After shedding nearly a quarter during the last four trading sessions, March natural gas prices managed to end Tuesday in the black -- but barely -- as major weather model differences continued between the milder Global Forecast System (GFS) model and the colder European model. The Nymex March gas futures contract climbed two-tenths of a cent to settle at $2.662, while April rose eight-tenths of a cent to $2.65.
With weather models remaining at odds, Tuesday’s modest increase was likely because of natural gas traders taking profits ahead of a very brief cold snap forecast for the coming weekend. Cold air was set to return to the Midwest and Northeast beginning Friday and lasting through Sunday, with forecasts calling for overnight temperatures to drop below zero in some areas and top out only at around 20 degrees.
There are expected to be several notable swings in national demand through mid-February, but milder breaks between cold shots is preventing the pattern from looking more intimidating, especially in the Global Forecast System (GFS) model, according to NatGasWeather. Midday data Tuesday showed that the GFS model finally trend a little colder with next week's system to add several heating degree days (HDD), “but still with total HDDs lagging the European model and not nearly as impressive.
“It would go a long ways for the bullish case if the GFS model were to trend colder Feb. 11-17 to better match the European model, especially since both models continue to tease a rather chilly pattern arriving across much of the country Feb. 19-21,” the firm said.
Despite the prospects for more chilly weather later this month, the market has shown very little concern in these late innings of winter, according to Mobius Risk Group. Supporting this sentiment is a salt storage balance that remains mired in a meaningful year/year surplus, healthy injections during the past weekend and Monday’s balance-of-the-month strip at Henry Hub, which signaled a possible continuance of the trend through February.
“However, it is still winter and change can come about quickly. It is important to consider that Monday’s market was forced to deal with deleterious demand impacts of the second warmest Feb. 4 in the past 69 years” and potentially the sixth warmest Feb. 5 in the past 69 years, analysts said.
Because of this week’s extreme warmth and the short duration of the cold shot forecast for this weekend, upside risk/opportunity will rely heavily on Thursday’s Energy Information Administration (EIA) inventory report and/or daily weather models, Mobius said.
“A weaker-than-expected EIA number and/or warmer progression could cause the front of the curve to press round number support at $2.50. While the fundamental argument for such a move is anything but concrete, momentum can be a powerful force when withdrawal season is coming to a close,” analysts said.
Indeed, the March/April contract spread -- a measure of market winter risk premiums -- has tightened dramatically since the beginning of winter, falling from a high of $1.16 in mid-December to less than 2 cents after Tuesday’s close.
Early November and December cold prompted a wide March-April spread amid market concern about late winter supply adequacy, according to EBW Analytics. The January forecast bust, however, prompted the spread to shrink dramatically as late March inventories looked to be on a safe trajectory, even as subsequent concerns about February cold drove a modest rebound.
“With late winter supply adequacy concerns all but eliminated, it's likely the March contract will begin trading at a discount to April as the Nymex forward curve slips into contango,” EBW CEO Andy Weissman said.
Expectations for the upcoming storage report are for a withdrawal near 250 Bcf, about 100 Bcf larger than the five-year average of a 150 Bcf pull. While that would extend current deficits, the report would likely “give a huge chunk of the deficits back” because of very mild conditions over the South and East this week, according to NatGasWeather.
EBW currently pegs end-of-March inventories at around 1.3 Tcf.
Spot Gas Edges Higher
Spot gas prices also nudged higher Tuesday, with most markets taking a cue from the rebounding futures market. Some pricing locations in the West, meanwhile, were strong to start out the week and extended gains as stormy conditions were forecast for the region.
Elsewhere, mild weather was expected to continue across the Ohio Valley and East through Thursday, with daytime highs forecast to reach the 40s and 50s, according to NatGasWeather. It was forecast to be exceptionally comfortable across the southern United States and Mid-Atlantic Coast, with highs expected in the 70s and 80s.
The coldest air was expected to be confined to the northern Plains, where weather systems were forecast to track through, with highs ranging from below zero to the 20s, including rain and snow at times advancing across the rest of the Midwest, the forecaster said.
Given the chilly, stormy conditions out West, pricing hubs in the region tacked on meaningful gains Tuesday. In California, SoCal Citygate jumped more than $3 to $9.115 as demand on the Southern California Gas (SoCalGas) utility system climbed to two-year highs.
SoCalGas system demand reached 3,996 MMcf/d on Monday, its highest point since January 2017. The boost in demand stemmed from cooler temperatures across the Los Angeles Basin, which were running as much as 15 degrees below normal.
Meanwhile, regional imports have risen to 2,516 MMcf/d, which is not a winter-to-date high, although reported storage withdraws have climbed to a winter-to-date high at 1,337 MMcf/d, according to Genscape.
“On Saturday, SoCalGas issued its sixth voluntary curtailment of the winter season as part of the Aliso Canyon storage withdrawal protocol,” Genscape noted. “These request system customers to voluntarily reduce electricity consumption during periods of high demand for natural gas.”
The pipeline has also implemented operational flow orders for the system, which remained in effect on Tuesday. Rains and flooding are expected to abate starting Tuesday, but the below-normal temperatures are forecast to linger through the weekend, forecasts show.
Over in the Rockies, Kingsgate climbed $1.385 to $6.04.
Across the border in Canada, prices retreated a bit but remained comparably strong as Alberta was firmly in the grip of a blast of frigid Arctic air, which had sent provincial demand to all-time record highs and led to more than 1.2 Bcf/d of freeze-offs, according to Genscape. NOVA/AECO C slipped 8.5 cents to $3.025, but retained a nearly 50-cent premium to U.S. benchmark Henry Hub.
The $3 handle for Western Canadian gas comes as temperatures in Alberta have dropped precipitously, with daytime highs in Calgary coming in at minus 15 degrees and northern Alberta experiencing wind chills between minus 40 and minus 50, according to forecasts.
Meanwhile, Alberta production had averaged about 12 Bcf/d in the previous month before brutally cold weather hit the province this past weekend, sending production down below 10.75 Bcf/d, Genscape said.
“Over the weekend, Nova Gas Transmission Ltd. system-wide demand number rose above 7.0 Bcf/d for the first time this winter, and the fifth time ever,” Genscape natural gas analyst Joe Bernardi said. “It has eclipsed the previous all-time high by about 150 MMcf/d,”
NOVA/AECO C cash basis, meanwhile, has responded with a notable rise. After averaging minus $1.58 in January, basis came in at minus 58 cents last Friday and at minus 4 cents on Monday, according to NGI data and based on the latest exchange rate. “That mark of 4 cents below the hub is the highest since late 2015,” Bernardi said.
This intensely cold weather is expected to remain through most of the rest of the week, especially in the north, according to the extreme cold warning issued by the Canadian weather service, Environment Canada.
In the country’s midsection, small gains were seen at most pricing hubs, while farther east, increases were more notable in New England. At Algonquin Citygate, next-day gas shot up slightly more than $1 to $3.91, while Tenn Zone 6 200L rose $1.055 to $4.07.
On the pipeline front, Tennessee Gas Pipeline (TGP) on Monday posted a notice of emergent repair at a point along its system in Hidalgo County in South Texas. TGP noted that personnel were onsite and evaluating necessary repairs, however, no end date to the maintenance was cited.
For the duration of the TGP maintenance, operational capacity through pipe segment 490 that moves to the Mexican border was to be reduced by 194 MMcf/d. Thirty-day flows through the segment have averaged 440 MMcf/d, according to Genscape. Based on nomination history and timely cycle flows, it was estimated that roughly 53 MMcf/d exported to Mexico would be restricted.
“While total TGP exports out of South Texas are down today by about 60 MMcf/d day/day, our estimate of total South Texas exports (across all pipelines) is actually up 23 MMcf/d day/day with higher outflows on Texas Eastern Transmission and our proprietary monitored estimates of NET Mexico pipeline flow,” Genscape analyst Dominic Eggerman said.