After a record-setting day Thursday, natural gas spot prices on Friday had nowhere to go but down.
Forecasts for temperatures to moderate by Monday sent East Coast cash prices crashing back to earth. Across the rest of the Lower 48, expectations for a break-up in the cold by Monday limited enthusiasm for three-day deals, and the NGI National Spot Gas Average tumbled $9.91 to $6.87/MMBtu.
Meanwhile, with medium- and long-range forecasts suggesting the recent bone-chilling temperatures could give way to warmer-than-normal conditions across much of the country later this month, prompt-month futures retreated further Friday. After the Arctic blast helped to lift the prompt-month contract above $3 earlier in the week, February settled at $2.795 Friday, down 8.5 cents on the day. March settled 6.8 cents lower at $2.745.
East Coast spot prices remained elevated Friday but couldn't hang on to Thursday's meteoric increases. Transco Zone 6 New York plummeted $90.24 to average $49.82. Algonquin Citygate gave up $54.87 to average $24.11.
Friday's price action followed a record-setting day Thursday in the East Coast cash market, headlined by gas trading as high as $175 at Transco Zone 6 New York. Multiple other points traded in the $100 neighborhood amid widespread demand caused by blizzard-like conditions from the Mid-Atlantic up into the New England and Canada.
The price blowouts Thursday, which surpassed the extremes observed during the polar vortex-influenced winter 2013/14, "solidly underline the fact that constraints are still the primary driver of volatility in Northeast winter" spot prices, according to Genscape Inc.
"From a macro perspective, the market is sitting on more than 5 Bcf/d more production than we had” during the winter of 2013/14, "but this event's demand peak of 126 Bcf/d (so far) is just 1 Bcf/d greater than the peak" from the polar vortex winter, Genscape said. "Accordingly, Henry Hub didn't best polar vortex levels, but regional hubs -- namely northeastern ones -- did."
The New England region has seen record high heating demand averaging around 3,390 MMcf/d (927 MMcf/d above the five-year average) over the last week, according to Genscape, but the recent blowouts have been "exacerbated by shortages on fuel oil followed by Thursday's removal of the 680 MW Pilgrim nuclear plant from the stack" as a safety precaution.
"Pilgrim's removal pushed day-ahead power prices above $370/MWh," Genscape said, adding that the exact timing of the plant's return is unclear but ramp-up from a complete reduction in capacity has taken about two days in the past.
While the bomb cyclone grabbed headlines, it was the bone-chilling temperatures forecast for Friday and Saturday that were a major driver of Northeast spot prices Thursday, according to PointLogic Energy analyst Charles Nevle.
"Underpinning this price increase was a severe reduction in regional temperatures," Nevle said in a note to clients Friday. "Average temperatures for PointLogic's broader Northeast region are averaging 10 degrees F, the seventh lowest temperature for the region since 2006, while Saturday's forecast 7 degrees F will set a new record."
After that, the region was expected to warm up quickly, "with regional average temperatures forecast at 30 degrees F by Monday," Nevle said. Northeast regional demand was "totaling an extremely elevated 41.7 Bcf/d" Friday with even colder temperatures expected Saturday, "though somewhat mitigated by the weekend effect, which should otherwise dampen demand."
Other points that spiked during Thursday's weather-driven buying frenzy dropped as well. Tetco M3 Delivery gave up $74.76 to average $20.04, while Transco Zone 5 tumbled $96.09 to $31.48.
Transco Zones 4 and 5 also set records for demand Thursday, with Zone 5 hitting 4.63 Bcf/d versus a December average 3.06 Bcf/d, Genscape said.
"The bulk of the demand" came from "three massive meters: Piedmont, Duke Energy NC and Public Service NC, which collectively nominated 2.96 Bcf/d, a staggering 1.72 Bcf/d higher than" the December average, the firm said.
With Florida impacted by the so-called bomb cyclone that swept across the East Coast Wednesday and Thursday, Zone 4 demand topped its previous record by reaching 2.44 Bcf/d, according to Genscape.
Transco Zone 4 Fell $1.55 To Average $2.91.
The futures market has made clear its skepticism of the lasting impact of the recent demand spikes.
"Despite the rally in cash, the rest of the natural gas curve has struggled to move higher," analysts with Barclays Research said in a note Friday. "The prompt month contract sold off this week...while the remainder of Calendar 2018" was recently sitting at $2.74/MMBtu.
"The lack of movement along the back of the curve is likely the result of the market's belief that 2018 production growth (which we forecast will be close to 6 Bcf/d) will mean a well-supplied market," the analysts said.
"...However, we think the curve will soon need to play catch up and continue to see 1Q2018 prices averaging $3.27/MMBtu and full year 2018 prices of $3.19/MMBtu."
Recent record-level natural gas demand from sustained cold temperatures in the Midwest and East has put this winter on track to be roughly 5% colder than the 10-year average, according to Barclays, while recent production freeze-offs and high storage draws add to the bullish case.
On the other hand, the cold "appears to be front-loaded in the first half of January," analysts said. "A shift in the weather forecasts from cold to a more mild second half of January has been the cause of the weakness in gas this week despite frigid daily temperatures. More normal temperatures should also mean production volumes will bounce back closer to 76-77 Bcf/d once freeze-off issues are fixed."
MDA Weather Services noted warmer changes to its six- to 10-day and 11-15 day outlooks Friday.
In the 11-15 day, MDA highlighted warmer "changes focused in the Midcontinent downstream of downslope winds off of the Rockies. The larger scale pattern features a Pacific flow enhanced by low pressure in the Gulf of Alaska and an associated increase in storminess into the Pacific Northwest," MDA said.
"Most areas from the West Coast to the Midcontinent have temperatures on the warm side of normal, but with the East being slower to warm under high pressure through mid-period."
NatGasWeather.com noted "minor changes" in the midday data, "with Jan. 9-13 trending milder, while Jan. 15-17 trended colder.
"But most important, frigid cold on the front end of the 15-day forecast continues to drop off as milder days on the back end get added,” the firm said. “What’s most bearish pattern-wise is the period from Jan. 17-20, as strong upper high pressure expands to dominate large stretches of the country, easing natural gas demand considerably compared to recent record levels.”
While a warm-up in the medium- and long-range forecast had February selling off to close out the week, Thursday's storage inventory report from the Energy Information Administration (EIA) -- the first to reflect the impact of the extreme cold that began around Christmas -- came in around 15 Bcf looser than consensus estimates.
The -206 Bcf figure reported Thursday disappointed, but the upcoming number could surpass the record draw reported during the 2013/14 winter. As of Thursday, Intercontinental Exchange storage futures for the coming week's report showed the market expecting a 330 Bcf withdrawal, which would topple the record -288 Bcf reported January 10, 2014.
PointLogic, in an early estimate issued to clients Wednesday, said its models were indicating a 300-315 Bcf withdrawal for the week ending Jan. 5. The average taken from the Desk's Early View storage survey Friday showed respondents anticipating a 329.7 Bcf withdrawal for the upcoming report, according to editor John Sodergreen.
"If you get a 300 Bcf-plus pull, I think that's definitely going to have some impact," Rafferty Commodities Group Vice President Steve Blair told NGI, "but I still think that unless people are convinced we're going to have a sustained cold winter," traders may be reluctant "to put a lot of their eggs in the long basket."
Even the sustained frigid temperatures that have driven up demand since Christmas may not be enough to bring out the bulls in the futures, according to Blair.
"I think you need several weeks of big pulls before people start getting nervous about what's in storage," with withdrawal season likely needing to end with inventories below 1 Tcf to worry the market, he said.
Across most of the spot market Friday, points declined by more than $1 for the second straight day, falling back to levels seen prior to the recent Arctic upheaval.
As much-below normal cold gripped much of the country over the New Years holiday, Henry Hub averaged as high as $6.88 Wednesday, setting the tone for widespread winter premiums this week in most regions covered by NGI.
On Friday, Henry Hub spot prices dropped $1.52 to average $2.90, coming into better agreement with the prompt-month.
Midwest prices eased further Friday. AccuWeather was calling for highs in Chicago to reach into the 30s and 40s by the middle of next week. Chicago Citygate dropped $2.34 to $3.82, while Joliet gave up $3.11 to $3.80.
In Texas, AccuWeather was calling for much warmer temperatures after recent frigid conditions, with highs in the 60s and 70s in Houston over the weekend. Katy dropped $1.32 to $2.79, while Tetco South Texas gave up $1.11 to $2.81.