Mercados / NGI Mexico GPI

Natural Gas Futures Climb as Colder March Outlook, Tighter Storage Seen

  • April settles at $2.778, up 4.6 cents
  • Cold trends showed up over weekend, confirmed in Monday afternoon guidance, says Bespoke
  • Market “focused on what type of injections we’re going to see in April,” says INTL FCStone’s Saal
  • SoCal spot prices jump as maintenance reduces flows through Southern Zone

Natural gas futures added close to a nickel Monday as medium-range forecasts turned notably colder over the weekend -- and winter looked to hold on a while longer. In the spot market, Northeast and Mid-Atlantic prices strengthened on yet another East Coast storm, and the NGI National Spot Gas Average climbed 19 cents to $2.68/MMBtu.

The April contract settled at $2.778 Monday, up 4.6 cents on the day. The May contract settled 4.1 cents higher at $2.800.

“The latest midday weather data was colder trending for late this weekend into Saturday, seeing a reinforcing shot of colder air out of Canada push deeper into the Northeast,” said. “The data was also colder for the middle of next week, but then mixed between a few milder days and a few colder days after March 24.

“...The data has been colder in Sunday night’s European model, and now also colder in the latest midday Global Forecast System data, which could give reason to hold” Monday’s gains, the firm said.

Bespoke Weather Services said following the close that afternoon guidance continued to confirm the cold trends that showed up over the weekend.

“We see recent guidance as cold enough to at least easily bring a test of the $2.82 resistance level for the April contract, something we have been watching for over the past week,” the firm said.

“...Thursday’s Energy Information Administration (EIA) print is likely to show enough tightness that we are not yet turning bearish at these price levels...However, the strip is indicating that a few warmer weather model runs would be able to rather quickly take prices 8-10 cents lower should they get up to or above the $2.82 level.”

The weather, combined with expectations for a storage withdrawal approaching 100 Bcf in this week’s report, has the market looking a little tighter, INTL FCStone Financial Inc. Senior Vice President Tom Saal said Monday.

“The market is focused on what type of injections we’re going to see in April. If this weather hangs around, maybe those injections may not look so robust,” Saal told NGI. That said, “we’re still below $3, so it’s not like the market’s exploding into orbit here. It’s still pricing in plenty of supply in the market.”

Last week’s Commitment of Traders report suggested “the funds are still kind of unsure what to do here,” he said. “They’re not really committed to the long side or the short side...A lot of this action now is people trying to buy gas for hedging.”

The Desk’s Early View storage survey issued last Friday showed respondents on average expecting EIA to report a 93.5 Bcf withdrawal for the week ending March 9, with estimates ranging from -63 Bcf to -109 Bcf. Last year 55 Bcf was withdrawn during the period, while the five-year average is a 97 Bcf withdrawal.

Stephen Smith Energy Associates on Monday forecast a 99 Bcf draw for the period, versus a seasonally normal draw of 12 Bcf based on 2006-2010 norms. Taking a longer-term view, the Smith team said in its latest Monthly Energy Outlook issued last week that 2018 gas prices should average $2.90/MMBtu, “barring a much hotter-than-expected summer.”

The firm’s base case for 2018 “assumes a 6% hotter-than-normal 3Q2018, but also a strong gas production ramp-up as the year progresses. We estimate that the net effect is likely to keep gas storage somewhat below 2006-2010 weekly norms until early fall 2018.

“But fall heating degree days are currently expected to be below normal and gas production growth should be strong at least through year-end 2018,” Smith analysts said. “This suggests an increasing storage surplus as winter 2018/19 approaches. Annual production growth for 2018 is likely to be near 7 Bcf/d per year. This should be partially offset by increased exports to Mexico and increased liquefied natural gas exports (our combined estimated annual increase is 1.5 Bcf/d.”

In the spot market Monday, prices strengthened by double digits across most regions as another winter storm worked its way along the East Coast to help boost Lower 48 demand.

Day-ahead prices shot up across the East Coast Monday. In New England, Algonquin Citygate surged $1.25 to $4.57, and Portland Natural Gas Transmission System similarly jumped $1.23 to $4.92.

Further south, Transco Zone 5 tacked on a quarter to average $3.07, approaching the 30-day high set last week. In Appalachia, Dominion South climbed 11 cents to $2.57.

“Over the past week and for the next three days, residential/commercial demand will exceed 30 Bcf/d as a last gasp of cold weather strikes the Lower 48,” OPIS analyst Jack Weixel said in a note to clients Monday. “Temperatures are not necessarily below normal in all locations, but it’s a colder March than the past two winters.

“Domestic demand will average 79.2 Bcf/d for the week ending March 15, its highest level in a month, since the week ending Feb. 15,” Weixel said. “The week ending March 22 sets a different tone as temperatures across the Lower 48 will rise to average 53 degrees, and demand will soften to 73.3 Bcf/d.”

By region, demand in the Northeast is expected to increase by around 1 Bcf/d or more week/week to 22.4 Bcf/d for the current week, according to Weixel. “Demand in the Midcontinent region also shifts upward this week, but not to the same degree as the Northeast.”

In the West, NWS said the region “will be increasingly wet/snowy and unsettled as a front approaches and moves inland” over the next few days. “The greatest rainfall should be focused over the favored terrain of Northern and Central California, with some locations receiving 2-4 inches of rain through Wednesday morning. Heavy snow is expected across the higher mountainous terrain, with the greatest amounts likely for the Sierra Nevada mountains.”

Malin added 23 cents to $2.34 Monday, while PG&E Citygate tacked on 18 cents to $2.89.

Further upstream, a number of points in the Rockies gained around 20 cents or more on the day.

In Southern California, the often volatile SoCal Citygate jumped 91 cents to $3.42, while SoCal Border Average added 33 cents to $2.48, including a 39.5 cent surge at SoCal Border-Ehrenburg observed in NGI’s MidDay Alert prices.

Utility Southern California Gas Co. (SoCalGas) said over the weekend that it would begin limiting capacity through its Southern Zone to a total of 700 MMcf/d until further notice. SoCalGas said the reduction is “due to current maintenance activities and low system demand” in the utility’s southern system. “The capacity will increase as conditions allow for more receipts into the Southern Zone,” it said.

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