After roughly two weeks of extreme cold and elevated prices, the natural gas spot market returned to normal Monday with warmer temperatures and falling demand expected in the days ahead. Last week’s outsized East Coast cash premiums all but evaporated, and the NGI National Spot Gas Average fell $3.45 to $3.42/MMBtu.

Futures traded in a bit of a holding pattern, with a mixed weather outlook and a potentially record-high storage withdrawal this week giving traders plenty to mull Monday. February settled 4 cents higher at $2.835, while March settled 2.7 cents higher at $2.772.

After a record-setting price blowout during last Thursday’s “bomb cyclone,” prices on Transco normalized Monday, with Transco Zone 6 New York giving up another $43.98 to end at $5.84. That led a series of similar large losses Monday across the Northeast region -- and at certain weather-inflected points in the Southeast and Appalachia.

Arctic temperatures swept through over the holidays, driving demand to record levels and causing production freeze-offs, but this week should see conditions moderate, according to PointLogic Energy.

“On a national level, Saturday was the coldest, averaging 29 degrees, and Sunday was the beginning of a thawing out, so to speak, with temps rising to 36 degrees,” said PointLogic analyst Warren Waite in a note to clients Monday. “Power burn, industrial and residential/commercial (res/com) demand estimates for Monday currently stand at 92.9 Bcf, or 28.3 Bcf below last Friday and a mind-boggling 40 Bcf below the 132.9 Bcf daily demand record set on New Year’s Day 2018.”

Genscape Inc. similarly called for temperatures in the central and eastern United States to swing back to the warmer-than-average side, deviating “as much from normal as last week’s lows.

“The warming will start in the Midwest then move eastward,” Genscape said. “Chicago’s high Monday is forecast at 37 -- 5 degrees above normal. Highs are then forecast to hit 53 degrees -- 22 degrees above normal -- by Thursday. Genscape supply and demand has Energy Information Administration (EIA) Midwest res/com demand sloughing to a low of 8.1 Bcf/d by Wednesday.

“If realized, this may be the lowest figure for EIA Midwest res/com demand since early December, just days after the region established a two-year high. After Wednesday, res/com demand is forecast to move into the mid-teens.”

Unsurprisingly, Midwest prices tumbled in Monday’s spot market, with some points dropping around $1 or more. After day-ahead prices in Chicago traded above $9 as recently as last week, the Midwest Regional Average fell 72 cents Monday to $2.84.

Appalachian prices also fell Monday, led by a $16.72 sell-off at Tetco M3 Delivery.

Recent freeze-offs are starting to end, with weather-affected production coming back online in the Permian Basin, according to PointLogic.

“Lower 48 dry gas production averaged 75.5 Bcf/d” from Saturday through Monday (Jan. 6-8), “a gain of 0.77 Bcf/d” from last Friday “and 4.33 Bcf/d higher than the production low point of 71.2 Bcf/d Jan. 1, when freeze-offs ran rampant,” Waite said.

While Texas production has actually recently surpassed December levels, Northeast output faces more of an uphill climb, with volumes about 1.6 Bcf/d below levels before the recent Arctic blast, he said. Waite also pointed to ongoing issues at the Sherwood processing plant in West Virginia, which he said has impacted the plant’s output to Columbia and Dominion since Jan. 1.

“High gas prices have kept local supplies within the region, reducing new outflows to other regions, and storage withdrawals remain elevated,” Waite said. “That coupled with nearly every pipeline in the Northeast operating with an Operational Flow Order or a critical day of some kind, and it is hard-pressed for new production to reach downstream markets within and beyond the region.”

In the West, spot prices in California increased Monday, including double-digit gains at several points in and around Southern California. Utility Southern California Gas Co. was forecasting its system demand to increase from around 2.271 million Dth/d Sunday to more than 3 million Dth/d by Tuesday.

In the futures market, the February contract had an up-and-down day as forecasters tried to parse through mixed changes in the latest model runs.

“Natural gas prices gapped up weakly overnight and attempted to continue the rally before pulling back early Monday morning and then again midday,” Bespoke Weather Services said. “Prices did spike into the settle...but since then another neutral to slightly bearish run of the” European ensembles sent prices lower.

“We are watching for prices to potentially bounce ahead of what should be a massive storage drawdown on Thursday...yet a bearish run of the operational Global Forecast System (GFS) and GFS ensembles clearly pulled down prices midday, and any further gas-weighted degree day losses on model guidance would quickly pull prices into $2.75 support and potentially a bit lower.”

Some cold temperatures in the medium-term offered some support for prices Monday. MDA Information Systems LLC said in its latest six- to 10-day forecast that "stronger high pressure driving southward and into the Midcontinent early and points eastward later on has changes being in the colder direction” over the period versus Sunday's forecast and "expectations” before the weekend.

"Strongly below-normal temperatures are now forecast under this air mass to start the period in the Midwest, with much belows nearing the East Coast in the mid-period," MDA said. "A deepening low tracking into the Gulf of Alaska lends warmer Pacific flow into the West, with downslope winds off of the Rockies enhancing these warmer anomalies into the Plains at period's end." noted milder midday changes in the data, “especially Jan. 17-22, as a strong upper ridge sets up over the southern and eastern U.S. What remains most important is just how long this eastern U.S. ridge will last, with the potential for colder systems arriving into the central U.S. out of the West around Jan. 23-24, but then with uncertainty if the ridge over the East will weaken to allow cold to return.

“...If cold shows signs of spreading out of the central U.S. and into the East around Jan. 23-24, the damage done from the coming milder pattern is likely to be viewed as minimal when considering the huge gains deficits in supplies versus the five-year average have made through this past weekend,” the firm said. “However, if the mild southern and eastern U.S. ridge is able to show signs of lasting through the end of the month, the natural gas markets are likely to be quite disappointed.”

This week’s EIA storage inventory report could prove telling as the market assesses the impact from recent cold. Early estimates suggest EIA could report a 300 Bcf-plus 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. That would exceed the largest weekly withdrawal ever reported by EIA -- a -288 Bcf pull reported Jan. 10, 2014.

“EIA reported a beefy gas storage draw last week and this week should be even bigger, possibly by half. It could be the biggest draw ever on EIA books,” analysts with the ICAP Commodities Desk wrote in a note to clients Monday.

The 206 Bcf withdrawal reported last week brought the year-on-year and year-on-five-year deficits to -192 Bcf, the ICAP analysts noted.

“As in recent weeks, forecasters misfired largely on the Midwest region estimates, shooting high by 10 Bcf or more,” the analysts said. “So, 206 Bcf last week and possibly 325 Bcf or more pulled from storage this week and another 220 Bcf or so the next week? That might move the deficit to the five-year average well over 400 Bcf.

“That certainly changes things. Sort of,” the analysts continued, before adding that, “actually, the balance of the month is now forecast to be much closer to seasonal weather.”

Meanwhile, Thursday’s record-high $175/MMBtu spot price at Transco Zone 6 NY wasn’t the only record set during last week’s weather-driven East Coast demand spikes.

Tulsa-based Williams Partners LP, which operates Transco, said Monday the interstate pipeline delivered a record 15.58 million Dth of natural gas on Friday to customers along the Eastern Seaboard and Gulf Coast.

“The new peak-day mark surpasses the previous high that was set on Jan. 1,” management said. Transco also “established a new three-day market area delivery record,” averaging 14.9 million Dth/d from last Thursday through Saturday (Jan. 4-6).

Williams credited a series of expansions completed on the Transco system in 2017 for helping to set the record highs, including the Gulf Trace, Hillabee Phase 1, Dalton, New York Bay and Virginia Southside II expansions. Those projects together added 2.8 million Dth/d of firm transport capacity to Transco’s system.

“The incremental capacity from the fully contracted Transco expansion projects placed into service in 2017 reflects an increase of more than 25% in Transco’s design capacity, which helped us be in position to meet the growing demand needs of our customers,” said CEO Alan Armstrong.

“...When you consider that natural gas reliably heats more than half of all U.S. homes, the current frigid conditions are an important reminder of the vital role transmission pipelines play in keeping millions of Americans safe and secure, especially during winter periods of peak demand.”