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Natural Gas Futures Down Ahead of Expected Bearish Storage; East Coast Cash Rises

After a brief reprieve the day before, natural gas futures slid again Wednesday ahead of a government storage report that is expected to show a lighter-than-normal pull from inventories. In the spot market, a blast of wintry weather helped lift prices along the East Coast as most regional averages traded within a nickel of even; the NGI National Spot Gas Average added 5 cents to $2.89.

The March contract fell 5.7 cents to settle at $2.702 Wednesday. That’s after the prompt-month broke a recent run of consecutive down days to add 1.2 cents in Tuesday’s trading. The April contract dropped 3.1 cents to $2.692.

According to Bespoke Weather Services, a bullish midday run in the Global Ensemble Forecast System briefly lifted prices before the market declined “into the settle with less impressive European guidance.

“For prices to truly rally we would need to begin to see consistent heating demand additions across both American and European guidance the likes of which we have not seen in a couple weeks now,” Bespoke said.

A lack of significant heating demand in the medium- and long-range outlook has brought natural gas prices “back into this longer-term range” of around $2.80-3.20 “that we’ve talked about seemingly ad nauseum,” Powerhouse Vice President David Thompson told NGI Wednesday.

While the market did break below $2.80 support, that “seems to be an overshoot on a price correction” following the weather-driven surge in prices late last month. “Once this resolves, when the next cold weather event arrives, if it will show up, we will have a chance to significantly rally the market,” Thompson said.

Thompson said he would look for prices to trade from around $2.75-2.80 up to $3.10-3.20 “based on the small effects of weather” as the market heads into the shoulder season.

As for the current storage picture, “supplies are a little tighter than the historical average, but the general view of the market seems to be that given where we are on the calendar and our ability to produce, nobody is terribly worried,” he said.

Predictions for Thursday’s Energy Information Administration (EIA) storage report have been pointing to a withdrawal in the triple digits but looser versus year-ago and five-year average levels.

A Reuters survey of traders and analysts on average estimated a withdrawal of 116 Bcf for the week ending Feb. 2, versus a year-ago withdrawal of 142 Bcf and a five-year average pull of 151 Bcf. Survey responses ranged from -107 Bcf to -141 Bcf.

Kyle Cooper of ION Energy estimated a 118 Bcf withdrawal. PointLogic Energy in a note to clients Monday estimated a 116 Bcf withdrawal for the period, 17 Bcf larger than the prior week’s pull based on colder weather in the East and Midwest.

Stephen Smith Energy Associates in a revised estimate Tuesday predicted a withdrawal of 121 Bcf. That would compare with a seasonally normal weekly withdrawal of 153 Bcf based on 2006-2010 norms, according to the firm.

Intercontinental Exchange storage futures settled Tuesday at -120 Bcf for the period.

Storage inventories at the Dawn Hub in Ontario ended January at around 128 Bcf, the second lowest on record for the period over the last five years, Genscape Inc. said in a note to clients Wednesday.

The lowest on record came during the polar vortex-inflected 2013-2014 winter. Last year at this time, the Dawn Hub ended with around 158 Bcf in storage, and the five-year average for end-of-January inventories is approximately 140 Bcf, according to the firm.

The average withdrawal for the month of January was about 2.1 Bcf/d, “highlighted with record high withdrawals during the extreme cold early in the month,” Genscape said. “Dawn area withdrawals have closely followed Toronto area population-weighted heating degree days (HDD) for January thus far, signifying the next week of withdrawals could hover between 2.0-2.5 Bdf/d as Toronto HDDs remain consistently in the high 40s to low 50s.”

In the spot market Wednesday, Dawn traded flat at $2.80.

Several Northeast and Mid-Atlantic points saw gains as forecasters reported a winter storm moving through the region.

“The second strong weather system/cold blast of the week will sweep across the North and East Wednesday and Thursday,” NatGasWeather said in its one- to seven-day outlook Wednesday. “This will result in another round of strong demand as lows reach the 20s to -10s over the northern U.S., and 20s and 30s into the Southeast.

“The western and south-central U.S./Texas will be mostly mild through Friday, with highs of 50s to lower 70s. A mild ridge will expand over the South and East this weekend, while fresh cooling arrives into the Rockies and Plains.”

In Washington, DC, AccuWeather reported temperatures ranging from the mid-20s to the upper-40s accompanied by rain Wednesday. Thursday was expected to bring temperatures in the 20s and 30s.

New York City saw a mixture of snow with sleet and rain Wednesday as temperatures ranged from the 20s to low 40s, according to AccuWeather. The forecaster called for more chilly temperatures there Thursday and Friday, ranging from the low-20s to the mid- to low-30s.

Transco Zone 5 added $1.11 to average $4.00, while Transco Zone 6 New York jumped $1.81 to $4.81.

Tennessee Gas Pipeline (TGP) declared an operational flow order for Thursday’s gas day affecting zones L, 1, 2, 4, 5 and 6, citing “anticipated colder temperatures and higher demand on the entire system.”

Also on Wednesday TGP escalated emergent repairs at its Station 261 near Agawam, MA, to a force majeure.

“TGP has identified an issue with the compressor bundle for Unit 1D. Personnel are on site and work continues,” the operator told shippers Wednesday. “...Based on current nominations, and system conditions, restrictions through a pro rata portion of secondary in path nominations pathed through Station 261. Discharge are likely. With increased demand and higher utilization, primary in path nominations may be at risk.”

The pipeline said it estimates that the repairs will be completed by Feb. 14.

Tennessee Zone 6 200L fell 37 cents to $8.62.

In West Texas, starting Thursday, planned maintenance on El Paso Natural Gas Co.’s Line 2000 in the Permian Basin is expected to constrain close to 150 MMcf/d of westbound flows, according to Genscape.

“El Paso will perform an inspection at its Black River station, requiring a reduction at the Line 2000 meter from 577 to 437 MMcf/d,” the firm told clients Wednesday. “This location has flowed exactly at capacity for every day within the last month, so the cuts to operational capacity and scheduled capacity will be identical at 140 MMcf/d.

“Past flow cuts at this meter have sometimes, but not always, corresponded with sharp but transient drops in Waha basis as gas is constrained from moving west. Waha has already been regularly posting multi-year basis lows over the last several weeks.”

Waha dropped 2 cents Wednesday to $2.15, while El Paso Permian gave up 4 cents to $2.02. Other points across Texas and the Gulf Coast saw small changes Wednesday. Agua Dulce dropped 4 cents to $2.70, while Houston Ship Channel added a penny to $2.75. That’s versus Henry Hub prices averaging $2.73, down 2 cents.

Further west, utility Southern California Gas was forecasting system demand to total around 2,500,000 Dth/d this week, roughly in line with total daily receipts.

SoCal Citygate fell 5 cents to $2.58, while SoCal Border Average added 6 cents to $2.22.

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