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Cold Snap Boosts March Natural Gas Prices for Western Markets

A cold snap expected to traverse from the West Coast through the Plains during the week bolstered March forward prices in that region by double digits, according to NGI’s Forward Look.

The strongest increases were seen at the Southern California City-gates, where March forward prices jumped 21 cents from Feb. 9-15 to reach $2.595. The price increase comes as Southern California Gas (SoCal Gas) on Thursday announced a new, unplanned maintenance event late Thursday that was expected to cut about 250 MMcf/d of imported supply at the Needles points from Friday through Sunday (Feb. 16-18).

Although demand was expected to remain moderate through the weekend, the market concern over whether the maintenance would be completed on time was apparent as colder weather was seen returning by the Presidents Day holiday. Additional blasts of cold were expected to continue through the rest of the month, according to forecasters with NatGasWeather.

Data and analytics company Genscape Inc. said firm operating capacity was limited to zero at SoCal Gas’ connections with Transwestern and Southern Trails at Needles; these two points had flowed an average of 247 MMcf/d in the past three weeks, it said.

These points were limited to zero for a similar unplanned maintenance event from Jan. 17-24. Prior to that work, their recent flow average was 231 MMcf/d, comparable to this event’s previous baseline.

To help compensate for the cut Needles flows during the January maintenance event, SoCal Gas posted higher receipts from Kern at Kramer Junction. Although not officially announced as such, these flows were likely achieved via interruptible capacity, which had become available in the fall when the Needles points were restricted for several months.

According to SoCal Gas, Kramer Junction’s normal firm operating capacity limit is 555 MMcf/d. But during the January Needles restriction, it averaged flows of 609 MMcf/d, with a single-day maximum of 657 MMcf/d.

After climbing above 3 Bcf/d earlier this past week, demand is projected to ease to around a more moderate 2.4-2.6 Bcf/d, Genscape said. The first three days of last month’s unplanned Needles maintenance saw comparable demand, between 2.5 and 2.7 Bcf/d. Prices posted modest gains, but did not exceed the previous 2-week maximum. Even when demand crested at 3.2 Bcf/d later during that event, the movement in SoCal City-gate and Border basis prices was not significantly different from a previous cold snap when Needles was not restricted, the Louisville, KY-based company said.

That said, SoCal Gas relied on storage withdrawals much more heavily without Needles, posting an average 282 MMcf/d withdrawal during that Needles event, compared with no average withdrawals in the previous cold snap. System-wide storage inventory is currently 15.5 Bcf higher year/year, largely due to boosted Aliso Canyon storage levels, “so SoCal has a healthy amount of storage to rely on if needed,” Genscape said.

Strength in the March package was growing throughout the week, with support coming from a one-day maintenance event on upstream El Paso Natural Gas that significantly drove up cash prices for gas day Feb. 15 and word that Dominion Energy’s Questar Pipeline is looking to divest a portion of its Southern Trails pipeline and abandon the remainder later this year.

Although Southern Trails only delivered about 35 MMcf/d of volumes in 2017, its potential removal comes at a time when SoCal is highly dependent on pipelines as Aliso Canyon storage remains curtailed.

SoCal City-gate gains were not limited to the front of the forward curve. April shot up 15 cents from Feb. 9 to 15 to reach $2.452, while the summer strip (April-October) picked up 4 cents to reach $2.56, Forward Look shows.

Highlighting the impact of weather on the forwards markets, other hubs in the West posted substantial increases at the front of the curve. Pacific Gas & Electric City-gate March jumped 20 cents to $2.77, April climbed 23 cents to $2.748 and the summer strip (April-October) rose 9 cents to $2.76.

Points along the Northwest Pipeline also gained. Sumas March forward prices were up 24 cents from Feb. 9 to 15 to reach $1.836, April forwards were up 19 cents to $1.68 and the summer (April-October) was up 9 cents to $1.78.

Northwest Wyoming Pool March climbed 17 cents to $2.215, April picked up 11 cents to hit $2.084 and the summer (April-October) tacked on 2 cents to reach $2.09.

Upstream at El Paso Permian, March was up 13 cents to $1.94, April was up 9 cents to $1.80 and the summer (April-October) was up 7 cents to $1.81, according to Forward Look.

Northeast March Prices Hammered Again

While western markets were enjoying a boost to prices along their forward curves, Northeast pricing hubs continued to get slashed as mostly moderate temperatures were in store for the region in the weeks ahead.

NatGasWeather showed demand easing considerably in the region as high pressure strengthened over the South and East, with daytime temperatures climbing into the mid-50s and 60s across the Northeast, with 70s and 80s over the southern United States and up the southeast Atlantic Coast.

There's likely to be brief cooling across the Northeast late in the week for a small increase in national demand, “but not widespread or cold enough to impress,” NatGasWeather said. Furthermore, the latest weather models have trended considerably milder, stalling any chances of meaningful cold returning to the East until the first week of March.

“The onus is clearly on colder patterns returning across the eastern U.S. if bearish weather sentiment is to end, and the most recent midday data doesn't foresee this happening until at least March 2-3,” the forecaster said.

New England’s Algonquin Gas Transmission City-gate led the way as March forward prices plunged 93 cents from Feb. 9-15 to reach $4.085, according to Forward Look. That’s where the bludgeoning ended, however, as April prices held steady at $3.40 and summer (April-October) inched up a penny to $2.63.

At Tennessee zone 6 200 leg, March tumbled 90 cents during that time to $4.203, April was flat at $3.27 and summer (April-October) was up 1 cent to $2.70.

Transco zone 6 New York March forward prices dropped 31 cents from Feb. 9-15 to reach $2.98, while April edged up 2 cents to $2.515 and summer (April-October) held steady at $2.41.

For its part, the benchmark Nymex Henry Hub ended the week unchanged to marginally higher as a bullish storage report lent some minor support to prices further out the futures curve. Nymex March futures held at around $2.58 from Feb. 9-15, while April rose 2 cents to $2.62 and the summer (April-October) 2 cents to $2.70.

The U.S. Energy Information Administration on Thursday reported a 194 Bcf withdrawal from storage inventories for the week ending Feb. 9. The draw was well above market expectations and increased the current year-on-year deficit from -503 Bcf to -577 Bcf and the year-on-five-year deficit from -393 Bcf to -433 Bcf. Total working gas in underground storage as of Feb. 9 stood at 1,884 Bcf, versus 2,461 Bcf a year ago and five-year average inventories of 2,317 Bcf, according to EIA.

“We see this print as very tight on a historical basis, as it is quite tight for similar gas weeks and even tight on a 10-week average basis,” Bespoke Weather Services said following the release of the final figure.

Still, near-record production continues to outweigh any concerns the market may be having regarding the ability to refill storage inventories this summer. Lower 48 production has averaged more than 77 Bcf/d since the start of February, fully recovering from freeze-offs that occurred in January.

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