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Polar Vortex-Level Demand Prompts Big NatGas Cash Surge; Futures Rally Too

With demand over the holiday weekend surpassing peak 2013/14 polar vortex levels and frigid temperatures leading to production freeze-offs, natural gas spot prices rocketed higher Tuesday. Even as several Northeast points moderated to trade at less-elevated premiums, the NGI National Spot Gas Average jumped $1.30 to average $8.35/MMBtu.

Prompt-month futures continued to rally Tuesday but nothing like the widespread strength in the cash market. February gained 10.3 cents to settle at $3.056. March added 6.7 cents to settle at $2.973.

In day-ahead trading, most points outside the Northeast gained $3 or more Tuesday, including big gains throughout Texas and the Gulf Coast. Henry Hub added $3.04 to average $6.62, approaching levels last seen during the 2013/14 winter.

In Texas, where AccuWeather was calling for lows in the 20s Tuesday and Wednesday, Katy jumped $3.94 to $8.25. Tetco South Texas added $3.76 to average $7.46. Waha  notched a $3.17 increase to average $7.32.

Genscape Inc. had said in a note to clients earlier Tuesday that it expected volatile trading "with short covering likely coming out of a holiday weekend that in many areas materialized colder than forecast headed into the weekend.

"On the supply side, freeze-offs across Lower 48 continues to choke back volumes." Genscape’s Spring Rock daily pipe production estimate showed "current volumes below 72 Bcf/d, though, as always we urge caution with first-of-month nominations data on production points. On Dec. 31, production was estimated to have fallen to a 43-day low of 74.8 Bcf/d."

BTU Analytics LLC CEO Andrew Bradford said in a research note Tuesday that "the areas hardest hit by freeze-offs on a volume basis are West Virginia, Oklahoma, North Dakota and Pennsylvania, representing about 1 Bcf/d of declines over the last several days."

Some Oklahoma supply could be getting diverted from interstate pipes to serve local heating demand, but "despite that, the extreme cold and cash price volatility going into the weekend indicates some volumes were likely shut-in due to the cold," Bradford said, noting that "based on weather forecasts, more pronounced shut-ins can be expected."

Jim Palmer, spokesman for the Oklahoma Corporation Commission (OCC), said the agency has heard of only one freeze-off incident so far this winter. According to Dennis Fothergill, manager of the OCC's pipeline safety department, Oklahoma Natural Gas (ONG) has water in the main of a low pressure gas system in the Muskogee area.

"It appears ONG has been attempting to rectify the problem for some time," Fothergill said. "Due to the freezing weather, the water in the main has started to freeze off. They have been working freeze offs [and] are now in the process of replacing the main. The department was notified of the problem this morning by the Public Utility Division. Department inspectors went to Muskogee and talked to one lady and ONG about the problem."

In Appalachia, Dominion South jumped $2.30 to $5.34, and Columbia Gas climbed $3.06 to average $6.52.

Meanwhile, New England and Northeast prices adjusted lower after spiking in the lead-up to the weekend. Transco Zone 6 New York, after spiking $15.50 in Friday's trading, gave up $13.69 Tuesday to average $17.47.

Algonquin Citygate also gave back gains from last week, falling $3.66 to average $20.57.

Interstate pipelines continued to churn out critical notices for customers as even chillier air is forecasted for the region in the coming days. 

Columbia Gas Transmission (TCO) on Tuesday advised shippers that a storage critical day for all of its market areas except one would go into effect on Wednesday until further notice due to the cold weather and demand. TCO said  it would continue to evaluate that need beyond Wednesday.

Add to that word from MarkWest Energy Partners LP on Monday of operational problems at the company’s Sherwood Processing Facility in Doddridge County, WV. According to a TCO informational posting, unspecified issues were reducing natural gas supplies on the system by 600,000 Dth. Scheduled deliveries were being impacted at a Sherwood meter and at the Stonewall Gas Gathering system meter south of the plant.

A TCO spokesman referred questions about the outage to MarkWest parent MPLX LP, which declined to provide additional details. MarkWest can process more than 1 Bcf/d of natural gas at the facility.

Meanwhile, Dominion Energy Transmission issued an operational flow order on Tuesday for several areas affected by the weather. Texas Eastern Transmission also posted a capacity constraint notice, saying that it had approved and scheduled nominations at each pipeline segment and meter station up to their operational capacity, necessitating restrictions at some points.

National Fuel Gas Co. late Monday also lifted a request for its residential, industrial and commercial customers to turn down their thermostats after it was able to resolve an unspecified problem at a transmission facility in Potter County, PA, that was affecting deliverability in five Western New York counties.

On the other side of the state, Con Edison said it met unprecedented demand for natural gas on New Year’s Eve, with the utility distributing a record-setting 1.3 million Dth to its customers in New York City and Westchester County. The previous record was set last week, when Con Ed delivered 1.26 million Dth.

The natural gas market kicked off 2018 with a bang, thanks to a demand day exceeding even the peak of the polar vortex winter of 2013/14, according to PointLogic Energy Vice President Jack Weixel.

“On Jan. 1, the U.S. natural gas market was up early and flexing its considerable demand muscles,” Weixel said. “No hangover was evident as total demand registered an impressive 148.8 Bcf/d, beating out levels seen at the height of the Polar Vortex four years ago on Jan. 7, 2014, by over 5.4 Bcf/d...

“The difference maker this year is exports. While domestic demand came in at an impressive 131.1 Bcf/d, second to Jan 7, 2014 by just 0.1 Bcf/d, net exports totaled 7.5 Bcf/d, which along with pipe loss and fuel led to the record-smashing total demand tally. Liquefied natural gas exports came in just under 3.3 Bcf/d on Jan. 1, narrowly missing its single-day record day set on Dec. 9, 2017.”

Looking at the LNG cargoes running out of Cheniere Energy Inc.'s Sabine Pass, BTU's Bradford said, "It has been impressive to see how steady pipeline nominations to the terminal have been at approximately 3.2 Bcf/d despite the record cold temperatures across the U.S.

According to Bradford, "Sabine Pass with four trains running is more than the equivalent deliveries to the major New York City utility meters at peak winter levels at over 3 Bcf/d."

Wintry conditions should continue through the end of the week, with some precipitation potentially in store for the East Coast, according to the National Weather Service (NWS).

"Reinforcing shots of arctic air will continue across much of the Eastern half of the country through this week, keeping afternoon highs as much as 10 to 20 degrees below normal," the NWS said Tuesday afternoon.

"Meanwhile, an area of low pressure developing over the Bahamas by Wednesday morning will rapidly deepen as it moves northward off the East Coast Wednesday and Thursday. Given the cold air locked in place, this will allow for potentially significant wintry precipitation to spread along the East Coast from the Florida panhandle to Maine...In addition to wintry precipitation, high winds and dangerous wind chills are expected by Thursday across much of the Northeast as the Atlantic surface low rapidly strengthens off the coast."

As for the medium- and long-term outlook, "we sit in a period of extremely high weather forecast volatility, which should continue to drive the natural gas price volatility like we saw today," Bespoke Weather Services said, pointing to "a surprise bullish run" in the Global Ensemble Forecast System (GEFS) that "helped rally prices midday and has lowered forecast confidence significantly."

Among European ensemble members, "there appears to be very strong agreement...in a long-range warm-up" versus the more volatile GEFS, Bespoke said. "Yet confidence remains very low, as the intensity and timing of any cold shot in the 11-15 day timeframe is not clear...with the front of the natural gas strip being driven almost entirely by forward weather expectations, we can expect sizeable volatility as our weather models bounce around" putting $3.12 and $2.92 "in play in the short-term."

Powerhouse LLC's Elaine Levin, president, said the warming trends she's seen in the forecast over the next two weeks still put temperatures around normal in key demand markets.

"There are a lot of guys who sell heating fuel who last year would've been happy with normal temperatures," Levin told NGI. "Normal at the coldest time of the year is still a time where you're going to be seeing heating degree days."

The significant cold recently has proved "cold enough to give us fundamental support and technically that puts our targets back around $3.15-3.20," Levin said. But with the talk of production growth, the weather looks to be "the only thing providing support" for natural gas futures at the moment.

"In the end, if you can be cold enough in the short-term to offset" supply growth, "here's what it looks like," Levin said of Tuesday’s rally.

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