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Natural Gas Cash Prices Surge Down South on Wintry Weather; Futures Retreat

After rallying to above $3.200 last week, natural gas futures retreated Tuesday as forecasts showed milder temperatures arriving later this month. Meanwhile, unusually cold conditions in the South to start the week -- including wintry precipitation in Southeast Texas -- drove up spot prices across the region. The NGI National Spot Gas Average climbed 28 cents to $5.43/MMBtu.

Following a gap lower over the weekend, the February contract rode an afternoon surge Tuesday to settle at $3.129 (down 7.1 cents from the prior settle) after trading as low as $3.039. March settled 3.1 cents lower at $2.962.

Forecasters were calling for the current round of frigid temperatures sweeping across the Lower 48 this week to give way to milder conditions by week's end.

"The latest midday weather data continued to show milder trends with a weather system coming out of the central U.S. into the East Jan. 23, but was colder with a system that follows a few days later around Jan. 26-27," said NatGasWeather.com in a midday note to clients. "The data was mixed after Jan. 28 with some solutions colder and some milder, but not cold enough overall."

In its six- to 10-day outlook Tuesday, Radiant Solutions said, "Forecast changes over the holiday weekend are in the warmer direction from the Midwest to the East; although, a round of high pressure tracking along the Southern Tier has that region being colder compared to Friday's expectations for the period.

"However, all of the Eastern Half carried temperatures on the warm side of normal and include much and strong aboves early in the Midwest and East but with fading anomalies in the second half as rounds of low pressure track through," the firm said. "Overall, Pacific flow limits durable cold air to Western Canada, but with the West favoring near and slightly below normal temperatures."

According to INTL FCStone Senior Vice President Tom Saal, "The market seems to be kind of short-term, rallying up on the forecasts for cold weather, blowing off the weather itself, and then when the forecast for moderate weather is produced, the market sells off."

Saal quoted last Friday's high of $3.224, noting its similarity to two different pre-winter rallies going back to November, when the spot contract topped out at $3.218 and then $3.231 before that.

"On a chart you could argue that's a triple top, and a triple top's not a top," he said. "...I think eventually we'll trade through it, but not necessarily today."

In the spot market Tuesday, strong below-normal temperatures helped rally prices in the South, while calls for wintry precipitation to reach New England couldn't push prices higher there following big gains last Friday.

"A strong Arctic blast continues advancing into the South and East with areas of snowfall along the cold front, including deep into Texas and the South," NatGasWeather said. "With overnight lows dropping from 15 to -15 degrees across the northern U.S., and teens to 30s across the South and Southeast, national heating demand will remain very strong through Friday morning."

Radiant Solutions was calling for temperatures to come in more than 20 degrees below normal Wednesday in southern cities like Memphis, Dallas, Houston and Atlanta.

The National Weather Service had a winter storm warning in effect for Southeast Texas Tuesday calling for freezing rain accumulation and snow. Houston area news outlets were reporting school closures and power outages.

Day-ahead prices in East Texas nearly doubled at some points, driving the regional average up $2.12 to $6.05. Katy jumped $4.29 to $8.33.

Further south, Tres Palacios added $1.70 to $5.38, while in West Texas, Waha added $1.02 to $4.44.

In Louisiana, Henry Hub climbed $1.09 to $5.09, while in the Southeast Transco Zone 4 added 44 cents to $4.76.

"Lower 48 demand remains elevated as colder temperatures continue to sweep through the Midcontinent and East," Genscape Inc. said in a note to clients Tuesday. "...An Alberta clipper is currently pushing ice and snows through Appalachia, the Midwest, Midcontinent and the Southeast” with a coastal storm expected to hit New England.

Genscape's daily supply and demand data shows "an average of 109.9 Bcf/d in demand over the holiday weekend, and projects an average of around 108 Bcf/d for the gas week ending Jan. 19," the firm said. "Tuesday's Lower 48 production estimate came in at 75.2 Bcf/d and is expected to average 75.3 Bcf/d through the week. Freeze-offs were estimated at 0.96 Bcf/d Monday and have hovered around 1 Bcf/d since Jan. 11."

Genscape noted that Northeast points like Algonquin Citygate, Tetco M3 and Transco Zone 6 New York saw weather-driven cash gains Friday but that the spikes were "nowhere close to Bombogenesis levels."

Despite forecasts for winter precipitation to hit the region Wednesday, New England spot prices gave back some of Friday's gains.

AccuWeather was calling for highs to get above freezing in New York and Boston Wednesday, and Algonquin Citygate eased $1.41 to average $13.75. Transco Zone 6 New York tumbled $4.42 to $13.48.

Outside of Tetco M3 Delivery, Appalachian regional prices enjoyed healthy gains Tuesday, with Dominion South adding 42 cents to $3.67.

The Energy Information Administration (EIA) released its latest Drilling Productivity Report Tuesday calling for natural gas production from the seven most prolific U.S. onshore unconventional plays to continue in February.

Unsurprisingly, the Marcellus and Utica shales are expected to lead growth month/month. The Appalachian plays are projected to average an estimated 26.78 Bcf/d in February, up from 26.4 Bcf/d in January, according to EIA.

In the Midcontinent, prices at Northern Border Ventura moderated 74 cents to $3.85.

Over the weekend, Northern Border Pipeline Co. concluded a force majeure event related to emergent repairs needed at its St. Anthony Compressor Station in Morton County, ND.

The event caused a day/day drop of about 250 MMcf/d through the pipeline's Glen Ulin point, going from 2.6 Bcf/d Thursday to 2.35 Bcf/d Friday, according to Genscape.

"Overall receipt and delivery nominations have held steady since the force majeure was lifted, and Glen Ulin has been flowing 2.5 Bcf/d consistently," Genscape said.

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