on Tuesday to “hit 105 Bcf/d, a one-day high for winter-to-date. The next several days will show much higher totals, with Jan. 1 registering a 112.6 Bcf/d number, which should be the peak over the next 15 days."
Widespread notices from pipeline operators reporting capacity constraints and/or issuing operational flow orders (OFO) showed a spot market getting perhaps its first major stress test since the 2014/2015 winter.
Algonquin Gas Transmission, Iroquois Gas Transmission, Dominion Energy Transmission, Transcontinental Gas Pipe Line (Transco), Columbia, Tennessee Gas Pipeline, ANR, Northern Natural and Texas Eastern, among others, all posted notices to shippers warning of capacity constraints because of weather-driven demand this week.
For example, in a notice Tuesday, Columbia told shippers that "due to forecasted extended colder temperatures and increased market demand” beginning Thursday "and until further notice," the pipeline "may issue transport critical days for deliveries to all operating areas."
Transco issued a scheduling OFO for Tuesday's gas day affecting Zones 4, 5 and 6, while Dominion had several OFOs in effect, including in the New York area.
Further south, Transco Zone 5 jumped $7.34 to $10.61, while in Appalachia, Tetco M3 Delivery surged $8.11 to $11.52.
Genscape Inc. analyst Bart Burk attributed the high prices to gas trading on "milder weather expectations" in the lead-up to the long weekend. "Weather forecasts took a turn to the colder side with some significance," he told NGI.
In Chicago Tuesday, AccuWeather was forecasting a low of 1 degree F, while Genscape Inc. estimated demand would hit 19.65 Bcf, well above the prior seven-day average of 14.81 Bcf/d.
Prices across the Midwest and Midcontinent surged by double digits Tuesday, but nothing to rival the Northeast. Chicago Citygate jumped 25 cents to $2.92.
Forecasters see the frigid conditions continuing through early January.
"Forecast changes over the holiday weekend are in the colder direction," MDA said in its six- to 10-day outlook Tuesday. "...This comes as the polar vortex makes yet another round toward the Midwest and East, and leaving a cold arctic-originating air mass in its wake.
"The forecast generally leans in the direction of the European model within the details; however, the Global Forecast System model projects an additionally stronger surface high into the Midcontinent and a significantly large cold risk for widespread strong belows in the eastern two-thirds," MDA said.
The National Oceanic and Atmospheric Administration's Climate Prediction Center (CPC) is forecasting total U.S. population-weighted heating degree days (HDD) to average 218 for the week ending Saturday (Dec. 30), 17 more than normal. New England is expected to see 313 HDDs, 46 above normal and 104 more than last year.
CPC said it expects the East North Central (346 HDDs) and West North Central (374 HDDs) regions to exceed the norm by 65 and 69, respectively. The Mid-Atlantic is similarly expected to average 290 HDDs, 44 above normal and 101 more than the year-ago period.
Despite all the frigid temperatures in the near- and medium-term forecast, the January contract failed to sustain any momentum after a gap up on Christmas Day and a test of resistance in the $2.75 area.
Bespoke Weather Services noted a potential warm-up by the second week of January to help explain the weakness in futures. “Initially prices tried to run up higher overnight, but long-range guidance continued to trend warmer, and the January contract" pulled back, according to Bespoke.
"We sit within a rather tight price range from $2.58-2.75 over the last couple of weeks, and we see more risks for prices to break lower from this range than higher given warmer trends arriving by the end of the first week of January," the firm said. "...We did see forecasts in the short- and medium-range trend even colder today, with a couple days of extremely impressive heating demand expected to start off January.
"At this point the natural gas market looks to still be discounting much of this; with production at current levels the market seems to believe that it can refill storage for the next winter starting at any inventory level."
Genscape's Spring Rock daily pipeline production estimate showed volumes Tuesday and for the past few days "right around the 76.5 Bf/d mark. Though a slight retreat from the record highs established last week near 76.8 Bcf/d, volumes are currently running more than 1 Bcf/d greater than where the month started."
The analytics firm said growth is showing up across all major producing regions except for the Rockies and the San Juan Basin. Production in the East region was up more than 0.5 Bcf/d month-to-date "facilitated by the wave of new infrastructure" available in the second half of 2017.