After five straight weeks of steep declines, natural gas forward prices stabilized and even posted a modest overall gain for both February and March contracts, while summer and next winter prices were up by the double digits, according to NGI's Forward Look.
Between Jan. 3 and 9, February forward prices rose an average 8 cents, March ticked up an average 4 cents and the summer strip (April-October) jumped an average 13 cents. Next winter (Nov. 2019-March 2020) posted slightly stronger increases as it climbed an average 15 cents.
The gains were largely in line with Nymex futures, which saw gains of less than a nickel for the February and March contracts, which rose to $2.984 and $2.84, respectively. The summer was up more than a dime to $2.76, and the winter 2019-2020 was up 13 cents to $2.98.
At the heart of the gains this week was the return to business as usual as the typical lull that accompanies the holiday season came to an end at the same time that colder weather finally began showing up in long-range outlooks.
Overnight models on Wednesday were mostly unchanged, with European model guidance remaining about the same and American ensemble guidance ticking a bit warmer, according to Bespoke Weather Services. Most of the warm trends on European model guidance were in the short and medium range, with a more pronounced cold trend through Week 2 that better fit American ensemble guidance, which warmed slightly in that same period.
"This may be the beginning of models finally closing the chasm in their Week 2 output, and we see increasing support for a stronger cold shot moving in for Week 3 as well," Bespoke chief meteorologist Jacob Meisel said.
This is supported by atmospheric indicators, especially tropical forcing which again looks to become more favorable for widespread cold late Week 2 into Week 3, the firm said. American guidance remained the coldest and European guidance showed significant cold risks too, "but confidence in cold arriving Week 2 continues to grow," Meisel said.
What the natural gas markets remain focused on is if the polar cold pool that's expected to set up over Canada during the last 10 days of January can push deep enough into the United States to impress, according to NatGasWeather. The overnight Global Forecasting System (GFS) model was again quite aggressive/bullish in pushing frigid air into the United States Jan. 20-24, and while the European model trended a little colder over the past 24 hours, it "still isn't nearly as cold or intimidating as the GFS, holding the cold pool at the border."
If the European was a little colder, weather sentiment would likely swing to at least somewhat bullish, the forecaster said. But as is, the markets likely view weather sentiment as neutral and it is why $3 has yet to be convincingly reclaimed.
"To take $3 and hold it might require a decent draw versus expectations" for Thursday's storage report and having the weather data see solid cold potential Jan. 20-25, "especially the GFS model that remains the most intimidating/coldest of the datasets," NatGasWeather said.
As for storage, the Energy Information Administration (EIA) on Thursday reported a 91 Bcf withdrawal for the week ending Jan. 4, in line with the wide range of market estimates but above consensus that called for a draw in the high 70s Bcf.
The reported pull, however, came with an asterisk as a reclassification from working gas to base gas in the Mountain region resulted in implied flows pointing to an 87 Bcf draw.
A year ago, EIA reported a record-setting 359 Bcf withdrawal for the week ended Jan. 5, 2018, a period that saw intense cold drive huge price spikes along the East Coast. The five-year average for the period is a withdrawal of 182 Bcf, according to EIA.
Ahead of the report, market observers had a wide range of withdrawal estimates, from 25 Bcf to 115 Bcf. A Bloomberg survey of market participants as of Wednesday afternoon showed a median estimate for a 72 Bcf withdrawal, with predictions ranging from minus 25 Bcf to minus 100 Bcf. A Reuters survey pointed to a 76 Bcf pull, with a range of estimates from minus 50 Bcf to minus 115 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Wednesday at a withdrawal of 78 Bcf.
"The week-to-week change in scrapes and degree day totals don't really match up in my opinion. So those are the weeks that you see a lot of uncertainty or a big range in predictions," Wood Mackenzie analyst Gabriel Harris said Thursday on Enelyst, an energy chat room hosted by The Desk.
Broken down by region, the EIA reported a 10 Bcf draw in the East, an 11 Bcf pull in the Mountain, a 13 Bcf draw in the South Central and a 35 Bcf pull in the Midwest. With Lower 48 gas stocks sitting Jan. 4 at 2,614 Bcf, deficits to last year's levels shrank to 204 Bcf, while the deficit to the five-year average tightened to 464 Bcf.
"Storage shortage fears have dissipated. You could run some Monte Carlo type scenarios in November after the quick start to withdrawals that showed sub-600 Bcf end of season, but now with warm [weather] five weeks in middle of winter, the scary scenarios are gone. So I don't think market is going to react the same way to cold in late January," Harris said.
Still, production dipped last week and has yet to recover, and with balances tightening up here, "this print can add support moving forward with any colder weather trends," Bespoke's Meisel said.
Northeast Bounces Back on Cold
After posting some of the largest declines in the country during the last month, Northeast markets began recovering during the Jan. 3-9 period, with New England points putting up substantial gains of more than $1 as cold air finally returned to the region.
Algonquin Citygate February prices shot up $1.17 to $8.678, March rose 48 cents to $6.091 and the summer climbed 16 cents to $2.79, Forward Look data show.
Transco Zone 6 NY February jumped 22 cents to $6.949, March tacked on a dime to hit $3.477 and the summer moved up 14 cents to $2.49.
The increases occurred as a strong cold front was forecast to push across the Great Lakes and the Northeast during the next several days, sending overnight temperatures down to the zeroes to 20s for strong demand, according to NatGasWeather. The boost in demand sent regional cash prices on Wednesday up more than $3 in New England.
Furthermore, Tennessee Gas Pipeline expanded an existing operational flow order to now include the entirety of Zones 2 through 6, which could lead to increased regional price spikes.
Most other regional hubs posted increases that were more in line with those along the Nymex futures curve. Columbia Gas in Appalachia saw February bump up 6 cents from Jan. 3-9 to reach $2.723, while March rose 6 cents to $2.574 and the summer tacked on 14 cents to $2.38, according to Forward Look.
Over in Texas, Texas Eastern S. TX February was up 6 cents to $2.874, March was up 3 cents to $2.745 and the summer was up 11 cents to $2.77.
The bump in South Texas gas occurred as U.S. pipeline exports to Mexico have posted a solid rebound from the lows touched during the holiday season, according to Genscape Inc. Border flows in recent days have increased to serve higher Mexican demand (primarily on the power side), while Mexican domestic production and liquefied natural gas sendout have declined.
"Our estimate of flows on Tuesday pushed exports back above the 5 Bcf/d mark for the first time since early November, and Wednesday's estimate at 5,145 MMcf/d is nearly 1.2 Bcf/d above the Dec. 26 low and the highest mark in 114 days," Genscape senior natural gas analyst Rick Margolin said.
While each of the U.S. exporting regions are posting increases versus the holiday week, the overwhelming majority (0.9 Bcf/d) is from South Texas. Genscape had notified clients to watch out for the holiday export drop and subsequent rebound, and the firm expects January exports to average about 4.7 Bcf/d for the month.
Meanwhile, not every region moved back into the black during the Jan. 3-9 week. Markets out West continued to retreat despite recent cold that has since left storage inventories near record lows.
PG&E Citygate February forward prices plunged 17 cents to $3.299, but March slipped just 2 cents to $3.03 and the summer jumped 12 ents to $3.13, Forward Look shows.
SoCal Citygate February tumbled 19 cents to $5.582, March fell 12 cents to $4.085 and the summer climbed 6 cents to $4.37.
Points along the Northwest Pipeline also posted dramatic declines. Northwest Wyoming Pool February was down 22 cents to $2.882, March was down 7 cents to $2.382 and the summer was up 11 cents to $2.18.
The weakness in West Coast pricing comes as Northwest Pipeline and Southern California Gas (SoCalGas) are heading into the last three months of withdrawal season with inventories close to five-year norms. PG&E's average winter-to-date inventory for both core and noncore storage fields has been 35% below the five-year norm, but futures prices do not appear to be highly influenced by these low inventories, according to Genscape.
"Recent upward price movements in PG&E Citygate futures have actually aligned more with West Coast-related spot price increases at Sumas," Genscape natural gas analyst Joe Bernardi said.
Through the end of December, SoCalGas' winter-to-date storage inventory was 20% higher on average than the past two (post-Aliso Canyon leak) years. However, cold weather and elevated demand during the last two weeks "eroded that surplus by half, in part due to withdrawals from Aliso Canyon." In accordance with the current withdrawal protocol, these were made as a last resort after the pipe had issued calls for voluntary electric generation curtailments, Bernardi said.