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Overpriced January Natural Gas Tanks on Mid-December Warmup; Spot Gas Rises on Cold

Although last week offered glimpses of warmer temperatures forecast to arrive by the middle of December, recent volatility in weather models kept natural gas market bears treading lightly. That changed Monday when milder weather trends rolled into the medium range, sustained warmth to close out the month became a possibility and production data pointed to a new high.

The Nymex January futures contract ultimately tumbled 27.3 cents to settle at $4.339. February was down 26.2 cents to $4.157, and March was down 24.6 cents to $3.768.

Spot gas prices, meanwhile, were mixed but mostly stronger as a cold blast pushed through the central United States beginning this past weekend and was expected to continue into Texas, South and the Ohio Valley on Monday and then finally through the East Tuesday. The NGI Spot Gas National Avg. shot up 31.5 cents to $4.985.

On the futures front, the Nymex January contract opened the session less than a dime below Friday’s settle but then plunged as much as 33 cents shortly thereafter as mid-December warmth became more clear. The prompt month managed to regain some ground later in the morning, but midday weather data quickly pushed prices lower again, and January went on to settle near its intraday low.

“...while weather patterns are quite bullish the next seven days, the mild mid-December ridge is clearly weighing on prices to open the week as the markets await word on when strong cold blasts will return during the second half of the month,” NatGasWeather said.

Forecasts showed mild high pressure gaining in coverage and strength across the central and southern United States on Dec. 11 and 12, then into the East Dec. 13-16, easing national demand as temperatures warm above normal in most areas except the West and portions of the central part of the country, according to NatGasWeather. The firm expected the mild ridge to weaken somewhat around Dec. 16-17 as a weather system was forecast to track out of the central United States, “which was colder in some of the mid-day data, but would still need to trend a bit colder if national demand would be expected to return back above normal.”

For its part, Bespoke Weather Services said it expects gas-weighted degree days (GWDD) to fall back below average beginning next week, and then remain near seasonal levels for the following 15 days. If anything, there are risks that forecasts lose GWDDs, “especially as long-range warmth continues rolling forward as well.

“Accordingly, we expect bearish weather trends through the week, and do not yet see an end to the warmer pattern and warmer risks displayed at the end of weather model runs, though would expect cold to begin to return late in December into January,” Bespoke chief meteorologist Jacob Meisel said.

Meanwhile, storage levels are low enough to still keep a bid at the front of the natural gas strip moving forward and keep Bespoke extremely sensitive to any colder forecast revisions. Outside the cold weather, however, the market does seem loose enough to ease storage concerns some, he said.

Last week, the Energy Information Administration (EIA) reported a 59 Bcf withdrawal from storage that was far below market estimates. Some of last week’s miss may have been due to holiday demand destruction that was under-forecast, Meisel said, and accordingly, “it is difficult to read all that much into it and declare the market as structurally much looser. However, we clearly see the importance of non-linear demand increases in significant periods of cold weather.”

Indeed, with storage at multi-year lows, local distribution companies have been aggressively buying gas in the cash market to avoid further depleting storage this early in the season, according to EBW Analytics. The resulting strength in cash prices “should sustain support for the January contract at $4.29 or above” absent a major further warmer forecast shift, EBW CEO Andy Weissman said.

This week’s EIA storage report will be postponed to 10:30 a.m. Friday due to the closing of federal government offices and financial markets on Dec. 5, which the White House has designated as a day of mourning in honor of former President George H.W. Bush, who died Nov. 30.

Spot Gas Rises as Cold Air Arrives

Spot gas prices strengthened Monday as cold air moved across the country and was on track to reach the East on Tuesday. With cold air becoming established during the next couple days, strong national demand was forecast due to widespread low temperatures of subzero to 20s across the northern two-thirds of the country and 20s and 30s into Texas and the South, according to NatGasWeather.

Meanwhile, another strong cold shot was expected to follow across the Great Lakes and East this coming weekend, while a second milder system was due to track across Texas and the southern United States. The combination of the two systems was expected to keep national demand strong, the forecaster said.

In the immediate term, next-day gas prices were strongest in the Rockies and out West, where the cold weather was exacerbated by pipeline import restrictions in both regions and storage limitations in southern California.

Southern California Gas (SoCalGas) announced on Friday, however, that it had reached a long-term agreement with the Morongo Band of Mission Indians regarding rights-of-way (ROW) for two significant import lines. The parties agreed to terms that would renew the ROWs for SoCalGas’ Line 5000 and Line 2001. The local distribution system for gas to the Morongo Reservation near Cabazon, CA, is also covered. Approval for the agreement is pending from the Bureau of Indian Affairs (BIA.)

Should this agreement receive approval from the BIA, it will secure this critical import capacity for SoCalGas and preclude additional volatility, according to Genscape Inc. “Loss of Line 5000 would have reduced capacity through SoCal’s Southern Zone by several hundred MMcf/d. The loss of capacity on other import lines and the ongoing restrictions on the use of Aliso Canyon have led to highly volatile gas prices in southern California,” Genscape natural gas analyst Joe Bernardi said.

SoCal Citygate spot gas dropped 31.5 cents, but at $13.31 easily remained the highest priced locale in the country.

At Northwest Sumas in the Rockies, increasing Canadian imports sent next-day gas plunging $1.775 to $9.00. Enbridge Inc. on Friday received National Energy Board (NEB) approval to restore additional flows on its Westcoast Transmission at the Huntingdon delivery area, increasing operational capacity there by roughly 400 MMcf/d to around 1.4 Bcf/d.

“Additional maintenance scheduled for this week will damper this flow increase somewhat, but this development still represents a significant increase relative to Westcoast’s previous forecasts for winter flow capacity after the explosion,” Bernardi said.

Huntingdon and Station 4B South are the two southbound throughput meters on Westcoast that have had their operational capacities reduced following an explosion on Oct. 9. “For the past several weeks, Huntingdon capacity has been lower than Station 4B South capacity, but that relationship is expected to flip following this NEB approval for the Huntingdon capacity increase,” Bernardi said.

About 50% of Huntingdon capacity flows into the United States at the Sumas border point to Northwest Pipeline (NWPL), resulting in extreme Sumas basis spikes and volatility since the flow disruption.

Off the NWPL system, Kern River jumped 13 cents to $6.815.

That’s not to say other markets have been immune to volatility. Next-day gas in the constrained New England region shot up by several dollars Monday as demand was set to jump on Tuesday. Genscape projected New England demand reaching 3.56 Bcf/d on Tuesday, up 0.69 Bcf/d from Monday, but then sliding back below 3 Bcf/d by Wednesday and remaining just slightly above that level for the rest of the week.

Algonquin Citygate next-day gas rocketed up $6.575 to $11.60.

Transco Zone 6 NY spot gas was up only 38.5 cents to $4.74 even as Genscape projected that Appalachia demand would increase by 1.72 Bcf/d to 13.45 Bcf/d for Tuesday and then climb to a weekly high of 14.72 Bcf/d by Friday.

On the flip side, the cooler weather across Texasand the Southeast led to lower prices in those areas. Henry Hub lost 17.5 cents to hit $4.39, while Houston Ship Channel was down less than a nickel to $4.555.

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