• January natural gas prices plunge again; prompt month sheds 60 cents in two-day slide on mild rest of December
  • Weather models show significant cold not returning to the United States until after the new year
  • Storage deficit expected to tighten substantially during the next six weeks, alleviating concerns about supplies during peak winter month
  • Spot gas prices tumble further into $3 territory as mild temperatures expected across most of country

Just one trading day after January natural gas prices took out critical support at the $4 level, the prompt month on Monday set its eyes on $3.50 as weather outlooks indicated it could be after the new year begins before any truly cold air returns to the Lower 48. The Nymex January futures contract settled at $3.528, down 29.9 cents on the day. February tumbled 30 cents to $3.453, and March dropped 29.8 cents to $3.308.

Spot gas prices were mixed as points on both the East and West coasts strengthened while most other regions continued to come off recent highs. The NGI Spot Gas National Avg. fell 5.5 cents to $3.715.

On the futures front, once Nymex January futures tumbled below $4 resistance on Friday, there was no turning back as the prompt month began Monday’s session about 15 cents lower than Friday’s settle and then continued to weaken throughout much of the day. The January contract traded in a more than 20-cent range -- as high as $3.742 and as low as $3.516 -- before eventually settling just a few ticks above that level.

Bearish weather trends that began showing up in last week’s forecasts held firm Monday, with the latest data showing that any weather systems that move through the United States during the next couple of weeks will likely not be very cold.

There are still ways colder Canadian air could push into the northern United States Dec. 30-Jan. 1, but this is far from convincing and would require much more weather data to come on board for the natural gas markets to be persuaded, according to NatGasWeather.

“There will still be several strong weather systems impacting the U.S. over the next two weeks, such as one late this week that will sweep across the South and Southeast with rain and snow. But the main issue remains the same where U.S. weather systems just won't be very cold as they fail to tap the frigid Arctic cold pool that remains too far north into Canada,” the firm said.

Meanwhile, NatGasWeather said frigid air over Canada during the first week of January may either stall at the U.S. border or push across more aggressively, requiring close monitoring in case the colder scenario were to gain momentum.

Indeed, the Alaska Ridge is still expected to rebuild in early January, bringing seasonal to colder-than-normal temperatures to much of the country and sending cash market prices higher as demand potentially rises by as much as 15-20 Bcf/d, according to EBW Analytics Group.

“Once this begins to show up in the 15-day forecast, natural gas prices are likely to rebound sharply, potentially as early as the end of next week,” EBW CEO Andy Weissman said.

Furthermore, only one or two weeks of very cold weather in January or February could offset all or most of the impact of warm weather during the second half of December. If that were to occur, winter-month contracts could reach new highs for the 2018-2019 winter, EBW said.

For now, however, the near-term forecast, coupled with an expected decrease in industrial demand heading into the holidays, could lead to Nymex futures prices falling even further between now and Christmas, the firm said.

Perhaps more important from a physical fundamental perspective, the milder weather is expected to alleviate some of the concerns about low storage inventories before the peak of the winter season. During the past four weeks, the year/year storage deficit has exploded higher, adding just shy of 200 Bcf as cold November weather sharply increased demand relative to the year-ago period. Looking forward, however, the deficit is set to plummet, potentially losing 540 Bcf during the next six weeks, according to EBW.

“Although warmer December temperatures help contribute to the declining deficit, tough comparisons to last year's bomb cyclone -- which featured over 1.0 Tcf of withdrawals in four weeks -- will help erase up to 78% of the current deficit,” Weissman said.

Projections for a rapidly declining year/year storage deficit contributed to eroding support for Nymex futures last week, and unless weather forecasts shift notably colder soon, it may continue to do so, EBW said.

Spot Gas Firmly in $3 Range

Spot gas prices across most of the country continued to decrease Monday as mild high pressure was expected to dominate most areas this week. A fast-moving cold shot was forecast to sweep across the Northeast into Tuesday with a brief bout of subfreezing temperatures, but not nearly widespread enough to counter mild conditions elsewhere, according to NatGasWeather.

There was expected to be a strong weather system across the South late in the week with areas of rain and snow, but with the same issues remaining in play “where it won’t be able to tap frigid Canadian air and with large stretches of the rest of the country much warmer than normal,” the forecaster said.

Most regions posted losses between 20 cents and 30 cents as spot gas prices were firmly in the $3 range after falling from recent highs. In Texas, Houston Ship Channel tumbled 27.5 cents to $3.63, while Waha plunged 37 cents to $1.945.

Benchmark Henry Hub was down 26.5 cents to $3.63, but Midcontinent markets posted sharper decreases of as much as 71 cents at Southern Star, which fell to $2.94.

Appalachia pricing hubs also retreated even as flows began resuming following an explosion last week at the MarkWest Energy Partners LP Houston gas processing plant in Pennsylvania.

Plant owner MPLX LP said there were no off-site impacts, but Columbia Gas Transmission (TCO) released a critical notice late Thursday stating it had “sustained a loss of supply” because of the “MarkWest operational event near Washington County, PA,” which could result in loss of nominations. The Majorsville-LXP, Braxton and Gibraltar meters were listed as being impacted.

While nominations did not waiver at Braxton, nominations for gas day Dec. 14 at Majorsville-LXP decreased to 291 MMcf/d for the Intraday 1 cycle, versus 362 MMcf/d nominated the previous day via the timely cycle, before the explosion, according to Genscape. As of final cycle postings, Majorsville-LXP experienced at most a 76 MMcf/d day/day reduction, natural gas analyst Vanessa Witte said.

TCO on Friday afternoon indicated that all supply points were “stabilizing,” with the exception of Gibraltar. Before the explosion, Gibraltar was nominating on average roughly 140 MMcf/d. Nominations rose to 215 MMcf/d on Thursday (Dec. 13), from 139 MMcf/d the previous day, potentially to compensate for the loss elsewhere. But nominations then immediately went to zero for gas days Dec. 14-17 (as of evening cycle data), Witte said. TCO issued no more information.

Interestingly, nominations at the Harmon Creek location on Rover Pipeline, which is in the same county as the Houston Plant, dropped from 180 MMcf to 120 MMcf for last Thursday, then to zero on Friday, according to Genscape. “Nominations have since fully recovered, and no other significant disruptions have been noted on other pipes in the area,” Witte said.

TCO spot gas prices dropped 23.5 cents Monday to $3.455, in line with other regional price declines.

On the East Coast, Millennium Pipeline on Monday reported an outage near Neversink, NY, related to installing a crossover for a 36-inch diameter loop. As a result, capacity through the Wagoner East throughput meter has been limited to 560 MMcf/d for the duration of the event. Flows through the compressor have averaged 809 MMcf/d and maxed at 862 MMcf/d month-to-date; therefore, the outage is set to impact up to 300 MMcf/d, according to Genscape.

“Deliveries to Algonquin at the Ramapo interconnect will be curtailed, giving upside to AGT Citygate prices,” Genscape natural gas analyst Josh Garcia said.

Indeed, Algonquin Citygate next-day gas shot up $3.435 to $8.05, while several other Northeast points rose less than $1. The Millennium outage was expected to last through Thursday (Dec. 20).