• Nymex natural gas futures strip weakens again as timing of returning cold unclear
  • Analysts agree any cold shots not enough to significantly boost natural gas prices
  • Large storage withdrawal expected Thursday not enough to sway otherwise bearish market
  • Spot gas retreats amid dramatic swing in temperatures

Natural gas futures prices fell deeper into the red Monday, extending losses for a fourth consecutive day as weather models can’t seem to agree on the return of significantly colder weather. The Nymex March gas futures contract settled 7.4 cents lower at $2.66. April dropped 5.7 cents to $2.642, and the rest of the futures strip fell no more than about 5 cents.

Spot gas prices were overwhelmingly lower, although declines were in direct contrast with substantial gains in the West. The NGI Spot Gas National Avg. rose 7.5 cents to $2.755.

Just as it was last week when polar air descended over the United States, weather was front and center again Monday as the frigid air that blanketed the country quickly dissipated and paved the way for far milder, springlike temperatures this week.

Sunday's weather data had major weather model differences where the Global Forecast System (GFS) was notably milder than the colder European model with the Feb. 13-18 pattern, with a much stronger/milder ridge over the South and East, according to NatGasWeather. Each gave in a little overnight as the GFS added heating degree days (HDD) and the European lost HDDs, but still with the European model colder.

The latest midday GFS was a little colder with a weather system/cold shot tracking across the Midwest and Northeast Friday into Sunday, but then milder with a break early next week, Feb. 11-12, the weather firm said. The data was then mixed for Feb. 13-18, seeing both cold shots and milder breaks, but still a little too warm across the East to impress, especially the Southeast.

“This is where the weather models rapidly diverge and where the GFS sees the mild ridge holding firm over the South and much of the East, thereby blocking cold air from arriving and keeping subfreezing air confined to the western, central and far northern United States,” NatGasWeather said.

Regardless of how weather patterns play out in the coming weeks, the time has run out for another run at higher prices this winter, Barclays Commodities Research analysts said recently. With the seasonal peak of heating loads in the rearview mirror and forecasts of warm weather extending into mid-February, “there is simply too little winter demand left in the season to prompt the kind of storage scarcity necessary to move prices higher. Also, production appears to have turned the corner, after slumping the past six weeks or so.”

Barclays has adjusted its Henry Hub cash forecast for 1Q2019 to $2.88/MMBtu from $3.51/MMBtu. Incorporating the latest weather outlooks, analysts lowered their 1Q2019 residential/commercial heating demand forecast by 0.6-0.7 Bcf/d, while the base case for end-of-March stocks remained at 1.5 Tcf.

“We estimate that even if February and March HDDs are 10% above the 10-year average, end-March levels would dip to sub-1.3 Tcf, a level we do not believe would induce material scarcity pricing,” analysts said. February and March HDDs would need to be at least 25% above the 10-year average to reduce end-March storage below 1 Tcf, they noted. The decreasing likelihood of this scenario means the market would put less of a risk premium on stored gas; thus, cash prices should move lower.

Weak cash prices during recent cold spells suggest a change in storage operators’ tactics, now that the end of winter is in sight, the firm said. Low inventory levels at the beginning of winter encouraged a higher reliance on cash market purchases versus withdrawals. “With the storage risk premium rapidly evaporating, larger withdrawals have helped keep a lid on price spikes during more recent cold weather,” the Barclays team said.

Last week’s arctic blasts will provide another test of this thesis and could provide another catalyst for a sell-off. Indeed, the most recent Energy Information Administration (EIA) storage data surprised to the bearish side after a 173 Bcf withdrawal was reported. Most estimates had clustered around a withdrawal that was 10 Bcf or so larger.

“A very bearish EIA number last week relative to expectations eased storage concerns and hit the entire gas strip as it remains clear that the market is easily loose enough to contend with any remaining storage deficit,” Bespoke Weather Services said.

The firm is looking for a large storage draw announcement on Thursday with record cold in the Midwest last week. However, “the number appears likely to be rather unimpressive on a weather-adjusted basis as supply increased around the cold shot and demand did not spike quite as much as expected,” Bespoke chief meteorologist Jacob Meisel said. With far smaller draws to follow, we see storage concerns as rather minimal at current prices overall.”

Tudor, Pickering, Holt & Co. analysts agreed, noting record production has allowed the market to maintain a 2.0 Bcf/d weather-adjusted oversupply so far this season. With supply adds equaling demand adds in 2019, the firm expects the oversupply to persist and push inventories toward the high end of the five-year range by the end of the 2019 injection season.

“While next week will likely be a bullish print, it will do little to sway the pervasive bearish sentiment,” analysts said.

Spot Prices Slip Outside of West

Spot gas prices softened Monday as rising temperatures pressured markets across the country, with some of the most significant decreases seen in the Northeast, where below-freezing temperatures last week led to the temporary shutdown of the Hope Creek nuclear plant after ice accumulated on screens used to filter out debris before water from the Delaware River is pumped into the plants.

The latest weather outlooks showed that much milder conditions have arrived across the Midwest, Ohio Valley and Northeast, with highs expected to reach the 40s and 50s the next several days, according to NatGasWeather. Meanwhile, “it feels more like spring” across the southern United States as temperatures were forecast to reach the upper 60s to 80s, including the 80s up the Mid-Atlantic Coast by mid-week, the firm said.

There are expected to be cold shots across the Mountain West and Midwest this week for locally strong demand, while heavy rain and snow was sweeping across California into the Southwest. Cold air was expected to release out of the northern Plains by Friday, sweeping across the Midwest and Northeast into the weekend for a swing back to strong national demand as lows were forecast to drop below zero in areas from Chicago to New York City and where recent weather data has been a little bit colder, NatGasWeather said.

As for prices, New England next-day gas took the biggest hit as Tenn Zone 6 200L plunged $1.435 to $3.015. Transco Zone 6 NY was down 17.5 cents to $2.545.

Texas Eastern M-3, Delivery next-day gas tumbled nearly 18 cents to $2.47, more so than other pricing hubs in Appalachia as flows resumed on a portion of the pipeline that had been restricted.

Texas Eastern Transmission (Tetco) last Friday lifted the force majeure relating to the unplanned outage on its Marietta, PA, compressor station. Eastbound M3 restrictions were restored by around 400 MMcf/d, according to Genscape Inc.

The force majeure from Tetco’s 30-inch diameter line explosion near Berne, OH, remained in effect, but Genscape’s aerial photography indicates notable progress. Additionally, the operational flow order on the M3, M2 30-inch line, M2 24-inch line, and M1 24-inch line were all lifted over the weekend, according to Genscape natural gas analyst Josh Garcia.

Transco Zone 5 in the Southeast fell 17 cents to $2.585, while most pricing hubs across Louisiana were down more than a dime. Henry Hub fell 14.5 cents to $2.535.

Meanwhile, Destin Pipeline receipts dropped roughly 400 MMcf/d during the weekend, resulting in a 500 MMcf/d decline since Jan. 29, Genscape said. The pipeline posted an initial operational alert notice on Friday stating that due to the unplanned maintenance on its offshore 24-inch line, all receipt points would be impacted.

“Later that day, the pipeline posted a force majeure notice that it would be unable to provide transportation service from the offshore points Delta House, VK 989 Mica, MP281, MP283 and VK900 Gemini,” Genscape analyst Nicole McMurrer said. No timeline for return to service has been provided.

In West Texas, price declines in the region rivaled those seen on the East Coast. Waha plunged $1.395 to average just 8.5 cents.

West Coast prices, however, were the only ones in the black to start the week as solid gains of more than $1 were common across the region. Opal in the Rockies shot up $1.62 to $4.845, and PG&E Citygate spiked $1.28 to $4.755.