Natural gas futures prices came crashing down Friday as weather models all trended warmer for the rest of December, easing some fears about adequate supplies this winter. The Nymex January futures contract plunged 29.7 cents to $3.827, the first sub-$4 settle for the January contract since Nov. 12. February dropped 27.4 cents to $3.753, and March tumbled 25 cents to $3.606.
Spot gas prices also posted substantial losses as mild weather was expected to linger across key demand centers for the next several days. The NGI Spot Gas National Avg. tumbled 34 cents to $3.77.
January futures first showed signs of buckling on Thursday when early gains were trimmed ahead of a bearish storage report that sent prices into negative territory before a rebound later in the session. Friday’s trading action was far more reflective of bearish market sentiment as the prompt month plunged below $4 in overnight trading and continued to weaken throughout the morning.
After some uncertainty about long-range weather trends, all weather guidance trended warmer overnight and even the coldest Global Forecast System model was milder by midday to better match the European data. “As a result, weather patterns were already solidly bearish through Dec. 22, and are now neutral to bearish Dec. 23-28, most bearish in the European model,” NatGasWeather said.
As far as details, colder air was still expected to arrive into the central United States Dec. 22-23, then quickly push into the east-central and eastern United States Dec. 24-26, leading to a swing to stronger national demand. The cold snap, however, was less impressive than what weather data showed during the first half of the week and where milder trends have occurred the past 24 hours, according to NatGasWeather.
Cold air was expected to shift from the eastern United States back towards the western part of the country Dec. 27-29, leaving the eastern half under mild high pressure and where the pattern was not nearly cold enough to intimidate, the forecaster said Friday. “Going into the weekend break, the natural gas markets are left to wonder when sustained frigid cold blasts will return to dominate the northern and eastern U.S. if bullish weather sentiment is to return.”
With the razor thin storage cushion a lingering concern throughout the winter so far, the natural gas market should see deficits improve by more than 100 Bcf with the coming mild weather, according to NatGasWeather. “...the longer it lasts, the more supply concerns ease for the core winter months of January and February unless more intimidating polar air shows better signs of threatening soon.”
There's likely to be very cold air over Canada around the start of the New Year, so frigid cold shots are possible into the United States around then, the forecaster said.
Indeed, until mid-January, there is always risk of a return of upside volatility if another cold snap materializes, according to commodity research group Societe Generale (SocGen). Watching weather through this holiday season will be very important for anyone and everyone that has a position “as we see the fundamentals clearly turning bearish ahead but the market sentiment not yet convinced,” SocGen natural gas analyst Breanne Dougherty said.
SocGen technical analysis highlighted $4.24/4.21 as an immediate support and $3.89/3.81 as a key floor. If/when managed money participants start to more widely exit their bullish position (as of week ended Dec. 7, the group was extremely net long, making it vulnerable to profit taking), the firm expects a bandwagon effect to take hold quickly, which will help drive prices lower.
Thursday’s 27-cent drop at the front of the futures curve likely indicates that some of that took place, and Friday’s lack of a reversal of that loss “tells us sentiment just may be starting to shift to be more in line with our view for the remainder of winter.”
Longer term, SocGen said it expects production growth to remain strong enough to flip current storage deficits to a year/year surplus by the end of the 1Q2019, assuming normal weather. “That surplus is expected to increase dramatically through 2019 courtesy of the strong production level that is already in place and the more muted year-on-year demand upside (assuming normal weather) in the first half of 2019 in particular,” Dougherty said.
As of Friday, however, production continued to post notable daily swings. In the Gulf of Mexico, a couple of the larger offshore production platforms were curtailing or shutting in production, according to Genscape Inc. There were no notices or maintenance scheduled for these platform outages, which may indicate field maintenance, the firm said.
“The drops are concentrated at the Auger platform connections with Garden Banks and KDWE, and MarsGath/Ursa on Mississippi Canyon. The Delta house platform on Destin was shut-in during the beginning of the month but has since resumed flows,” Genscape natural gas analyst Nicole McMurrer said.
In the Haynesville, the decreases were more concentrated on individual pipelines due to maintenance events. Columbia Gulf Transmission revised dates on one of its planned maintenance events to extend through Dec. 15 (instead of Dec. 1), which indicates a high potential impact to firm services, and outages for maintenance work related to pigging, valve maintenance and emission testing.
In the Permian Texas sample, Genscape showed substantial drops on the intrastate interconnects. “This often happens during cold weather spells and does not necessarily mean that there is a true drop in production. More likely, gas is being absorbed on the intrastate systems to serve higher local demand,” McMurrer said.
Genscape also was seeing a similar story play out in Ohio, where the Dominion East Ohio, Eureka Hunter Pipeline, Eureka Midstream and Ohio River System interconnects were down. Receipts from the Kensington gas processing plant were also down slightly.
Northeast Pennsylvania production was down mainly on Transcontinental Gas Pipe Line at Tomb’s Run, with a smaller drop along Tennessee Gas Pipeline at Teel. “Neither pipeline has any notices or maintenance posted that would explain these drops, however, when we see production declines at individual points and on individual pipelines, it’s more likely that it would be some sort of field maintenance or repair than freeze-offs, where we would see production drops across a number of points and pipelines,” McMurrer said.
Southwest Pennsylvania flows told a similar story, down mainly at the Steinmiller point on Dominion Transmission, according to Genscape.
Spot Gas Plunge
Spot gas prices were overwhelmingly lower Friday as most of the country was expected to have mild weather through early in the upcoming week. The exception was in the South and Southeast as a strong weather system was forecast to sweep across those areas during the next couple of days with areas of rain, and as much as 7 inches of snow in some areas, according to AccuWeather.
Some of the heaviest rainfall from the storm was expected to fall from Florida to the Carolina coast. Low-lying areas in cities near the coast could be especially vulnerable, including Charleston, SC, and Tampa, FL, the forecaster said.
Meanwhile, other parts of the country were expected to be mostly mild, with high temperatures forecast in the 40s and 50s across the northern tier and 60s to locally 70s elsewhere, according to NatGasWeather. A fast-moving weather system was expected to race across the Northeast early in the week ahead with colder temperatures, but remaining mild over the rest of the country.
Additional weather systems were expected late in the upcoming week, “just not very cold ones,” the forecaster said.
The expected drop in demand led to dramatic 30-cent-plus decreases at most pricing hubs across the United States, with even steeper drop-offs in California and the Rockies. Points along the El Paso Natural Gas System in the Rockies fell more than 40 cents day/day as did Stanfield, which hit $3.97.
In California, PG&E Citygate was down 36 cents to $4.295.
One of the sharpest declines in the Northeast was seen at Tenn Zone 6 200L, where spot gas plunged 74 cents to $4.625. Other regional markets fell between a quarter and $1, and Appalachia points posted similar decreases.
Benchmark Henry Hub spot gas was down 33.5 cents to $3.895, while Southeast prices saw similar losses.
On the pipeline front, Gulf South was scheduled to perform overlapping maintenance on two main compressor stations in Louisiana. A notice of maintenance to the McComb compressor station in Tangipahoa County affecting Segment 130 was scheduled to be completed on Dec. 29 and cut capacity through the segment by 97 MMcf/d, according to Genscape.
Maintenance to the Delhi compressor station in Richland County affecting Segment 150 is set for Dec. 17- 22. Capacity on this segment will be cut by 136 MMcf/d, Genscape said.
Gas flows through the McComb and Delhi compressor stations have averaged 650 MMcf/d and 163 MMcf/d during the past 30 days. “With these restrictions in place, approximately 233 MMcf/d of gas flows will be cut on Gulf South,” analyst Dominic Eggerman said.
Even though East Texas and Louisiana were forecast for colder temperatures beginning Friday, temperatures were expected to gradually ease to seasonal norms by the middle of the week.
Meanwhile, West Texas markets recorded the only gains in Friday trading, although outright prices still trailed other hubs by well over $1. Waha spot gas jumped more than 20 cents to $2.315.