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February Natural Gas Strengthens Into Expiry as Polar Freeze Wallops Midwest

The February Nymex natural gas futures contract ended on a positive note Tuesday, recovering from early losses as long-range forecasts hinted at more cold arriving after a milder break next week. In the spot market, Midwest prices surged for a second straight day as forecasters were looking for the most extreme temperatures from this week’s polar cold front to hit the region Wednesday; the NGI Spot Gas National Avg. added 77.5 cents to $4.400/MMBtu.

February rolled off the board at $2.950 Tuesday, 3.9 cents higher on the day. February sold off to as low as $2.789 just before 9 a.m. ET before climbing steadily through the rest of the session. March settled 3.0 cents higher at $2.903, while April gained 4.0 cents to settle at $2.847.

Bespoke Weather Services said based on the latest guidance Tuesday it sees early February warming as “generally limited.”

“Afternoon model guidance showed a quicker transition colder primarily” from days eight through 12 of the outlook period, Bespoke said. This includes long-range models showing a favorable upstream negative Eastern Pacific Oscillation that would “deliver cold at least into the Midwest and potentially the South and East over time.” Both American and European guidance showed “more favorable tropical forcing that should allow cold risks to increase into Week 3 after first warming things to start February.

“With more supportive weather and a firm strip, we would see gas risk still skewed higher from these levels, with the potential for the March contract to test at least the $3 level through the week.”

On the supply side, production has been gradually ticking back up after recent freeze-offs and “massive operational interruptions,” but this recovery could be hampered by the extreme cold arriving this week, according to Genscape Inc.

Genscape daily pipe production estimates as of Tuesday showed Lower 48 volumes climbing to around 85.8 Bcf/d, up nearly 2.3 Bcf/d from a recent low of 83.52 Bcf/d recorded Jan. 21.

“Since Jan. 21, the bulk of the recovery in volumes has come out of the Northeast, having increased by more than 1.5 Bcf/d with large upticks out of Ohio and Southwest Pennsylvania,” Genscape senior natural gas analyst Rick Margolin said. “Those areas are recovering from freeze-offs and restoration of partial service on the exploded Tetco 30-inch diameter mainline.

“Texas volumes have also posted notable increases (around 0.46 Bcf/d), followed by a roughly 0.24 Bcf/d increase out of the Midcontinent and 0.12 Bcf/d of gains out of the Gulf Coast region.”

The intense cold this week could put the market on track for a Top 5 largest-ever storage withdrawal once the Energy Information Administration (EIA) releases its data for the period ended Friday (Feb. 1), according to Energy Aspects.

“There remains a chance that the withdrawal could be even larger and break the record to become the second-largest withdrawal in the EIA weekly series,” the firm said. “If the predicted deep cold of some commercial forecasters does materialize in the Midwest...our balances would point to an even deeper withdrawal for the week ending Feb. 1, broaching 300 Bcf and taking our end-February carryout to 1.22 Tcf.”

On the supply side, Energy Aspects projected January production is on track to fall 1.1 Bcf/d month/month based on declines already observed from freeze-offs and pipeline issues in the Northeast. 

“Importantly, this forecast assumes a normalizing level of production through the end of the month, though there is a risk the massive cold” this week “could buttress even more weakness in production and further tighten balances,” the firm said. With potential freeze-offs in Appalachia, “our forecast withdrawals could skew tighter than currently indicated,” especially for the week ended Feb. 1.

Temps ‘Don’t Get Much Colder’

The arrival of potentially record-setting cold sent Midwest and Midcontinent prices soaring Tuesday. Chicago Citygatefollowed up Monday’s 56.5 cent gain by surging another $3.315 to average $7.455 Tuesday. 

Temperatures “don’t get much colder” than those sweeping through the Midwest this week, according to NatGasWeather.

“A dangerous polar blast continues to advance across the Midwest and Ohio Valley with brutally cold, record-setting temperatures as lows reach negative 40 to negative single digits, including lows in the negative 20s into Chicago that will test all-time lows,” the forecaster said Tuesday. “National demand will be exceptionally strong through Friday due to this impressive Arctic blast but will also be aided by lows in the 20s pushing into North Texas, the South and the Southeast Tuesday and Wednesday.

“There will also be scattered snows across the northern U.S. and a wintry mix across the South and Southeast as the polar front pushes through” Tuesday into Wednesday.

In the Midcontinent,Northern Natural Venturashot up $1.240 to $6.595, while NGPL Midcontinent shed 22.0 cents to $2.630.

Flows on NGPL’s Amarillo and Gulf Coast mainlines were at capacity Tuesday just as record low temperatures are driving up demand and prices in the pipeline’s market delivery zone, noted Genscape analyst Matthew McDowell.

NGPL issued an operational flow order starting Tuesday (Jan. 29) and continuing through Friday (Feb. 1), which coincides with heating degree day totals in the Chicago area that are set to exceed the five-year average range on Wednesday, according to Genscape forecasts.

East Coast and Appalachian prices also recorded substantial gains Tuesday. Transco Zone 6 NY averaged $11.460, up $6.800 on the day, while Texas Eastern M-3, Deliverysurged $4.790 to $9.165. Transco Zone 5jumped $3.050 to $7.570.

Radiant Solutions was calling for temperatures along the Interstate 95 corridor to drop to around 15-20 degrees below normal by Thursday, including lows in the single digits in Boston, New York City and Philadelphia.

Meanwhile, in Texas, where Radiant was calling for cold temperatures Tuesday to warm back to near-normal in Dallas and Houston by the end of the week, prices sold off. Houston Ship Channeldropped 4.5 cents to $2.880, while further south Texas Eastern S. TXfell 10.0 cents to $2.850.

Genscape’s estimate of U.S. pipeline exports to Mexico set a new daily record high last Thursday (Jan. 24) at 5.25 Bcf/d, according to the firm. 

“Volumes since then have averaged more than 5.15 Bcf/d and have lifted the last 30-day average to nearly 0.5 Bcf/d above this same time last year,” Margolin said. “We model exports from both a U.S. and Mexican point of view. From the U.S. perspective we see higher flows out of three of four modeled regions: Arizona (up 8 MMcf/d week/week), West Texas (up 123 MMcf/d) and South Texas (up 68 MMcf/d). Only California exports are showing a very slight retreat.

“We are reluctant to attribute these increases to any major infrastructure changes in Mexico; rather, we are seeing higher demand within the Mexican markets, as well as notable decreases” in liquefied natural gas sendout, Margolin noted. “That said, we have also noted new infrastructure in Mexico is nearing startup and giving a boost to U.S. exports.”

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