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November Natural Gas Treads Water as Traders Seek Confirmation of Milder Temps

Natural gas winter prices moved in and out of positive territory Tuesday as weather models provided more clarity about breaks between pre-winter cold snaps that are on tap for the rest of the month. The Nymex November futures contract eventually settled at $3.239, down three-tenths of a cent on the day. Most of the remaining winter contracts also settled less than a penny lower, except January, which fell 1.5 cents to $3.374.

Spot gas prices were mostly higher as a cold front advanced through Texas and headed for the Midwest, Ohio Valley and Northeast. The NGINational Spot Gas Avg.climbed 5 cents to $3.185.

On the futures front, November prices broke through $3.30 overnight but then sold off Tuesday morning, although prices managed to hold onto Monday’s gains. “No doubt the natural gas markets have become sensitive to temperature trends, which could produce quick swings to either side the rest of the week,” NatGasWeather said.

The midday Tuesday data was a little colder with the coming weekend cold shot into the Midwest and East, but it held the milder trend with a break late next week into the following weekend (Oct. 25-27), the forecaster said. The data continued to advertise weather systems returning into the northern, central and east-central United States during the last week of the month for a swing back to a bit stronger national demand.

“Overall, the coming next two weeks remain relatively bullish due to mostly cooler-than-normal temperatures south and east of the Plains, besides when milder breaks between systems arrive,” NatGasWeather said.

The repeated cold shifts during the past two weeks have significantly changed the picture for natural gas this winter, adding more than 100 Bcf of previously unexpected demand, according to EBW Analytics. The bump in demand does not bode well for stubbornly low storage inventories.

For the first time since the injection season began, projected end-of-winter storage has fallen well below 1,300 Bcf, leaving the market vulnerable to significant price spikes if winter weather is colder than currently forecast, the firm said. After a recent run of 90 Bcf reported injections and another one near that level expected this Thursday, subsequent weeks may plummet into the mid-30 Bcf/week range as cold ratchets heating demand higher, EBW said.

“Unless and until storage is significantly rebuilt, gas prices are likely to remain well above $3.00,” EBW CEO Andy Weissman said.

Meanwhile, the restart of the Dominion Cove Point liquefied natural gas (LNG) export facility heading into winter may further tighten the natural gas supply/demand balance. After a three-week outage, Cove Point began receiving gas last Friday (Oct. 12) and is expected to ramp back to full levels and refill onsite storage tanks during the next several weeks, adding 0.85 Bcf/d of demand to the market, according to EBW.

“Together with increased utilization at Sabine Pass, LNG exports demand may rise toward 3.75 Bcf/d on a sustained basis through the end of the year, 1.0 Bcf/d above the average LNG demand” since July Fourth, Weissman said.

Still, production may take a step-change higher in the coming weeks with new pipelines enabling more Appalachia volumes and a post-Hurricane Michael recovery in the Gulf of Mexico. EBW expects the increased production to reduce persistent storage deficits, all but eliminating the risks of a storage squeeze this winter. In fact, only the threat of a squeeze is sufficient to send prices higher, the firm said.

“If forecasts shift even 125 gas-heating degree days (gHDD) in a bullish direction, prices may have to increase to force gas-to-coal switching and keep the storage trajectory above 1,000 Bcf,” Weissman said. 

For a comparison, the 10 days preceding Oct. 15 saw an incremental 53 gHDDs -- even in October -- and midwinter shifts often take the market by surprise. “Particularly if a very cold week also leads to production shut-ins, it would not be surprising to see increasing risks help the front-month contract sharply higher,” he said. If the November weather forecast remains bearish, however, Nymex gas prices are likely to head lower.

Fall Cold Fronts Lift Spot Gas

Spot gas prices continued to climb across much of the United States as chilly conditions were expected in the eastern half of the country. Most pricing locations put up gains of less than a dime, and several tacked on only a few cents. The exception, however, was in West Texas/southeastern New Mexico, where Permian Basin volumes were helping to meet strong regional demand, boosting prices there by as much as 25 cents.

As far as details, a cold front was advancing through Texas, bringing with it heavy showers over Texas and into the South. The clash of unusually cold air for October and lingering tropical moisture was expected to heighten the threat of heavy rain and the likelihood of flooding over the south-central United States, focused on Texas, through Tuesday night, according to AccuWeather.

“Thanks to a strong norther, temperatures in parts of central Texas will be 30-40 degrees lower early this week when compared to Sunday,” AccuWeather senior meteorologist Alex Sosnowski said.

The average high for the middle of October is 79 in Dallas, but highs were forecast to hover in the mid-40s through Tuesday and then remain in the 50s through Friday, the forecaster said.

Meanwhile, parts of Central Texas had already received up to eight inches of rain from Friday to Tuesday morning. “This is the equivalent of an entire month's worth of rain for October,” Sosnowski said.

Areas from north of Big Bend to the Red River were expected to bear the brunt of the rain, according to AccuWeather. Some downpours, however, were also expected to drench parts of southeastern Oklahoma, southern Arkansas and Louisiana.

Prices across the South Central region were mostly stronger, but Permian Basin pricing hubs posted the largest gains. Waha shot up 25 cents to $2.33, while El Paso-Permian jumped 16.5 cents to $2.32.

South Texas points eased a bit Tuesday, while in East Texas, Houston Ship Channel edged up a penny to $3.60. Benchmark Henry Hub in southern Louisiana tacked on 1.5 cents to $3.27.

Farther east, a colder system was advancing across the Midwest, Ohio Valley and Northeast, dropping lows into the 20s and 30s for stronger-than-normal demand, according to NatGasWeather. A brief milder break between weather systems was expected to occur Friday ahead of the next Canadian cold blast that was forecast to sweep across the Midwest and East this weekend into early next week.

Given the chilly conditions in the Midwest, gains there ranged from a nickel to a dime at most pricing hubs, with Chicago Citygate rising 10 cents to $3.39, and Lebanon climbing 7.5 cents to $3.215.

In the Northeast, Algonquin Citygate rose 13 cents to $3.425, and Tenn Zone 6 200L moved up 9 cents to $3.56.

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