- February Nymex surges 49.2 cents to $3.591; March up 34.4 cents to $3.289
- Frigid temps to move in this weekend and continue through end of January, widening deficits and potentially causing freeze-offs: NatGasWeather
- “Once March gets more involved we could see the February contract potentially test the $3.75 level,” says Bespoke
- Lower 48 production recently back above 86 Bcf/d after recent dip below 85 Bcf/d, says Genscape
A resounding cold shift in forecasts sent natural gas futures racing higher Monday, with models offering more clarity on the likelihood that frigid temperatures will drive much stronger national demand for the final third of January. Physical markets followed suit with widespread double-digit gains in anticipation of a frigid finish for the month; the NGI Spot Gas National Avg. surged 56.0 cents to $3.565/MMBtu.
February Nymex futures settled at $3.591 Monday, up 49.2 cents on the day after gapping about 15 cents higher over the weekend. The front month gained strength throughout the session, going as high as $3.605. Further along the strip, March added 34.4 cents to settle at $3.289, while April settled at $2.905, up 13.6 cents.
The overnight and midday weather data maintained colder trends that developed over the weekend, showing “several intimidating cold blasts” sweeping across the northern, central and eastern United States to drive heating demand to well above average levels beginning this weekend and continuing through the end of the month, according to NatGasWeather.
“There’s likely to be a brief break sometime around Jan. 23, but with another frigid shot quick to follow Jan. 24-27,” NatGasWeather said. “We continue to expect this coming pattern favors frigid air over Canada pouring into the U.S. through the end of the month, potentially well into early February.”
The upcoming cold blasts should widen the storage deficits that had decreased rapidly with mild weather in December and early January. And the frigid air looks intense enough that some production freeze-offs are likely, according to the forecaster.
In the meantime, Genscape Inc.’s Lower 48 daily production estimates had climbed back above 86 Bcf/d as of Friday and Sunday.
The firm’s estimate as of early Monday came in just shy of the 86 Bcf/d mark at 85.95 Bcf/d, but senior natural gas analyst Rick Margolin noted that “daily revisions during the past 14 days have averaged about 255 MMcf/d, including several days greater than 600 MMcf/d.
“Earlier in the month production set a month-to-date low at 84.51 Bcf/d,” Margolin said. “Since then production has increased by more than 1.92 Bcf/d, with the largest gains coming out of Texas (up 851 MMcf/d), the Permian (up 619 MMcf/d), the San Juan (up 456 MMcf/d) and the Rockies (up 353 MMcf/d with nearly equal gains from basins east and west of the Continental Divide). East production has remained fairly flat, currently up 47 MMcf/d from Jan. 4 and averaging 31.03 Bcf/d month-to-date.”
After Monday’s rally, any loss in heating demand expectations could see prices dip, Bespoke Weather Services said, noting that gains were front-loaded to the February contract.
“Once March gets more involved we could see the February contract potentially test the $3.75 level, which we see as increasingly likely through the week,” Bespoke said. “Confidence in long-range cold is very elevated,” and despite shrinking storage deficits that point to a market “far better able to handle this cold than we were a month ago, we still see natural gas risk skewed higher short-term.”
Wintry Forecast Sparks Widespread Gains
With forecasts showing much more intense cold spilling into the country by this weekend, physical markets responded; gains of around 40 cents or more were the norm at most locations across the Lower 48. Benchmark Henry Hub added nearly 50 cents, averaging $3.360 on the day.
Forecasts over the last several days have been trending colder and raising near-term heating demand expectations, according to Genscape. As of Monday Genscape meteorologists were calling for daily heating demand to average 221 heating degree days for the current work week (Jan. 14-18), up about 7 HDDs compared to expectations as of last week.
The firm upped its daily demand forecast for the week to 93.2 Bcf/d, about 0.9 higher compared to last Wednesday’s forecast.
“Next week’s weekday forecast (Jan. 21-25) has posted even colder revisions,” Margolin said. “Last week we had the weekdays of Jan. 21-25 averaging 240 HDDs; that has now been increased to 273 HDDs. Demand is now forecast to average 108 Bcf/d, an increase of more than 12 Bcf/d versus Wednesday’s forecast. Each day next week is forecast to run well above the strongest days so far this winter.”
Radiant Solution’s latest six- to 10-day outlook included a “significant change in the colder direction from the Interior West toward the East Coast compared to Friday’s expectations, with the Eastern Third coming in additionally colder” compared to Sunday’s expectations. “A round of much below normal temperatures accompany high pressure into the Plains at the start of the period and expand south and eastward. By mid-period, most of the Eastern Half is forecast in the much to strong below normal categories.”
Some of the largest increases occurred in the Midwest and Midcontinent Monday. Chicago Citygate picked up 56.0 cents to $3.280, while Northern Natural Ventura jumped 60.0 cents to $3.235.
Except for in the far northern parts of the country, NatGasWeather was looking for milder conditions to bring national demand back to lighter than normal levels Tuesday through Friday.
“But the big story is the coming frigid cold shots out of Canada, with the first arriving this weekend with very cold temperatures, where lows will drop into the negative 20s to teens across the northern U.S. and 20s and 30s deep into the southern U.S. Subfreezing air will also push into North Texas and at times deep into the South as well.”
In the Northeast, Tenn Zone 6 200L jumped $2.080 to $7.415, while further south, Transco Zone 5 picked up 22.0 cents to $3.925.
While much of the market looks ahead to wintry conditions expected later this month, the Mid-Atlantic was digging itself out after a winter storm hit the region over the weekend. The system turned out to be a “rather impressive event with heavy snow on the order of 10-plus inches for some areas in Northern Virginia and Maryland, and significant icing from freezing rain across western North Carolina and into southern Virginia,” according to the National Weather Service (NWS).
“Now that this low pressure system is exiting the coast, our attention now turns to California and then the Intermountain West for the beginning of the work week,” the NWS said. “A deep Pacific trough off the West Coast will remain in place over the next few days with a frontal boundary approaching Southern California Monday night, and additional shortwave impulses arriving through Tuesday.”
This will result in “widespread rain” and flooding issues in some parts of the region, with heavy snow likely in the mountains and higher elevations, according to NWS.
In California, SoCal Border Avg. surged 74.5 cents to $3.820, while in the Rockies, Cheyenne Hub added 50.5 cents to climb back above the $3 mark, averaging $3.085.
Shutdown Not Impacting Forecasts -- Yet
The intensity of the snowstorm that blanketed the Washington, DC, area over the weekend brought additional attention to the government forecasting services that the NWS -- part of the National Oceanic and Atmospheric Administration (NOAA) -- provides and that the energy sector relies on daily.
While the partial shutdown of the federal government had stretched into its fourth week as of Monday, much of the NWS forecasting services fall under “excepted status” and thus have continued during the shutdown, a NOAA official told NGI in an email.
Many of the NWS services will “remain in place to provide forecasts and warnings to protect lives and property. With several storm systems impacting the country, staff continue mission-essential functions. In addition to forecasters at our local offices and national centers, appropriate technical and engineering staff are ensuring our Earth observations, high performance computing, modeling and other systems required to meet this mission are up and operating,” the official said.
Commercial forecasters that make use of the weather data NOAA provides did not report any discernible impacts to government forecasts since the shutdown started.
“We have found no evidence of the NOAA-backed models being impacted by the government shutdown,” Radiant Solutions senior meteorologist Steven Silver told NGI. “Model skill scores do not reveal anything unusual, and ironically” the American Global Forecast System (GFS) Ensemble “actually seems to have captured the upcoming cold pattern change more quickly than the usually better-skilled” European model.
Bespoke Weather Services chief meteorologist Jacob Meisel similarly said there did not appear to be any major impact on the GFS model’s performance since the shutdown started.
“I would worry as we move on there could be some data assimilation issues, and any lack of input data due to furloughed employees not making observations could begin to hit all model forecasts down the road, so that’s not to say the shutdown hasn’t had any impact on the GFS, but that the end forecast result does not seem all that much worse yet at least,” Meisel said.
Still, Meisel reported other impacts from the shutdown, including certain research tools and data that have been unavailable.