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Long-Range Warming, Record Production Send Nymex Natural Gas Futures Plunging

Despite significant cold in medium-range weather outlooks, natural gas futures prices plummeted Monday as milder risks showed up in longer-range forecasts and production reportedly set fresh highs during the weekend. The Nymex November futures contract fell 11.2 cents to $3.138, while December dropped 9.5 cents to $3.214 and the winter strip (November-March) plunged 9.5 cents to $3.173.

Spot gas prices were mixed as cooler weather in the Southeast drove prices lower there, while colder conditions in the eastern United States drove up prices in the Northeast and Appalachia. The NGI National Spot Gas Avg. rose 11 cents to $3.235.

With weeks to go before winter, unseasonably chilly temperatures for much of October so far have kept weather front and center for the natural gas market. The last two weeks of trading have seen the Nymex futures curve flip flop throughout the week depending on which way the latest weather models trended. Monday was no different as the November contract opened the session several cents lower and then dropped as low as $3.137 before eventually settling just a few notches above that.

Since last Thursday, both the Global Forecasting System and European weather models have been struggling to deal with a typhoon in the Western Pacific, leading to a huge range of possible outcomes in ensemble outlooks and large day-to-day and intraday forecast swings, according to EBW Analytics Group.

Model guidance during the weekend added a rather significant amount of heating demand in the medium range, while also showing more clear signs of a pattern adjustment in the long range that would allow for more widespread ridging across the East with the Pacific/North American pattern gradually turning negative, Bespoke Weather Services said. The result would be to refocus any colder air back across the Great Plains later in Week 2 into Week 3, with heating demand quickly falling far below average across the eastern third of the country.

“Before then, there is sizable volatility across models, with recent European guidance solidly trending back colder but still showing a pattern transition,” Bespoke chief meteorologist Jacob Meisel said.

Bespoke cautioned that sometimes these transitions are modeled too quickly on guidance, so modest medium-range colder trends are still possible, “but a more prominent ridge across the East into the second week of November seems quite likely,” Meisel said.

It is not clear, however, that the warming in Week 3 is the start of the pattern shift expected beginning last week, EBW said. Instead, it could prove to be transient, with a quick return of cold in the East. “With volatility so high, it will not be surprising if models continue to swing sharply over the next few days, creating uncertainty regarding where gas prices will move,” EBW CEO Andy Weissman said.

Weather-driven natural gas demand has averaged 21.3 Bcf/d since the beginning of September, up more than 4.5 Bcf/d year/year, according to EBW. Bullish comparisons to 2017 are due to both a hot late summer and the recent cold snap.

At current Nymex strip prices and in Weather Decision Technologies’ most likely weather scenario, EBW expects weather-driven demand to decline modestly over the coming weeks as the recent bout of acutely below-normal weather transitions into a warmer-than-normal November. Weather-driven demand is expected to average 39.2 Bcf/d through the week ending Nov. 15, up only 1.8 Bcf/d year/year, the firm said. Demand is expected to make a step change higher during the second half of November, however, aligning with the traditional beginning of the withdrawal season.

At this early stage of the space-heating season, uncertainty is high, according to EBW. “A wide range of outcomes is still possible,” Weissman said.

Even if a pattern shift occurs in the next two weeks, bringing milder weather, model runs so far have not given clear indication regarding the duration or intensity of the milder weather. “If it proves to be short lived, gas prices could still retest earlier highs,” he said.

Then again, the market has become increasingly loose and production has once again reached fresh highs. Genscape reported Monday that its daily pipe production estimate pegs Saturday’s output at 84.43 Bcf/d.

Northeast Pennsylvania output during the past seven days has averaged more than 0.73 Bcf/d greater than the prior 30-day average, due largely to the boost from Atlantic Sunrise and other recent infrastructure additions. Rover receipts are also recovering with the conclusion of last week’s force majeure.

The gains in the East have been more than enough to offset some declines that have been occurring in Texas, as well as Offshore Gulf of Mexico (GOM) volumes that are still recovering from Hurricane Michael. Genscape estimated Monday’s GOM volumes at 2,671 MMcf/d.

“While that is nearly 1.19 Bcf/d greater than the low hit during the worst of Michael, it remains about 154 MMcf/d below the seven-day average before platform evacuations began,” Genscape senior natural gas analyst Rick Margolin said.

Spiking Demand Drives Up Spot Gas in East, West

Spot gas prices were mixed Monday as demand was set to increase as cool weather was expected to cover much of the Midwest to Northeast this week, with reinforcing cold shots dropping overnight temperatures into the 20s to low 40s, according to NatGasWeather.

Western prices also got a boost despite mild weather on tap for the week, continuing to respond to last week’s announcement from Enbridge Inc. that the 36-inch diameter pipeline, part of its Westcoast Transmission system that was damaged in an Oct. 9 explosion, would return to service by mid-November but only at 80% of its designed capacity.

Westcoast noted that capacity on its T-South system is expected to range between 0.9 and 1.3 Bcf/d throughout the winter as a result of these reduced operating pressures. By comparison, average southbound flows last winter at Station 4B were roughly 1.8 Bcf/d, “so this would still represent a cut of 0.5-0.9 Bcf/d of flows year over year,” Genscape natural gas analyst Joe Bernardi said.

Westcoast’s deliveries to Northwest Pipeline at Sumas had averaged about 1.0 Bcf/d prior to the explosion, and have been roughly in the 0.3-0.5 Bcf/d range since the partial restoration of flow capacity, Genscape said.

Prices throughout California and the Rockies put up substantial gains Monday, with the often volatile SoCal Citygate jumping 85.5 cents to $4.185 and Malin tacking on 14.5 cents to $3.345.

In the Rockies, Northwest Sumas shot up more than $1 to $7.785, while regional points along El Paso Natural Gas Transmission increased by more than 35 cents.

Meanwhile, Permian Basin pricing hubs, which had also strengthened since the Westcoast explosion due to the need to replace the lost supply with alternative sources, weakened Monday as part of a wider regional retreat due to a planned three-day maintenance set to begin Tuesday on Transwestern Pipeline that is expected to cut already constrained Permian outflows by roughly 275 MMcf/d.

Planned maintenance at the WT-1 Compressor Station in southeast New Mexico will reduce capacity from 612 MMcf/d to 272 MMcf/d. The previous 30-day average scheduled capacity at the compressor station is 548 MMcf/d, so 276 MMcf/d is at risk based on that measure, according to Genscape.

Over in the East, spot gas prices rose as demand was expected to increase due to notably colder-than-normal temperatures forecast for markets east of the Mississippi. Genscape meteorologists showed Lower 48 population-weighted heating degree days (HDD) increasing this week to a peak of about 106 by Thursday, which is nearly twice the norm for this time of year. The largest departures from normal were expected in East Texas and the Northeast.

On a national level, demand was projected to grow about 3.6 Bcf/d between Monday and Thursday, topping out Thursday close to 75 Bcf/d. Last winter didn’t break the 75 Bcf/d mark until the second week of November, Genscape said.

Meanwhile, planned pipeline maintenance led to greater volatility in the East. Texas Eastern Transmission (aka Tetco) was set to run a one-day maintenance event Tuesday on its Bedford, PA, compressor station.

Capacity from Bedford to Heidlersburg on Tetco’s southern M3 36-inch diameter line was expected to be reduced by as much as 550 MMcf/d, notably at Bedford where operating capacity will be reduced from 2,328 MMcf/d to 1,790 MMcf/d.

Although flows through Bedford have only averaged 1,720 MMcf/d during the last 14 days, flows spiked to as much as 2,120 MMcf/d in that time, Genscape natural gas analyst Josh Garcia said.

With chilly weather in store for the region, Texas Eastern M-3, Delivery spot gas jumped 14 cents to $3.195. Most other Appalachia points gained no more than a dime.

Northeast prices were mostly stronger, with Transco Zone 6 non-NY rising 16.5 cents to $3.225 and Tenn Zone 6 200L edging up 15.5 cents to $3.85.

In other pipeline news, Southern Natural Pipeline last Friday declared a force majeure due to a leak experienced while conducting maintenance on its South Section 28 line in Segment 340 in southern Louisiana. Several receipt locations are unavailable for flow, but these locations have not nominated receipts for some time, therefore no supply will be impacted, Genscape said.

Flows through Segment 340 have fallen by as much as 273 MMcf/d since the beginning of October. The fall in Segment 340 flows began several days before the force majeure was declared, but it is unclear if this was caused by the force majeure, Garcia said.

Meanwhile, federal authorities on Monday granted ANR Pipeline’s request to commence service on its Wisconsin South Expansion project, which will allow it to provide up to 230,950 Dth/d of firm transportation service to meet growing natural gas demand in Northern Illinois and Wisconsin.

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