- Volatile output in two most commonly used weather models leads to 5-cent gain for November natural gas prices
- Market expected to look for more consistency next week on whether cold will linger through the end of October/early November
- Balances remain loose enough to send prices lower at first signs of warmer risks
- Spot gas prices jump in key demand regions as significantly colder weather set to send temperatures plunging
Weather models continued to taunt natural gas futures prices Friday as yet another flip colder in the midday data led to a pre-weekend rally for winter prices in particular. The Nymex November contract settled at $3.25, up 5.2 cents on the day. December rose 5.9 cents to $3.309, and the winter strip climbed 5 cents to $3.269.
Spot gas prices were mixed as much of the country was due for a break in a series of cold snaps that started moving across the country during the second week of October. But with cold expected to reload in key demand regions early in the week, several markets managed to push out moderate increases. The NGI Spot Gas National Avg. ultimately fell 5 cents to $3.125.
On the futures front, models on Thursday began hinting of milder weather on tap for the end of the month, and early Friday guidance appeared to confirm that trend as it sliced several heating degree days (HDD) off the long-range forecast. Nymex November futures fell a few cents on the not-as-chilly outlook, but the dip led to a buying spree that moved the prompt month back into positive territory. Once traders caught wind of the midday weather data, November continued to gain ground to settle near its intraday high.
“As we've been mentioning, the weather data quickly became inconsistent over the past couple days, and that continues in the midday data” as the Global Forecasting System (GFS) model flipped back much colder after Thursday night’s flip milder, NatGasWeather said.
The GFS was colder for late next week, seeing conditions less mild in the latest run with high pressure not building in as strongly, the forecaster said. The midday GFS also flipped back notably colder for the end of October and early November to add back numerous HDDs.
“Clearly, the weather models are playing games with the natural gas markets as daily price swings of more than 10 cents continue, and mostly in the direction of national temperature trends,” NatGasWeather said.
Forecasts Friday showed slightly cool and wet conditions over Texas, where a stalled weather system continued to bring showers. Milder conditions were expected to set up across the Great Lakes and East Friday. However, a rather strong early-season cool shot was beginning to push into the North Plains and was expected to advance across the Midwest, Mid-Atlantic and East during the weekend and into early in the week ahead. The cold front was forecast to drop lows once again into the 20s and 30s, the forecaster said.
A mild break was still expected late in the week into the coming weekend (Oct. 27-28), although with uncertainty on exactly how mild it will be, with the GFS and European models having showed colder trends in recent data for these days, NatGasWeather said.
“What remains most important is how much colder than normal it will be across the central, northern and eastern United States Oct. 29-Nov. 3. The data still supports cool shots into the US; it's just the data really doesn't know exactly how much cold Canadian air will be drawn across the border.”
Regardless, Bespoke Weather Services said the latest data was enough to spook the market and turn spreads a bit more supportive given the strength in cash. Still, the forecaster continued to see looser balances and warmer medium-range risks, but “strong enough cash and enough weather noise to allow for some bounces,” Bespoke chief meteorologist Jacob Meisel said.
In addition, nuclear outages have declined and power burns were set to loosen into the weekend as production returned to record highs. “With these balances, the result is moves above $3.25 are stronger shorting opportunities,” Meisel said.
Meanwhile, market observers were already looking ahead to the next Energy Information Administration (EIA) report, with early estimates ranging from 50 Bcf to 72 Bcf. The EIA reported an 81 Bcf injection into storage inventories for the week ending Oct. 12, lifting inventories to 3,037 Bcf, 601 Bcf below year-ago levels and 605 Bcf below the five-year average.
“We expect next week's EIA storage report will be very important to market sentiment to see how record production fared against colder-than-normal conditions across much of the U.S. this past week,” NatGasWeather said.
Looking further into the winter season, EBW Analytics said changes in the amount of coal displacement due to gas prices could play a role in avoiding a storage squeeze in the event of cold weather. Projected coal displacement this winter may average 2.9 Bcf/d at current Nymex futures prices and in Weather Decision Technologies’ most-likely weather scenario, the firm said.
Coal displacement historically increases in March as gas prices dip and push coal lower in the generation stack, and seasonally lower demand enables coal plants to reduce output without impairing grid reliability. The measure also gives a gauge of how much price-responsive natural gas demand can be immediately reduced if natural gas prices soar, EBW said.
“In total, slightly more than 450 Bcf of demand could be reduced during the 150-day November-March period if prices reach $4.50/MMBtu, giving the market an extra cushion to help avoid a storage squeeze in the event of cold weather,” EBW CEO Andy Weissman said.
If it takes until mid-winter for cold weather to develop, however, this gas-to-coal switching potential may be halved, decreasing the market's ability to adjust in the event of extreme late winter cold.
Spot Gas Bounces Back In Key Demand Regions
While several markets across the United States posted a second day of declines given the mild weather in store for some areas during the weekend, several key regions rebounded in Friday trading as a renewed wave of cold air, locally damaging winds, rain and snow showers was expected to sweep through the midwestern and northeastern United States.
The region’s first significant cold sweep of the season arrived midweek, with some areas seeing their first snowflakes since the spring, according to AccuWeather. The week ended on a rather pleasant note with sunshine, light winds and highs in the 50s and 60s, however, a reinforcing shot of colder air was forecast to head for the Northeast.
“This next cold front means business,” said AccuWeather chief meteorologist Elliot Abrams.
Temperatures during both the days and nights were expected to be several degrees lower than their coldest levels this past week. Cold air was also forecast to dip much farther west when compared to the extent of the cold this past week, Abrams said.
The chill was expected to first reach the Upper Midwest and Great Lakes before sweeping through the Northeast through Sunday night. High temperatures were forecast to be held 10-15 degrees below normal in the wake of the cold sweep, generally in the 40s across the Great Lakes and interior Northeast and 50s closer to the coast, AccuWeather said.
The quick reload of cold air was enough to drive significant gains in the Northeast. Tenn Zone 6 200L spot gas jumped 36.5 cents to $3.695, and Transco Zone 6 NY rose 13.5 cents to $3.11.
In Appalachia, Millennium East Pool was up 9.5 cents to $2.965, and Transco-Leidy Line was up 6.5 cents to $3.025. Texas Eastern M-3, Delivery, however, tumbled 21 cents to $3.055 as Texas Eastern Transmission (Tetco) was scheduled to conduct investigations on its 30-inch Line 15 between its Owingsville, KY, and Wheelersburg, OH, compressor stations (CS).
This line has been under constant maintenance this fall, and flows from the Berne CS to the Barton CS are to be reduced by as much as 224 MMcf/d for the duration of the event, which is scheduled for Monday through Saturday (Oct. 22-28).
“This is the first of several events that will leave the 30-inch Line constrained until mid-December, cutting exports to one of Tetco’s demand hubs in East Louisiana,” Genscape natural gas analyst Josh Garcia said.
Over in the Midcontinent, prices generally rose a few cents, although ANR Southwest and NGPL Midcontinent slipped. Midwest markets, meanwhile, were mostly stronger as gains of a few pennies to as much as 8 cents were seen in the region.
In the West, it was a sea of red as after a prolonged dry and mild stretch, the northwestern United States was due for a flip to cool, rainy weather as Pacific storms return in the upcoming week. Highs through Monday were expected to be in the 60s around Seattle and 70s in Portland, OR.
Increasing cloud coverage expected on Tuesday will be a sign of the changes to come for the remainder of the week ahead, AccuWeather said. Following a couple of mainly dry weeks in the Pacific Northwest, the area of high pressure should work its way far enough inland for Pacific storms finally to reach the region next week, according to AccuWeather Senior Meteorologist Jack Boston.
“This will bring back rain and mountain snow chances,” he said.
Two to three storms were forecast to roll through the area with opportunities for wet weather. The first storm was expected to arrive late Tuesday, and a second could follow by Thursday, with the potential for a third storm to sweep in by the end of the week, according to AccuWeather.
California spot gas was lower almost across the board, with SoCal Citygate plunging $1.685 to $3.33. The lone exception to the regional downtrend was PG&E Citygate, which rose a couple of cents to $3.91, likely in response to a Pacific Gas and Electric Co. power line falling, which started a fire last Wednesday near Chevron Pipe Line Co.’s valve junction on the Northern California Gas Line, near Pittsburg.
Meanwhile, an unplanned maintenance event was expected to slightly limit Northwest Pipeline’s ability to bring in Rockies gas as an alternative to the supply lost because of the Westcoast Transmission explosion earlier this month, Genscape Inc. said.
An engine failure at the Lava Hot Springs compressor in southeast Idaho has led to a reduction of 58 MMcf/d of operating capacity, to 573 MMcf/d from 631 MMcf/d, natural gas analyst Joe Bernardi said. Since the Westcoast explosion, this location has flowed an average of 534 MMcf/d, and the previous three days have been above 600 MMcf/d. The two-week average flow prior to the Westcoast explosion was 238 MMcf/d, he said.
NWPL currently expects the work to last through Thursday (Oct. 26). The pipeline will likely be able to draw more gas from the Jackson Prairie storage facility in Washington State to accommodate for the slight decrease in flows through Lava Hot Springs, Genscape said.
Despite the modest cut to supply, Northwest Sumas spot gas tumbled 22.5 cents to $6.625.