A natural gas futures market left waiting for convincing signs of a return to more impressive winter heating demand sold off Monday. In the spot market, recent weakness continued as forecasters noted comfortable conditions for much of the Lower 48 to start the work week; the NGI Spot Gas National Avg. slid 3.5 cents to $2.665/MMBtu.
Futures bulls had managed to reclaim the $3 mark on Friday but couldn’t hold it for long. The February Nymex contract gapped lower over the weekend and, after climbing as high as $2.994 just before lunchtime on the East Coast Monday, eventually settled at $2.944, off 10.0 cents from Friday. The March contract settled 5.8 cents lower at $2.847.
Monday’s selling came despite some colder trends popping up in recent weather data, according to NatGasWeather. The forecaster noted systems expected to push into the East beginning Thursday through Jan. 15.
“The Jan 10-15 period would look more impressive if it wasn't for strong high pressure quickly returning Jan 16-20 to again warm vast stretches of the country back above normal and where the data has been milder trending since late last week,” NatGasWeather said. “We therefore look to around Jan 21-22 for better chances of more ominous cold to arrive out of Canada and where” the Global Forecast System had “teased a rather cold pattern” before backing off slightly in Monday’s midday data.
“Until frigid cold looks convincing in pushing across the U.S./Canada border into the northern and eastern U.S., we must expect weather sentiment to remain at least somewhat bearish. This will need close watching as colder trends for the last week of January can quickly show up due to the amount of polar air over Canada.”
The risk premiums priced in to account for historically large storage deficits at the start of the heating season have all but disappeared with mild temperatures in December and to start 2019. On Friday, the Energy Information Administration (EIA) reported a light 20 Bcf withdrawal for the week ended Dec. 28 that surprised many observers and took a significant chunk out of both the year-on-year and year-on-five-year inventory deficits.
Even compared to the previous six Christmas holiday storage weeks, the 20 Bcf withdrawal was still about 6 Bcf/d loose versus degree days, according to Genscape Inc. Even though degree days fell well below normal for the week, the 2014 and 2016 Christmas weeks were milder in terms of weather-driven demand but saw larger storage withdrawals, the firm said.
“Total power generation was down around 28 average GWh versus the week prior,” Genscape analyst Margaret Jones said. “Nuclear and renewable generation was up 5 average GWh as wind stepped up around 6 average GWh and hydro fell off 1 average GWh week/week (w/w). Coal was down around 21 average GWh, and gas was down 12 average GWh w/w for an estimated 2.3 Bcf/d less gas burn w/w.”
Meanwhile, despite lackluster weather-driven demand recently, 2019 continues to shape up as a potentially pivotal year for U.S. liquefied natural gas (LNG) exports as new facilities get set to enter service. A key approval from federal authorities last week brought Train 2 at Cheniere Energy Inc.’s Corpus Christi liquefied natural gas (LNG) export terminal one step closer to entering commercial operation at the South Texas coastal facility.
Train 1 at the Corpus Christi terminal is now two months into its testing phase, with the full completion ahead of schedule and on track for the first quarter, RBN Energy LLC analyst Sheetal Nasta wrote in a note to clients last week.
“Feedgas flows began trickling into the facility starting in late October. Since then, the unit has produced its first LNG volumes (in November) and exported its first commissioning cargo (in early December). Feedgas flows through much of December were consistently at 400 MMcf/d,” Nasta said.
The start of commissioning activities for Train 2 could allow Cheniere to bring it online early in the second quarter, according to Nasta.
Between Train 5 at Cheniere’s Sabine Pass LNG terminal and Train 1 at Corpus Christi, “total feedgas demand for LNG exports climbed about 2 Bcf/d (80%) through 4Q2018 to an average of 4.9 Bcf/d in the final 10 days of 2018,” the analyst said. “Even if it stayed at that level through 1Q2019, it would translate to nearly double the demand from LNG exports in 4Q2018.
“That’s impressive on its own, but it’s also just the beginning. There are a slew of liquefaction trains due online in 2019, including Cameron LNG’s Train 1, which is also currently in the testing phase but has yet to report meaningful feedgas volumes. If all goes as planned, U.S. liquefaction and export capacity should almost double to nearly 9 Bcf/d by the end of this year.”
Northeast Slides On Warmth
Turning to the spot market, most regions saw a mix of discounts and modest increases coinciding with early January temperatures that have failed to impress natural gas buyers.
“Very light national demand is on tap the next couple days as most of the country experiences milder than normal conditions, including very comfortable highs of 60s and 70s across the southern tier,” NatGasWeather said. “Exceptions will be over New England, where a fast-moving cold shot will bring chilly conditions into Tuesday, as well as the West, where weather systems are tracking through with rain and snow but with only slightly cool air.
“Demand will finally increase Thursday through Saturday as a colder-trending weather system sweeps across the Great Lakes and Northeast with lows of zero to 20 degrees, including 30s in the Southeast,” the forecaster said. “But again, national demand would be more impressive late this week if it wasn’t for the rest of the county being relatively mild with highs of 40s to 70s.”
A number of Northeast points retreated sharply Monday, giving back gains from Friday’s session as warmer temperatures were expected along the Interstate 95 corridor before the arrival of cooling later this week.
Radiant Solutions forecast highs in the 40s and 50s on Tuesday and Wednesday for Washington, DC, Philadelphia, New York City and Boston, with temperatures averaging about 10-15 degrees above normal for the time of year. Temperatures in the region were expected to fall back to below-normal levels later in the week and into the weekend, according to the forecaster, with lows dropping down into the teens in Boston by Friday.
Algonquin Citygate dropped 37.5 cents to $2.885 Monday, while Tenn Zone 6 200L gave up 49.0 cents to $2.940. Further upstream in Appalachia, Texas Eastern M-3, Delivery picked up 5.0 cents to $2.575.
Texas Eastern (Tetco) is expected to conduct an outage at its Heidlersburg, PA, compressor station on its southern 36-inch diameter line in its M-3 zone Tuesday and Wednesday, according to Genscape analyst Josh Garcia, though as of Monday the work was not expected to have any major impact on flows.
“Capacity through the compressor will be limited to 1,698 MMcf/d for the duration of the outage, 174 MMcf/d below normal operating capacity,” Garcia said. “Flows through Heidlersburg have averaged 1,555 MMcf/d and maxed at 1,669 MMcf/d over the last 14 days, comfortably below the maintenance operating capacity.”
In the West, prices continued to moderate across the Rockies and California Monday. Kern River followed up a 58.5 cent loss on Friday by dropping another 14.5 cents Monday to average $3.080. The typically volatile SoCal Citygate eased 56.0 cents to $5.300 Monday after giving up 79.5 cents in trading Friday.
Southern California Gas (SoCalGas) was calling for total demand on its system to climb from around 2.9 Bcf/d on Sunday to around 3.3 Bcf/d for Monday. The utility was projecting Tuesday and Wednesday demand totals of around 3.3-3.4 Bcf/d, based on a composite weighted average temperature of 58 degrees.
To support system reliability during a recent stretch of chillier temperatures in the region, SoCalGas said it conducted a series of withdrawals from the restricted Aliso Canyon storage facility last week, including a 0.565 Bcf withdrawal last Wednesday (Jan. 2), a 0.477 Bcf withdrawal on Thursday (Jan. 3) and a 0.181 Bcf withdrawal on Friday (Jan. 4).
“Over the withdrawal period, the hourly withdrawal rate from Aliso Canyon at times exceeded the equivalent of 1.0 Bcf/d,” the utility said.
Further upstream in West Texas, several points bounced back from heavy losses on Friday, putting spot prices in the pipeline-constrained producing region back above $2 on average. Waha jumped 33.0 cents to $2.055.
In a potentially encouraging sign for producers in the crude-focused Permian Basin, Nymex West Texas Intermediate futures picked up 56 cents to settle at $48.52/bbl Monday, gaining for a fifth straight session as prices have strengthened since falling below $43/bbl on Christmas Eve.