Natural gas bulls were stirring Monday, with the futures market taking its cues from volatile forecasts to figure out a fair price as lean storage and the onset of winter heating drive risk premiums.
In the spot market, a sudden drop in Permian Basin production over the weekend prompted big gains in West Texas, while points across the Lower 48 strengthened on the arrival of colder temperatures; the NGI Spot Gas National Avg. climbed 42.5 cents to $4.055/MMBtu.
December Nymex futures settled 6.9 cents higher at $3.788. But the settlement failed to tell the story of a whiplash-inducing day that saw the front month reach as high as $3.907 early in the morning before dipping as low as $3.735 just hours later around lunchtime on the East Coast, only to then bounce back to trade up around $3.90 shortly after 4 p.m. ET.
The January contract settled 7.9 cents higher at $3.800, while February added 9.4 cents to settle at $3.660.
“It was another wild day in the natural gas market,” said Bespoke Weather Services. The firm attributed the early morning gains to strong cash prices, with the midday dip and afternoon gains corresponding with shifts in the latest midday and afternoon guidance.
“Model guidance remains incredibly volatile, and we still see prices almost solely trading off individual weather model runs and morning cash prices,” the firm said. “This trend seems unlikely to stop” Tuesday given that heating degree days are expected to peak Wednesday and drive even stronger spot prices.
Prices could “quickly fall on any long-range warming trends,” but “there is simply too much blocking downstream on long-range model guidance to get bearish here,” according to Bespoke. “This makes it less likely that any significant cash rally” Tuesday “gets as heavily sold into.”
The afternoon European guidance trended colder for the first half of next week, coming into better alignment with the Global Forecast System (GFS), according to NatGasWeather.
“The European ensemble data still has a decent break Nov. 22-25, just not quite as impressive as it once advertised but also holding not as cold as the GFS,” the forecaster said.
The forecast shift Monday afternoon would see the Energy Information Administration (EIA) report an above-average storage withdrawal three weeks from now, versus a withdrawal that was previously expected to come in lighter than normal, according to NatGasWeather.
“Bigger picture, deficits will marginally improve off this week’s slightly larger than normal build, then they’re set to rocket over 650-675 Bcf once next week’s report accounts for cold temperatures this past weekend and this week,” NatGasWeather said. Monday’s price swings showed the market struggling to establish a fair price and imply “strong volatility in the days ahead, and not necessarily in the direction of weather trends until fair price has been established.
“With that said, the background state remains solidly bullish, and will remain so for quite some time until deficits finally are notably reduced. To our view, if the last week of November shows decent cold shots into the northern and eastern U.S., any modest sell-offs will find buyers.”
West Texas Spikes Erase Basis Differentials
Huge gains that all but erased basis differentials at typically export-constrained West Texas pricing points stood out in Monday’s spot market action. The gains coincided with reports of a natural gas liquids (NGL) pipeline disruption over the weekend and a dip in production.
El Paso Permian more than doubled Monday, jumping $2.070 to average $3.765, while Transwestern picked up $2.445 to average $3.830. In the Rockies, El Paso Bondad and El Paso San Juan both posted similarly large gains to average close to $4, as did Transwestern San Juan.
The DCP Sand Hills pipeline -- designed to transport NGLs out of the Permian and Eagle Ford Shale to Mont Belvieu, TX -- was damaged over the weekend, according to RBN Energy LLC analyst Jason Ferguson, who pointed to a local news report of a pipeline fire in Sutton County, TX.
“This has caused many processing plants to shut down, some partially, others fully,” Ferguson told NGI. “The reduced gas residue (natural gas leaving a processing plant) supply to gas pipelines caused the price jump in natural gas.”
El Paso Natural Gas (EPNG) warned shippers Sunday that it was “starting the day with lower linepack than anticipated due to supply underperformance” in the Permian resulting from a loss of an unnamed NGL pipeline. The operator had a strained operating condition in effect Monday morning for its “IBLYTHE,” “DSRP PHX,” “ILUNAPWR” and “DTEP S78” locations.
EPNG also said that the Washington Ranch storage facility was on “maximum operational withdrawal,” and that “underperformance caps have been placed and will continue to be placed on underperforming supplies.” For Monday’s gas day, EPNG capped receipts from the “IPHGOLDS,” “ITRICRWN,” and “IFOXHILL” points to 0 Dth/d, while a performance cap at the “IRAMSEYN” point was lifted as of Monday.
Genscape Inc.’s daily pipeline production estimates as of Monday morning showed downward revisions in output from the Permian Texas and Permian New Mexico. Monday’s total production estimate was down about 620 MMcf/d from estimates on Nov. 10, according to analyst Nicole McMurrer.
Meanwhile, more than 345 MMcf/d of Permian flows on Northern Natural Gas could be disrupted due to maintenance scheduled to begin Tuesday and continue through Sunday (Nov. 13-18), according to Genscape analyst Matthew McDowell.
Elsewhere, physical prices increased almost across the board Monday amid expectations for wintry temperatures to drive up heating demand this week. Henry Hub day-ahead prices picked up 16.0 cents to $3.940.
A strong cold blast was hitting the Plains into North Texas Monday, with a secondary front expected to make its way across the Great Lakes, then across the Ohio Valley and East over the next few days, according to NatGasWeather.
“With lows an impressive 20-35 degrees colder than normal, national heating demand will be very strong,” the forecaster said. “A brief break between cold shots is expected late Thursday and Friday, which is a touch milder compared to late last week.
“However, another strong cold blast is expected to impact the central, southern and eastern U.S. late Saturday through Monday, stalling mild high pressure from setting up by yet another one to two days and where colder trends held compared to late last week.”
In the Midwest and Midcontinent, Chicago Citygate added 12.5 cents to $4.040, while Northern Border Ventura added 8.5 cents to $4.080.
In the Northeast, most New England locations strengthened, while Transco Zone 6 NY eased 2.0 cents to $3.955.
Radiant Solutions was calling for lows in Boston and New York to hover in the low-40s Tuesday before dropping into the 30s Wednesday and Thursday, about 10-12 degrees colder than normal.