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Natural Gas Futures Rebound as Cold Risks Creep Back into Forecast; Spot Prices Mixed

After selling off heavily since the start of February, natural gas futures ticked higher Tuesday, supported by weather models hinting that more cold could push into the East later this month. Spot prices were mixed, with Northeast points falling on mild weather as SoCal Citygate spiked; the NGI National Spot Gas Average fell 4 cents to $2.50/MMBtu.

The March contract added 4.2 cents Tuesday to settle at $2.594 after trading as high as $2.642. The April contract added 4.4 cents to settle at $2.623.

NatGasWeather.com described Tuesday’s gains as “a technical bounce aided by overnight weather models trending slightly colder, especially after Feb. 26, where some of the data teases next week’s very warm ridge over the South and East will weaken Feb. 27-March 2, allowing a bit more cooler air to arrive.”

The firm noted, however, that midday data from the Global Forecast System failed to show further cold trends.

“Natural gas prices finally logged a green day” Tuesday, Bespoke Weather Services said. Gains across the strip indicate “the market continuing to find structural support here with a relatively tight balance (despite record production) and a bullish Energy Information Administration (EIA) print expected Thursday.

“...Afternoon model guidance did strengthen the southeastern ridge in the medium-term, which is one factor we see killing heating demand across the eastern third of the country and potentially weakening cash prices over the next two weeks in a way that could lead to occasional dips at the front of the strip. Yet the long-range pattern still appeared more favorable for cold risks into March.”

Bespoke said the market appears to be “attempting to bottom” and pegged $2.58 as support, “with any dips on bearish model runs buying opportunities as $2.70 and $2.75 remain targets to watch from here.”

Predictions for Thursday’s EIA storage inventory report have been pointing to a withdrawal in the high 100s for the week ending Feb. 9.

Stephen Smith Energy Associates revised its estimate higher Tuesday to a withdrawal of 183 Bcf. That’s versus a seasonally normal withdrawal of 147 Bcf based on 2006-2010 norms, according to the firm. PointLogic Energy called for a withdrawal of 179 Bcf, citing “significantly colder weather in the East and Midwest regions.”

Last week, EIA reported a 119 Bcf withdrawal from U.S. gas stocks.

In the spot market Tuesday, Northeast points erased Monday’s gains, while Southern California saw a spike corresponding with planned maintenance impacting flows into the region on the El Paso Natural Gas (EPNG) pipeline.

In its one- to seven-day outlook Tuesday, NatGasWeather called for “mild high pressure” to “gain ground over the South and East late Tuesday through Thursday, with highs warming into the 50s to 70s. Another weather system will exit out of the central U.S. and across the Midwest and Northeast Friday and Saturday for a swing back to strong demand.

“The West will see a mix of mild and cool as weather systems track through. The South and East will become warm late this weekend and next week.”

After adding almost $1.75 Monday on some chillier temperatures in the region, Algonquin Citygate dropped $2.14 Tuesday to average $2.68.

Weather Underground was calling for temperatures in the 20s in Boston Tuesday to give way to highs near 50 degrees on Wednesday. Genscape Inc. was calling for New England regional demand to drop from 3.73 Bcf/d Tuesday to 2.54 Bcf/d by Thursday.

In the West, EPNG scheduled a one-day maintenance event on its South Mainline that was expected to affect about 300 MMcf/d of supply flowing to Southern California, according to Genscape. The maintenance -- a planned pigging run -- was expected to cut volumes bound for California for Wednesday by about 150 MMcf/d versus the prior two-week average.

A previous maintenance event on the same line in December “corresponded with a drop in deliveries to” utility Southern California Gas’s (SoCalGas) system “at Ehrenburg and a 69-cent spike in SoCal Border basis prices versus the two-week average,” Genscape said. “At that time, SoCalGas was experiencing system-wide demand in excess of 3.1 Bcf/d” versus demand projected to total just under 3 Bcf/d for Wednesday.

That said, SoCalGas “currently has greater import capacity at other points compared to December, which could prevent as steep a price increase,” Genscape noted.

El Paso S. Mainline/N. Baja climbed 11 cents to $2.58. SoCal Border Average gained 6 cents to $2.49, while SoCal Citygate shot up $1.34 to $4.24.

Genscape analyst Joe Bernardi said Tuesday’s spike at SoCal Citygate “is largely due to colder weather” in the region “leading to an uptick in demand with storage being leaned on rather heavily.”

The EPNG maintenance could lead SoCalGas to “rely more on storage withdrawals,” Bernardi told NGI. “But SoCal’s total net withdrawals posted for Monday’s gas day were already the third largest of the winter. System-wide demand has risen above 3 Bcf/d for the first time in several weeks.”

In West Texas, points generally traded within a nickel of even Tuesday. El Paso Permian fell 6 cents to $2.16.

As negative basis differentials remain an ongoing concern for Permian Basin spot prices, analysts with Tudor, Pickering, Holt & Co. (TPH) said Tuesday the region “has a fighting chance to become the worst gas market in the U.S. in 2018...as supply growth outstrips near-term pipeline expansions.

“Based on the forward curve, 2018 realized prices are set to average $1.70/Mcf, while 2019 looks even worse at $1.56/Mcf (both years are down around 70-75 cents over the last three months),” analysts wrote in a note to clients. “This collapse has been a market concern since early 2017, as industry was quicker to prioritize liquids transport solutions...while counting on Mexico to bail out the regional gas market.”

However, “limited intra-county connectivity in Mexico has held exports roughly flat,” according to the TPH team, “and though we expect a modest uptick by year-end 2018, the current production forecast necessitates flows to Mexico reach about 2 Bcf/d by 3Q2019 prior to the expected in-service of Gulf Coast Express. About 2 Bcf/d of pipeline capacity to the Gulf Coast offers breathing room, but the Permian is likely in need of an additional greenfield project by the end of 2020.”

With the Gulf Coast Express project officially moving forward, Boardwalk Pipeline Partners LP continues to pursue additional plans to transport Permian gas to the Gulf Coast, but a final investment decision has yet to be made, management said during a conference call Monday. CEO Stanley Horton said the master limited partnership is “progressing in discussions” with potential shippers for its proposed Permian-to-Katy (P2K) pipeline, a joint venture with Sempra Energy.

Boardwalk management continues “to believe there will be demand for at least two natural gas pipelines from the Permian to the Texas Gulf Coast area and that demand for the second pipeline will be for deliveries into the Katy/Houston Ship Channel market, like our P2K project, which we anticipate will also feed into our Coastal Bend Header,” Horton said. “Based on our conversations with producers and end-use customers, we remain optimistic about the project.”

In the Midcontinent, NGPL Midcontinent tumbled 17 cents to $2.15, while Panhandle Eastern dropped 12 cents to $2.16.

NGPL declared a force majeure starting Wednesday at its Compressor Station 102 on Segment 10 restricting northbound throughput, according to Genscape.

“The scheduling constraint will be at Compressor Station 103, which leads into Segment 11, where primary firm and secondary in-path firm transports of northbound gas will be reduced to 66% of maximum daily quantities through Thursday,” Genscape said. “Segment 11 operational capacity is currently 1.07 Bcf/d and will likely be cut to 780 MMcf/d during the event.”

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