As expected, February natural gas shed some serious holiday weight on Friday as weather data backed off some of the cold that was seen in early January and failed to show with certainty just when truly bone-chilling conditions would return. The Nymex February gas futures contract plunged 24.3 cents to settle at $3.303. March lost 20.5 cents to hit $3.148.
Spot prices, which were for gas delivered Jan. 1 and 2, bounced back as a cold shot was expected to hit the country, boosting demand temporarily before mild conditions were expected to return. The NGI Spot Gas National Avg. rose 13 cents to $3.18.
On the futures front, the Nymex February contract was nearly 20 cents lower early Friday as frigid air continues to struggle to develop in long-range weather models. Overnight Thursday weather model guidance continued to warm the long range as well, showing an unfavorable Pacific win out temporarily, preventing any sustained cold weather from moving down into the East, according to Bespoke Weather Services.
Tropical forcing has trended slower as it continues to favor a positive Western Pacific Oscillation/Eastern Pacific Oscillation pattern upstream that can flood the country with mild, Pacific air, the firm said.
“Tropical forcing forecasts outside of seven to 10 days are notoriously unreliable, meaning that once models pick up on an eventual propagation, we would look for rapidly cooling forecasts, but that is not yet the case and the end of most models shows a pattern that is not threatening for cold even mid-month,” Bespoke chief meteorologist Jacob Meisel said.
Various weather models do show an impressive transition to a colder pattern Weeks 3-4, and on net, Bespoke continues to forecast a January that comes in slightly colder than average, “but warmth wins first.”
How low prices continue to drop will likely depend on how long it takes for more intimidating patterns to show up in the weather charts, according to NatGasWeather. The mid-day weather data on Friday held milder trends Jan. 1-10.
“There will still be a decent cold shot sweeping across the country Jan. 1-3, but the break Jan. 4-7 continues to trend warmer and longer, and where quite a bit of heating demand has been lost since early in the week,” the forecaster said.
In addition, the most recent data remained mixed on if cold shots would return across the northern and eastern United States Jan. 8-10. “Again, there’s likely to be very cold air over Canada during the second week of January, but cold over Canada is not cold over the U.S. and would need to trend further south for bullish sentiment to return,” NatGasWeather said.
Meanwhile, Friday’s storage data provided slightly more bearish news to the market. The Energy Information Administration (EIA) reported an on-target 48 Bcf withdrawal for the week ending Dec. 21, leaving inventories at 2,725 Bcf, 623 Bcf less than last year at this time and 647 Bcf below the five-year average.
“After quite a bit of weekly noise with the EIA print, we finally see a number that fits our expectations well with no real regional surprises,” Meisel said. The print was 2 Bcf bearish from Bespoke’s expectation “but sits solidly in the middle of market expectations."
If anything, the number may be a touch bearish as looser daily balances this week mean an even smaller draw may be announced next week, according to Bespoke. This means that with any warmer model guidance, gas can test $3.25-$3.30.
“However, weather remains primarily in control here, with the last couple EIA prints still showing that with enough cold weather, the market can tighten quickly, so once models cool, prices can bounce quickly,” Meisel said.
Furthermore, “...deficits are still quite hefty where buyers could be willing to step in if prices fall too much further,” NatGasWeather said.
Last year, a draw of 122 Bcf was reported, and the five-year average draw for the week is 121 Bcf.
Broken down by region, the EIA reported a 23 Bcf draw in the Midwest, a 16 Bcf pull in the East and a 2 Bcf pull in the South Central.
Spot Gas Bounces
Spot gas prices across the country rose Friday as a strong weather system with rain and snow was expected to move over the Great Lakes and east-central United States on Friday and then into the East on Saturday, according to NatGasWeather.
While the eastern United States was expected to remain quite mild Friday, with daytime temperatures running 15-25 degrees above normal from New York City to the Gulf Coast, demand was expected to increase over the weekend, with a glancing shot of frigid Canadian air impacting the northeastern United States.
Other systems were forecast to impact the western and south-central United States/Texas during the weekend, although a milder break was expected to follow across the Great Lakes and East early in the week ahead, according to NatGasWeather. Another strong cold blast was still on tap to track across the country late in the first week of the new year and where demand “should briefly increase to above normal” as overnight temperatures were forecast to drop into the single digits to 20s behind the cold front, the firm said.
“It’s the milder trending break that follows Jan. 4-6 where a considerable amount of demand has been lost as highs again warm above normal over the northern and eastern U.S.,” it said.
With some of the chilliest weather forecast for Texas, spot gas prices there put up some of the largest increases. Houston Ship Channel jumped 22.5 cents to $3.185, although some of that gain was likely tied to the return of industrial demand after the New Year’s holiday. Most other points in East Texas rose less than 15 cents and many climbed less than a dime.
West Texas prices put up far more substantial increases amid the stronger demand and resumed gas flows following weeks of various maintenance events in the region. Waha jumped more than 60 cents to $2.165.
Benchmark Henry Hub was up 16 cents to $3.225, while most prices in the Southeast rose anywhere from 8 cents to 19 cents day/day.
Over in the Midcontinent, most pricing hubs netted gains in the double-digits, but NGPL Midcontinent surged a far more substantial 85.5 cents to $2.635 due to a force majeure called Thursday on the Natural Gas Pipeline Company of America (NGPL) system.
NGPL’s force majeure limits flow through Station 103 to Station 106 on its Amarillo Mainline in Ford County, KS, by 70 MMcf/d. Citing electrical issues at Compressor Station 104, a notice on the pipeline’s website stated that the capacity reduction would continue until further notice.
Timely cycle nominations for gas day Dec. 28 showed the capacity reduction being buffered by an increase in receipts at the “NBORDER/NGPL HARPER KEOKUK” interconnect with Northern Border Pipeline, according to Genscape Inc.
Depending on the length of the outage, an increase in midwestern heating degree days forecast for the first week of January could continue to drive increased receipts at Northern Border and Trailblazer interconnects, Genscape natural gas analyst Matt McDowell said.
In the Midwest, prices were up less than 10 cents across most of the region, with Chicago Citygate climbing to $3.075.
Most pricing hubs in Appalachia and the Northeast were up a nickel or more, although New England’s Algonquin Citygate slipped a penny to $3.39 and Transco Zone 6 NY shot up more than 20 cents to $3.15.