• January Nymex down 13.8 cents to $4.407; February down 10.2 cents to $4.258
  • “As expected, models are showing that the return of cold will likely be delayed to the end of December,” says Bespoke
  • Production to pressure Henry Hub prices lower in 2019: EIA
  • Lower 48 production posting large swings over past two weeks: Genscape

Natural gas futures sold off across the winter strip Tuesday as markets awaited further clues on the timing and strength of a potential return to colder temperatures later this month. In the spot market, prices sold off across most of the Lower 48 on expectations for milder national demand over the next few days, though points in volatile New England lurched higher; the NGI Spot Gas National Avg. fell 8.0 cents to $4.545/MMBtu.

The January Nymex contract tumbled 13.8 cents to settle at $4.407 after trading both sides of even -- as high as $4.587 and as low as $4.348. February settled 10.2 cents lower at $4.258, while March settled at $4.041, down 9.5 cents.

“The natural gas market continues to keep everyone on their toes,” said Bespoke Weather Services. The firm pointed to colder Global Ensemble Forecast System guidance heading into Tuesday’s session that “initially tried to break prices higher before warmer European model guidance pulled prices back lower.

“As expected, models are showing that the return of cold will likely be delayed to the end of December, and though after Dec. 25 we could see a weak cold shot, the real cold risks should wait until January,” the firm said. “...This is not to say that cold will not arrive; into early January we see cold risks increase, and once they are more consistent and pronounced on weather models we expect prices to rally significantly (and the market is still jumpy enough that we struggle to turn sentiment fully bearish outside of the short-term).”

Radiant Solutions noted mixed changes to its latest six- to 10-day forecast Tuesday, with the South trending colder and the West warmer. The latest forecast showed no major changes for the Midwest and East, and above normal temperatures are still expected from coast to coast during the period.

In the 11-15 day, “models continue to advertise a changing pattern during this period, with Pacific flow waning as a ridge builds through Alaska,” Radiant said. The negative Eastern Pacific Oscillation “response is often one taking on colder themes in the U.S., and the forecast, which begins with widespread above to much above normal temperatures in the eastern half, allows for warmth to ease as the period progresses.

“Below normal temperatures are expected to return to parts of the West in the early half,” according to the forecaster. “It is not clear if cold in the West will make its way eastward, and the forecast is slow with this potential on a warmer forcing out of the tropics.”

On the supply side, Lower 48 production volumes have posted large swings over the past two weeks, according to Genscape Inc. The firm’s daily pipe production estimate showed volumes hitting a new record high of 88.1 Bcf/d on Nov. 30, but output has since posted average daily day/day swings of more than 0.52 Bcf/d.

Tuesday’s estimate showed volumes swinging 1.38 Bcf/d lower versus Monday, dropping total output to a 27-day low of 84.6 Bcf/d, according to Genscape senior natural gas analyst Rick Margolin. He pointed to an estimated 562 MMcf/d decline in output from the Permian Basin coinciding with a force majeure on NGPL’s Permian Zone Segment 8.

Northeast production was down nearly 530 MMcf/d in Tuesday’s estimate, while Rockies production was showing a drop of more than 0.4 Bcf/d, Margolin said.

Natural gas production growth in 2019 should continue to apply downward pressure on Henry Hub prices in the year ahead, according to the latest Short-Term Energy Outlook from the Energy Information Administration (EIA). EIA said it expects Henry Hub to average $3.11 for 2019, 6 cents below the 2018 average.

Meanwhile, catalyzed by a strong start to winter heating and large storage deficits, November natural gas prices saw their highest volatility in nearly two decades, according to EIA.

“Concerns about low storage levels with winter weather approaching contributed to an increase in volatility in natural gas futures prices,” EIA said. “Natural gas implied volatility averaged 77% in November, much higher than the five-year range and the highest volatility in November in 17 years.

“In contrast, implied volatility reached the lowest levels ever recorded for the natural gas front-month contract during the summer, but it re-emerged at the end of this year's injection season when inventories remained lower than historical levels. Throughout November, the increasing storage deficit to the five-year average, along with forecasts of colder temperatures, likely contributed to the increase in implied volatility.”

Moderating Demand Drops Spot Prices

Day-ahead prices throughout the Midwest, Midcontinent and Gulf Coast dropped around a dime Tuesday, coinciding with an anticipated decline in national demand as temperatures moderate this week.

“Mild high pressure will gain ground across the central, northern and eastern U.S. the next few days, easing national demand as highs of 40s to 60s become widespread across the country, locally 70s across the far southern U.S./Texas,” NatGasWeather said Tuesday. “A weather system currently tracking through the West will push into Texas and the South for the second half of the week with rain, snow and colder than normal temperatures, but really this is the only cool feature as most of the country remains milder than normal.

“There will be several additional weather systems impacting the U.S. late this weekend and next week, but with only brief shots of colder air.”

In Louisiana, benchmark Henry Hub eased 0.5 cents to $4.500, while in East Texas, Katy slid 13.5 cents to $4.280. In the Midcontinent, NGPL Midcontinent fell 8.5 cents to $4.015.

A force majeure Monday morning shut in NGPL’s 200 MMcf/d “Markwest/NGPL Bryan” interconnect with Arkoma Connect Pipeline in Bryan County, OK, according to Genscape analyst Matthew McDowell. A gas leak detected at the interconnect prompted the force majeure, which was expected to keep the interconnect offline through Tuesday’s gas day.

“The Arkoma Connect Pipeline houses other interconnects with Gulf Crossing and Midcon Express in addition to NGPL,” McDowell said. “These three points have averaged 530 MMcf/d in receipts from the ‘Arkoma No. 1’ gas gathering interconnect. Receipts at the ‘Markwest/MEP Bennington Bryan’ interconnect on Midcont Express shouldered the bulk of the reroutes, jumping 150 MMcf” as of Monday’s Timely cycle.

“About 80 MMcf of Arkoma basin gas was shut in at the gathering system as NGPL and Arkoma adjusted volumes down for Intraday 1 Monday, while Midcon and Gulf Crossing did not adjust nominations up until Timely and Evening cycles.”

Meanwhile, forecasts showing lingering chilly temperatures in the Boston area helped drive up prices in constrained New England Tuesday as East Coast points further south moderated.

Radiant Solutions was calling for lows in Boston to remain in the mid to low 20s through Thursday before easing into the upper 20s by Friday. Thursday’s temperatures were expected to average about 8 degrees cooler than normal, according to the forecaster.

Algonquin Citygate shot up $1.980 to average $9.195 Tuesday as an operational flow order implemented late last week remained in effect on the oft-congested Algonquin Gas Transmission system.

Potentially adding to constraints in the region, Tennessee Gas Pipeline (TGP) declared a force majeure Tuesday at its Station 323 near Lachawaxen, PA, after discovering an issue at one of the station’s units requiring repairs. TGP told shippers it expected the event to impact up to 200,000 Dth flowing through the station.

Further south, Transco Zone 6 NY and Transco Zone 5 each shed about 60 cents.

Radiant’s forecasts Tuesday showed cold in New York, Philadelphia and Washington, DC, moderating into the weekend, with temperatures in the 20s and 30s Tuesday expected to warm into the mid 30s to lower 50s by Friday.

In the West, prices sold off heavily across a number of locations in the Rockies, California and Arizona/Nevada. SoCal Citygate fell $1.235 to $7.300.

Utility Southern California Gas as of Tuesday was projecting system demand to total just above 2.9 Bcf/d Wednesday before easing slightly to just under 2.8 Bcf/d Friday. The import-constrained utility’s receipts were expected to remain capped at around 2.5-2.6 Bcf/d this week.