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Natural Gas Cash Rallies on Frigid Temps as Potential for Cold January Spooks Futures Market

Short-term cold was enough to swing the natural gas market higher Tuesday, boosting January prices more than a dime even as weather data changed very little day/day. The Nymex January futures contract settled at $4.457, up 11.8 cents. February rose 14.8 cents to $4.305, and March edged up 16.9 cents to $3.937.

Spot gas prices continued to strengthen in regions were frigid weather had arrived, with substantial increases seen again on the U.S. East Coast. The NGI Spot Gas National Avg. climbed 4 cents to $5.025.

Futures market observers remained baffled by the large daily swings taking place at the front of the curve as weather data had not changed all that drastically in recent runs to warrant such sharp moves. “There haven't been recent colder trends to justify today's move higher, just like there weren't strong milder trends to justify yesterday's move lower,” NatGasWeather said.

Midday data didn't bring any surprises as a series of cold shots was still on track to impact much of the country the rest of this week and into early next week for strong national demand, according to the forecaster. Mild high pressure was expected to follow, however, covering much of the northern and eastern United States Dec. 12-17 and likely longer as the market waits on better potential for cold shots out of Canada to return to the northern United States.

Weather data still has yet to offer evidence of when this will occur. “The longer it takes, the longer bearish weather sentiment will reign after the current series of cold blasts ends,” NatGasWeather said.

Adding to the bearish sentiment is recent production data showing Lower 48 supply hitting a new record high. Genscape Inc. reported that production has jumped more than 1 Bcf/d since last Monday (Nov. 26.). On Friday, the firm said production had topped the 87 Bcf/d mark.

While it is common for scheduled nominations to ramp up at the end of the month, “we are also seeing some other factors at play, including intrastate pipeline system dynamics and new infrastructure projects,” Genscape natural gas analyst Nicole McMurrer said.

The firm saw production gains across a number of regions, including increases of around 255 MMcf/d in East Texas, around 500 MMcf/d in Permian Texas and around 170 MMcf/d in Permian New Mexico. Increases of about 200 MMcf/d were also seen in West Virginia, while northeast Pennsylvania saw gains of about 225 MMcf/d and the Gulf of Mexico saw gains of about 200 MMcf/d.

Genscape also saw a jump in production along Houston Pipeline intrastate pipeline interconnects, likely related to a drop-off in local demand over the last week as the cold spell of mid-November passed. “We tend to see nominations from intrastate interconnects drop when it is cold due to more gas being absorbed on the intrastate systems, and rise during a time of lower local demand as more gas is delivered to the interstate systems,” McMurrer said.

Still, the short-term cold and strength in the March contract indicate that storage concerns are once again elevated, according to Bespoke Weather Services. This is likely due to European weather models that as of Monday evening showed increased odds of significant cold in January that could spike prices, the firm said.

Meanwhile, cash strength and clear indications that burns and residential/commercial demand are tightening could also keep a bid under prices, “even if we still think risk is skewed lower with long-range warmth looking to linger and production set to recover back to highs shortly,” Bespoke chief meteorologist Jacob Meisel said.

“We would expect another $4.25 test through the week with a potential break lower if we keep losing long-range gas-weighted degree days, but first we have strong cash and a more supportive strip,” he said.

Cash Prices Rally on Frigid Temps

Spot gas prices continued to gain ground Tuesday as a strong cold blast covered the central United States, including areas of Texas and the South. The associated cold front was forecast to push through the East Tuesday, with national demand set to increase to strong levels as low temperatures behind the cold front were expected to reach zero to 20s across the northern two-thirds of the country, according to NatGasWeather. Texas and the South were forecast to see overnight lows drop into the 20s and 30s, the firm said.

Another strong cold front was expected to sweep across the Great Lakes and East this weekend and then linger into early next week, while a second milder system tracks across Texas and the southern United States with rain and snow, combining to keep national demand strong, NatGasWeather said.

Some of the strongest gains were seen in West Texas, where the recently struggling Waha jumped 85.5 cents to trade at $2.16. El Paso-Permian, however, dropped a dime to $1.545.

Longer term, Permian Basin pricing is expected to remain weak as the in-service of two key natural gas pipeline projects south of the border in Mexico have been pushed back, delaying more than 1.1 Bcf/d of anticipated debottlenecking relief for the U.S. supply region to May at the earliest, according to Genscape.

The data and analytics company last week received confirmation that Mexico’s Wahalajara and Samalayuca-Sasabe pipeline projects are delayed to May 2019 and 2H2019, respectively.

The Wahalajara system, which was expected to go into service in March, is a collection of three, Fermaca-built pipelines that will collectively connect Waha to central Mexican markets around Guadalajara and Villa de Reyes. Flows on Wahalajara were expected to push out Mexican liquefied natural gas (LNG) imports at Manzanillo. With its delay confirmed, Genscape has increased its forecast for Mexican LNG imports, particularly in March, April and May. During those same months, the firm is reducing its forecast for total US pipeline exports to Mexico by as much as 320 MMcf/d in April relative to its previous forecast.

“More specifically, our Permian export model was showing an increase of Permian-to-Mexico flows of 836 MMcf/d by March; that will now be delayed to May (barring further delays),” Genscape senior natural gas analyst Rick Margolin said.

Meanwhile, the delay of the 472 MMcf/d Samalayuca-Sasabe has no material impact on total U.S. pipeline exports to Mexico, but it does delay increases to Permian exports, according to Genscape. “These markets are already served by the El Paso South Mainline, which regularly hits constraints for westbound gas volumes. While the northwestern Mexico markets do have some demand growth, the main effect of Samalayuca-Sasabe is to displace EPNG supply to Mexico south through the Arizona border,” Margolin said.

Genscape had modelled increased Permian exports of 297 MMcf/d starting this month considering the expected in-service of Samalayuca–Sasabe, but the increase in exports is now delayed to July 2019.

Farther east, South Louisiana pricing hubs notched spot price gains of mostly 15-20 cents, although benchmark Henry Hub jumped more than 20 cents to $4.63.

Transco Zone 5 in the Southeast was up $1.38 to $6.08, slightly surpassing prices farther north along the Transcontinental Gas Pipe Line. Transco Zone 6 NY averaged $6.03 after gaining $1.29 on the day.

Northwest Sumas continued to fall as Westcoast Transmission postponed pipeline maintenance that would reduce Huntingdon capacity by nearly 700 MMcf/d. Instead of beginning Wednesday, the integrity digs on the pipeline will instead begin on Friday, with the largest capacity reductions taking effect on Saturday lasting through Monday.

Westcoast forecasts that southbound flow will be in the 0.85-0.90 Bcf/d range when the maintenance is in full swing. Until then, effective southbound flows are expected to remain in the 1.3-1.5 Bcf/d range.

Genscape meteorologists forecast cold weather for the Pacific Northwest during the next several days, although temperatures were expected to warm up by this weekend, “so this maintenance postponement may help to mitigate price spikes at Sumas through this week,” Genscape natural gas analyst Joe Bernardi said.

Northwest Sumas spot gas averaged $8.14, down 86 cents on the day.

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