January natural gas prices on Tuesday recovered half of the last two trading days’ 60-cent plunge as the prompt month bounced off support, despite mostly mild weather on tap for the remainder of the year. The Nymex January gas futures contract was strong right out of the gate but then went on to settle a few ticks shy of its intraday high at $3.838, up 31 cents on the day. February climbed 28.9 cents to $3.742, and March rose 25 cents to $3.558.
Spot gas prices also rebounded Tuesday, although gains were small and overshadowed by ongoing steep declines in the Northeast as well as the Rockies. The NGI Spot Gas National Avg. dropped 9.5 cents to $3.62.
On the futures front, natural gas prices were strong even before the market’s open as the Nymex winter contracts had jumped more than a dime by 8:30 a.m. ET. Prices continued to strengthen throughout the morning, then held fairly steady at midday before spiking again in the last hour of trading.
Tuesday’s rally occurred even as weather outlooks continued to show mild weather through the rest of the year. As such, the rally was seen as more technical in nature and not having anything to with weather patterns, according to NatGasWeather.
In fact, while a series cold shots were forecast across the central and northern United States next week, these “won’t be nearly frigid or widespread enough to increase national demand above normal,” the forecaster said. Furthermore, weather systems forecast into the West during the coming weeks were expected to enhance mild high pressure over the important East, and where demand won’t be strong enough to impress.
The weather firm said it continues to look to Dec. 31-Jan. 3 for the next opportunity for more intimidating cold shots to push into the northern United States out of Canada. The midday data on Tuesday continued to tease it, especially across the East, although the cold front “would likely only bring neutral sentiment, requiring greater coverage of subfreezing air if it's to be considered bullish,” NatGasWeather said.
Until then, the extended mild spell should vastly improve the current storage situation. Deficits could go from 723 Bcf back towards 600 Bcf and potentially 575 Bcf, according to the firm.
Analyst Energy Aspects said based on 10-year normal weather, its balances were pointing to an end-December storage inventory carryout near 2.5 Tcf, but the mild forecast has pushed that carryout up to 2.54-2.55 Tcf, still well below the polar vortex in December 2013.
“While that additional 50 Bcf does not totally offset the weather-aided demand gains from November’s abnormal cold, it does account for a meaningful portion. As such, this swing puts our end-March inventory estimate closer to 1.35 Tcf (making no allowance for freeze-offs), which is still not a level that suggests the market is out of the woods in terms of deliverability, with more than 90 days of the heating season still to go,” Energy Aspect analysts said.
Meanwhile, even though weather has been the headline grabber in recent days, softening production mostly because of pipeline maintenance has also turned heads. At the same time that production has stepped down, Energy Aspects said it was also seeing a step-up in liquefied natural gas (LNG) feed gas demand and a potential ramp in industrial demand.
For example, feed gas flows for LNG have increased at Cheniere Energy Inc.’s Corpus Christi LNG’s Train 1, close to full capacity of 0.7 Bcf/d, according to the firm. “Feed gas for the rest of the month, therefore, could easily trend higher than has been seen in the first half of December,” analysts said.
On Dec. 11, after 10 days at berth, the Maria Energy (3.69 Bcf) departed from Corpus Christi LNG, bearing the inaugural commissioning cargo produced at the newly operational facility. This was the first export from a Lower 48 greenfield project, which brought the maximum U.S. LNG production capacity to an estimated 4.9 Bcf/d.
The facility began producing LNG on Nov. 23 and has since received 416 MMcf/d on average, with Train 1 operating at 97% capacity, according to Genscape Inc. Current inventory estimates suggest the facility has about 5 Bcf stored in the tanks after completing the loading of the Maria Energy.
In addition, feed gas volumes at Cheniere’s Sabine Pass LNG facility in Cameron Parish, LA, have not indicated yet that Train 5 has ramped up to capacity yet. “Given that Cheniere has anticipated first LNG at both trains this year, there is still a good chance that these numbers can move higher,” Energy Aspects said.
“In other words, there could be some fundamental tightening in the offing, with weather somewhat masking those impacts right now,” analysts said.
Spot Gas Mixed
Spot gas prices mostly recovered Tuesday even as a fast-moving cold shot was expected to exit the Northeast, leaving behind another chilly night where overnight lows were forecast to reach into the teens to the lower 30s. The frosty temperatures, however, were expected to be more than offset by relatively mild conditions elsewhere across the country, according to NatGasWeather.
A strong weather system was forecast to spin up over Texas and the South on Thursday before tracking through the Southeast and up the East Coast on Friday and Saturday. This system was expected to bring with it with areas of rain and snow, “just not very cold,” NatGasWeather said. Additional weather systems and associated cold shots air were forecast across the central and northern United States next week, “but also not cold or widespread enough to increase national demand above normal.”
Indeed, even as Wednesday was expected to get off to a chilly start in the Northeast, next-day gas prices recorded substantial day/day losses. New England pricing hubs tumbled more than $2.50, while Transco Zone 6 NY dropped 43 cents to $3.85.
Spot gas prices also were mostly lower in the Rockies, where several pricing hubs fell more than a dime while the continually volatile Northwest Sumas jumped 30 cents to $4.40.
On the pipeline front, Questar Pipeline on Tuesday began repairing pipe segment 47 following in-line inspections. To perform the repairs, Questar shut in the Altamont MM processing plant Randlett TAP, and Brundage MNT gathering systems for most of the cycles, according to Genscape.
“This will result in an approximate cut of 100 MMcf/d in gas flows on Questar,” Genscape natural gas analyst Dominic Eggerman said. The Altamont gas processing plant will incur the largest reduction, having received an average of 65 MMcf/d over the last 30 days.”
Elsewhere across the country, most spot gas prices were on the rise, although gains were rather unimpressive at less than a dime. Appalachia pricing was strongest at Texas Eastern M-3, Delivery, which posted one of only two regional declines but still remained the highest-priced at $3.805.
Prices across Louisiana and the Midcontinent rose around a nickel or so at most pricing hubs, while slightly stronger gains were seen in the Midwest. Chicago Citygate spot gas prices increased 9 cents to $3.48.
On Dec. 6, Genscape observed the laden BW GDF Suez Brussels transporting the first gas import to the Dominion Energy Cove Point (DECP) LNG facility since it began commissioning in February. Draft data, a measurement of how low a ship sits in the water, indicated that the vessel was more than 90% loaded and on Dec. 10, Genscape onsite berth cameras captured the vessel unloading.
Genscape’s LNG team was able to verify that the vessel discharged 3.3 Bcf at the Cove Point terminal but said “it is not entirely clear why this vessel was offloaded at Cove Point, but it is likely that the owner of the cargo is looking to secure optionality through winter demand hikes.”
Last winter, Transco Zone 5 and Zone 6 prices breached $120 during the infamous bomb cyclone that affected the northeastern United States in early January. “Shippers that hold capacity upstream of Cove Point are likely banking on a similar event to occur this winter,” analysts said.
Current applicable rate schedules on DECP include firm and interruptible LNG tanker discharging service, according to Genscape. DECP’s currently effective index of customers file shows that BP plc, Equinor SA and Royal Dutch Shell plc are the firm capacity holders, with the right to unload an LNG tanker and store gas at the terminal for 120 days. Storing gas beyond 120 days requires either a firm peaking or transportation contract.
Firm transportation contract holders also include Pacific Summit Energy LLC, a U.S. affiliate of Japan's Sumitomo Corp., Gail (India) affiliate Gail Global (USA) LNG LLC, Washington Gas Light Co. (WGL), Atlanta Gas Light Co. (AGL) and others, Genscape said. Of these shippers with firm transportation contracts, only WGL and AGL also hold firm peaking service agreements.
“If such a demand spike does not occur in the next 120 days, one of these capacity holders could sell the LNG cargo back to the spot market and take advantage of growing Pacific and Atlantic arbitrages,” Genscape analysts said. “In this case, the buyer would only stand to lose the initial transportation and regasification costs involved in importing the cargo to Cove Point.”
As of Tuesday, forward prices at Transco Zone 5 sat at $7.276 for January, at $7.234 for February and at $6.091 for March, according to NGI’s Forward Look.