For the second weekend in a row, a bullish turn in the weather outlooks led to a sharp rally in core winter natural gas contracts to start the week, elevating November natural gas prices on Monday by 8.1 cents to $3.242. Spot gas prices also strengthened as the early-season cold snap drove up demand across much of the United States. The NGI National Spot Gas Avg. rose 17 cents to $3.135.
Nymex November natural gas futures were strong out of the gate, steadily climbing early in the session before easing a bit later in the morning. The prompt month surged as high as $3.273 but then fell as low as $3.177 before going on to settle near the midpoint of that range. December rose 8.4 cents to $3.31, January climbed 8.3 cents to $3.389 and February tacked on 6.3 cents to $3.301.
At the forefront of Monday trading were weather outlooks that showed cold air trapped across major natural gas demand centers for the next couple of weeks. Bespoke Weather Services said weather models showed a reload of cold into the long range because of overhead and downstream blocking, which is often more difficult to break down. Models were surprisingly consistent with its strength and orientation, the firm said.
“This has us skeptical the cold forecasts quickly break down this week. However, the natural gas market has loosened remarkably, and spread action today shows a market ready to drop rapidly on the first sign of this pattern breaking,” Bespoke chief meteorologist Jacob Meisel said.
With the unseasonably low temperatures expected to persist through the end of October, NatGasWeather expects the coming weather pattern to further increase storage inventory deficits versus the five-year average to more than 650 Bcf, and more likely toward 700 Bcf. The forecaster said the background state will remain bullish for quite some time until record production finally shows signs of improving deficits, “something that’s not expected to happen until after October due to the coming colder-than-normal pattern.”
Indeed, Bespoke said while recent storage data has indicated that the market has loosened markedly this fall, storage levels are so low that they outweigh the very loose balances. For the upcoming Energy Information Administration inventory report on Thursday, Bespoke is projecting an 82 Bcf injection, which could see an upward revision. Inventories as of Oct. 5 stood at 2,956 Bcf.
Meanwhile, power has been restored to most customers affected by former Hurricane Michael. As of Monday morning, impacted electric companies reported that they had restored power to more than 2.5 million customers. About 241,000 electricity customers on Monday remained without power in Florida, Georgia, North Carolina and Virginia, with the majority of outages in Florida, the Edison Electric Institute said.
Electricity demand for most of the impacted customers “is extremely low, limiting the likely impact on demand,” EBW Analytics CEO Andy Weissman said.
Genscape Inc. said its pipeline-reported sample of deliveries to the region’s plants was at 8,750 MMcf/d, still more than 3.13 Bcf/d lower than the 14-day average prior to the storm. On the supply-side, the firm’s daily estimate of production for the Gulf of Mexico showed more than 1 Bcf/d of production remained offline. While most of the platforms have returned personnel, a handful of systems remained shut-in.
Looking ahead, Bespoke said it is looking for warm risks to win out for November and especially December before a flip colder later in the winter. “With the natural gas market so loose, any sustained warmth early in the winter could really hit prices before a short-covering rally on any later-winter cold flip,” Meisel said.
In a normal-weather scenario, the market would be significantly oversupplied and likely become more so with each passing month, EBW said. “If forecasts for very mild weather between mid-November and December verify, gas prices could fall sharply. Near-term, however, much colder-than-normal weather could drive cash prices up sharply and increase fears that even steeper price spikes might be possible this winter,” Weissman said.
During the next 30 days, price movements will be heavily influenced by continued shifts in the 11-21 day forecasts, which are particularly difficult to predict this time of year, he said. “Not a time for the faint of heart.”
Spot Gas Up On Fall Chill
Spot gas prices were higher nearly across the board Monday as the cold front was sweeping down the Rockies and Plains and advancing into North Texas, but also bringing with it heavy showers over South Texas and the South. A colder air mass also was advancing across the Midwest, and was forecast to then move through the Ohio Valley and Northeast through Tuesday, with overnight lows dropping into the 20s and 30s and making for stronger-than-normal demand, according to NatGasWeather.
A milder break between weather systems remained on track Friday into Saturday, but with the next cold blast expected to already begin pushing into the North Plains at the same time, the forecaster said. “This weekend cold shot will sweep across the Midwest and Ohio Valley and eastern United States late this weekend with another round of chilly conditions and strong early season demand.”
With the cold air descending on the Northeast beginning Tuesday, spot gas prices there rose more than a quarter at each pricing hub. PNGTS next-day gas shot up 20.5 cents to $4.52, while Algonquin Citygate jumped 38.5 cents to $3.295 and local points along the Transcontinental Gas Pine Line rose more than 40 cents.
Appalachia prices also strengthened considerably as the additional volumes coming out the region were expected to help meet the unusually high downstream demand. Dominion South spot gas picked up 35.5 cents to reach $2.975, and Transco-Leidy Line climbed 46 cents to $3.105.
Rockies’ gains were somewhat tempered on Monday, but prices began climbing last week as cold weather hit the region midweek. Opal and Kern River each rose around 8 cents to $3.04 and $3.06, respectively.
With power restoration largely completed in the Southeast, spot gas prices rebounded from last week’s lows. Transco Zone 4 climbed more than a dime to $3.25, and Transco Zone 5 jumped 19 cents to $3.32.
Increases across the rest of the country were similar, with pricing hubs in the Permian Basin finally moving back above the $2 threshold after gaining about 10 cents on average. In the Midcontinent, Southern Star Central Gas Pipeline was scheduled to conduct emergency shut down (ESD) tests on Wednesday and Thursday (Oct. 17-18) at Grabham Station in Montgomery County, KS, at the end of line segment 117.
To perform these tests, Southern Star is expected to reduce the operational capacity at the Blackwell compressor station in Kay County, OK, by 53%. The Blackwell compressor station, when not restricted by maintenance events, averaged 583 MMcf/d in gas flows during the past 60 days, according to Genscape. The ESD test at Grabham will restrict roughly 252 MMcf/d travelling along the 117 segment from Kay County to Montgomery County and into the rest of Southern Star’s market zone in eastern Kansas, the firm said.