Natural gas futures slid over the holiday weekend and Monday, with indications of a milder pattern developing for mid-December potentially discouraging the bulls. In the spot market, prices generally followed the futures lower, while constrained West Texas points saw prices veer into negative territory for the first time on record in the United States; the NGI Spot Gas National Avg. dropped 60.0 cents to $4.295/MMBtu.
After dipping below the $4 mark in the early morning hours Monday, the December Nymex futures contract ultimately settled at $4.249, near the session’s $4.282 high but down 6.0 cents from Friday’s settle. January settled at $4.299, down 5.6 cents, February settled 7.8 cents lower at $4.184 and March settled at $3.966, down 7.6 cents.
On their own, weather trends haven’t justified the drop in prices going back to the high set following last week’s bullish Energy Information Administration (EIA) storage report, according to NatGasWeather.
“From the technical side, once December 2018 prices failed to break through resistance of $4.75-4.80 for the fourth time Wednesday, prices went into freefall,” the firm said.
The midday Global Forecast System data was slightly colder overall, showing a less impressive break for the eastern half of the country this weekend and trending colder for systems expected to sweep across the country Dec. 5-9, according to the forecaster.
“However, recent weather data suggests a milder break is increasingly possible around Dec. 11-14 but still with more to prove that far out,” NatGasWeather said. “Again, certainly not a bearish pattern with potentially the strongest cold shots so far this season Dec. 5-10, but clearly not impressive enough for the natural gas markets...Overwall, weather sentiment is seen as bullish through Thursday, bearish Friday through the coming weekend, then back to bullish Dec. 5-10.”
Noting looser balances, Bespoke Weather Services said it was surprised that prices didn’t pull back further on European guidance Monday that “perfectly showed the mid-December warm risks we have been watching so closely.
“This is temporarily keeping confidence a bit lower as there could be increased volatility and seeming irrationality around options expiry” Tuesday and into the expiration of the December contract on Wednesday, the firm said. “With some Week 2 cold risks and sentiment still seemingly bullish with dips being bought, this could keep prices from moving back below $4 at least in the short-term.
“However, a combination of near-term warm trends and rapidly increasing mid-December warm risks have us keeping sentiment slightly bearish, as should the long-range European model forecasts translate into the medium-range as we expect the front of the natural gas strip could get hit quite hard.”
Negative Trades in West Texas
Coming off an extended weekend, physical markets sold off across most of the country, including steep declines for New England locations that had traded at elevated levels ahead of wintry weather in the region over the Thanksgiving holiday.
Points throughout the middle third of the Lower 48 saw discounts Monday as benchmark Henry Hub shed 44.5 cents to average $4.235, brining it in line with the front month futures contract ahead of this week’s expiry.
But it was steep declines in constrained West Texas that caught the eye Monday, as prices veered into negative territory at Waha and El Paso Permian, with transactions as low as negative 1.0 cents recorded at both locations.
In Western Canada, spot prices at AECO and Westcoast Station 2 have traded in the negatives in recent years coinciding with extreme takeaway constraints impacting producers there. However, this marks the first time NGI has published a negative spot price trade in the United States, Daily GPI historical data show.
Monday’s prices mark a new low for Permian Basin producers struggling to find avenues to get their gas to market. With indications of both crude oil and associated gas output overwhelming the existing pipeline infrastructure, the region has seen wide negative basis differentials that only seem to be worsening.
At a recent conference, RBN Energy LLC’s Rusty Braziel described the problems in the Permian as a severe case of “takeaway capacity disorder” that could get worse before it gets better.
Gas constraints came into focus beginning in 2016 as gas-heavy wells were developed in the Delaware sub-basin, led by Apache Corp.’s Alpine High project. By early this year, routes from the Waha hub in West Texas were nearly tapped out. Then price differentials blew out.
“And we have not seen the worst of the capacity constraints,” Braziel said.
In the Midcontinent, a few locations managed to buck the trend, posting small gains as other points in the region dropped by around 15-20 cents. Southern Star added 1.5 cents to $4.465.
On Tuesday, Southern Star was expected to begin pigging sections of its 315 pipeline segment in Oklahoma from Texas County to Grant County, according to Genscape Inc. analyst Dominic Eggerman. The pigging, expected to end Sunday (Dec. 2), could reduce operational capacity through Straight Blackwell in Beaver County, OK, by 49%.
“The 315 segment feeds into the Blackwell compressor station in Kay County, OK, which transports gas onto Southern Star’s Market Zone in Arkansas and Missouri,” Eggerman said. “Gas flows through Straight Blackwell have averaged 236 MMcf/d over the past 30 days, and will be cut by around 106 MMcf/d for the duration of the maintenance. Demand for natural gas in Arkansas and Missouri reached a six-month high of around 3.17 Bcf/d on Nov. 13 thanks to cold weather affecting much of the mainland United States. However, demand has now fallen back to average levels of around 1.4 Bcf/d.”
The declines in New England came even as forecasters were calling for wintry precipitation to hit the Northeast early this week.
“The system that dropped over a foot of snow across parts of the Mississippi Valley and the Upper Great lakes this past weekend has come to an end across that region with mainly only light snows remaining across parts of the Ohio Valley,” the National Weather Service said Monday. “Heavy snowfall, however, will begin impacting parts of New England” by Monday night, coinciding with a new surface low developing along the Northeast coastline.
“Accumulations of six-to-12 inches are possible from upper New York state to northern Maine, where winter storm warnings and winter weather advisories are in effect. The backside of this system will feature a lake effect snow event as cold air moves over the still relatively warm lake surfaces. Significant accumulations of 10-plus inches may be possible in the most persistent bands, especially for locations downind of Lakes Erie and Ontario.”
With chilly temperatures in the forecast for the Southeast and Mid-Atlantic this week, Transco Zone 5 tacked on 18.0 cents to $4.955.
Radiant Solutions was calling for temperatures in Washington, DC, to drop to around 9 degrees below normal by Wednesday, including lows in the low 30s. The forecaster was also calling for lows in the upper 20s to low 30s in Atlanta Tuesday and Wednesday.
In the West, a number of locations throughout California and the Rockies traded at a premium to Henry Hub amid forecasts for precipitation and ongoing pipeline constraints.
After dry conditions over the weekend, moderate rainfall was moving into the Pacific Northwest Monday, according to the NWS.
“Rain and higher elevation snow will continue through Tuesday -- stretching down into Northern California and the northern Rockies,” NWS said. The forecaster was calling for snow and ice accumulations in the Washington Cascades Monday. “High elevation snow can also be expected for the northern Rockies along with the Sierra Nevada mountain range Tuesday afternoon through early Wednesday morning.”
In the Rockies, Northwest Sumas climbed to $10.630, up $2.720 on the day as prices there remain volatile in the aftermath of an October pipeline rupture in British Columbia that has restricted southbound flows on Enbridge Inc.’s Westcoast system. Northwest Sumas set an all-time high on Nov. 15 when prices there traded as high as $100 on the way to averaging $69.245.
Enbridge notified shippers that capacity through Westcoast’s Huntingdon Delivery Area would total just above 1.1 million GJ for Tuesday’s gas day, down slightly from a little more than 1.2 million GJ over the weekend.
Utility Southern California Gas Co. was forecasting system demand of close to 2.5 million Dth/d for the next several days based on projected composite weighted average temperatures of about 60 degrees. With forecast receipts of just under 2.4 million Dth/d, the utility was expecting to carry out daily storage withdrawals through at least Thursday (Nov. 29).