• February Nymex down 44.2 cents to $3.040; March down 26.7 cents to $2.972
  • Selling driven by data showing greater odds of polar cold “retreating back into Southern Canada during the first week of February,” says NatGasWeather
  • Sell-off larger than expected, potentially overdone based on forecasts: Bespoke
  • Lower 48 production down to 84 Bcf/d on freeze-offs, operational issues, says Genscape

Another weekend shift in the weather outlook sent natural gas futures plunging Tuesday as guidance indicated cold temperatures to close out January could fizzle out sooner rather than later. In the spot market, forecasts for a warm-up following Monday’s intense cold blast helped drive discounts across most regions; the NGI Spot Gas National Avg. sank $1.415 to $3.105/MMBtu.

After gapping about 10 cents lower over the weekend, the February Nymex futures contract continued to lose ground in Tuesday’s session, trading as low as $3.026 on the way to settling at $3.040, down 44.2 cents from Friday’s settle. March settled 26.7 cents lower at $2.972.

From a technical standpoint, the front month crashed through minor support levels that analysts with Rafferty Commodities Group had drawn at $3.260 and $3.160. Prices settled right up against what the firm viewed as major support in the area of $3.080/3.050/3.000.

“Strong selling appears to be primarily driven by the weather data showing increasing odds of the frigid polar cold pool that’s to impact the U.S. through the end of the month retreating back into Southern Canada during the first week of February,” NatGasWeather said Tuesday. “There remain ways the data trends back colder” should polar air shift slightly to the south, “but unless it does, the natural gas markets could remain disappointed.”

Bespoke Weather Services on Tuesday said it viewed the selling as overdone, with forecasts still showing the potential for colder trends in the medium-range.

“We had been looking for some short-term downside” after the less than impressive overnight weather model guidance ahead of Tuesday’s session, but the sell-off “certainly surpassed all expectations,” Bespoke said. The “slightly warmer” overnight guidance combined with weak cash prices to drag the front month lower “before afternoon model guidance was not cold enough to inspire buyers.”

Still, the forecaster said the selling “did not seem to be all weather.” Despite warmer trends from the Global Forecast System operational model earlier in the day, most other guidance pointed to near-average gas-weighted degree days toward the end of the 15-day outlook period.

“The intensity of cold certainly fell off, and that would seem to have justified a test of $3.250-3.300 again” Tuesday, but “we see the ensuing 20 cents as being a combination of an overreaction to the weather and looser balances/weaker cash,” Bespoke said.

Based on the current cold weather expected to last through the end of the month, Energy Aspects as of late last week cut more than 200 Bcf from its end-January storage estimate.

“That whittling down puts a significant focus on February weather, as a follow-on cold event...would reignite deliverability concerns in some regions,” the firm said. Production losses could also “see current withdrawal estimates increase notably. Trading will continue to move in sympathy with the weather outlook.”

Warmer Temps, Production Losses

In the spot market, a moderating temperature outlook overshadowed supply interruptions Tuesday. Prices declined across most of the Lower 48 as traders returned from an extended Martin Luther King Jr. Day weekend.

Frigid conditions drove “very strong demand” Monday into Tuesday, with lows ranging in the negatives to 20s across the Midwest, Ohio Valley and Northeast, and with lows down into the 20s in the Southeast, according to NatGasWeather.

“However, a milder break will follow across the eastern U.S. Wednesday and Thursday, easing national demand to near normal,” the forecaster said. “The next frigid blast in the series is expected to race across the northern and eastern U.S. Friday through Sunday,” with low temperatures again ranging from around negative 10 degrees up into the 20s, driving demand back higher.

After spiking Friday ahead of one of the most intense demand days of the season to-date, prices along the populated and often mercurial East Coast dropped sharply Tuesday. Transco Zone 6 NY sank $15.720 to average $3.065, while Algonquin Citygate dropped $9.295 to average $4.265.

Demand in the Northeast rose to a season-to-date high during Monday’s cold blast, climbing above 25 Bcf/d, according to Genscape Inc. analyst Josh Garcia. New England demand reached 4.4 Bcf/d, the second highest daily total of the season so far.

Meanwhile, demand in the Southeast actualized at 10.2 Bcf/d Monday, on the low side of expectations and lower than the 11.8 Bcf/d high reached earlier in the winter, according to Garcia.

Demand across the Energy Information Administration’s East storage region approached 40.0 Bcf/d Monday, but early indications showed consumption falling to 35.9 Bcf/d for Tuesday’s gas day amid somewhat milder temperatures, according to Garcia.

Prices fell about 15-20 cents or more across much of the Midwest and Gulf Coast Tuesday. Chicago Citygate sank 29.5 cents to $2.965, while down in Texas NGPL TexOk dropped 25.5 cents to $2.920.

In Appalachia, meanwhile, most locations were off by 30 cents or more amid reports of flow cuts impacting the region. Texas Eastern M-2, 30 Receipt dropped 35.0 cents to $2.810.

An explosion Monday on the Texas Eastern Transmission Co. (Tetco) system in southeast Ohio cut flows by more than 1 Bcf/d, with the effects being immediately felt as far south as Louisiana, according to Genscape. The firm said Tuesday that day/day (d/d) flows were cut by up to 1.48 Bcf on Tetco’s 30-inch diameter line south of the Berne, OH, compressor station in Noble County, OH, where the blast occurred about 10:40 ET early Monday.

The effects were being felt far downstream at the Gillis interconnect with the Creole Trail Pipeline in Louisiana, which supplies Cheniere Energy Inc.’s Sabine Pass LNG facility, where Genscape estimated nominations had fallen 224 MMcf d/d. Creole Trail deliveries to Sabine did not appear to be impacted as other interconnects picked up the slack, according to the firm.

Westward capacity on the system also was restricted by the incident by up to 114 MMcf/d, resulting in an additional 97 MMcf d/d drop in flows through Tetco’s Lebanon, OH, compressor.

“This event should widen spreads between M2 [Zone] and Tetco’s demand regions in M3 and the Gulf Coast, as M2 producers must compete to get their gas out, and demand hubs must compete for limited supply,” Genscape said.

Looking at total Lower 48 output, Genscape data showed a combination of freeze-offs and operational issues -- including the Tetco explosion -- reducing production to an estimated 84 Bcf/d as of Tuesday. That was after volumes dropped as low as 83.5 Bcf/d on Sunday, a 122-day low.

Evidence of freeze-offs began to appear Saturday, coinciding with low temperatures in the Northeast, according to the firm. The Tetco explosion, as well as maintenance work on the Rockies Express Pipeline and operational flow orders impacting the Dominion Energy Transmission Inc. and Tennessee Gas Pipeline systems, also appeared to be impacting production as of Tuesday.

“Ohio is leading the way on the declines with current volumes more than 0.7 Bcf/d below the prior 14-day average,” Genscape senior natural gas analyst Rick Margolin said. “Northeast Pennsylvania and West Virginia are each showing drops in excess of 0.4 Bcf/d, and Southwest Pennsylvania production is down more than 0.2 Bcf/d.”

Production outside of the Northeast held steady during the recent cold blast, according to Margolin.

“Oklahoma -- which did get hit by some cold shots -- is down about 0.23 Bcf/d from the prior 14-day average, and Texas volumes are down about 0.19 Bcf/d, though in both instances caution should be urged as what may look like a production drop can partly be a product of intrastates keeping volumes to serve demand,” the analyst said.