Natural gas futures prices put up modest gains Friday as weather models trended colder with a cold snap expected to hit the country around Feb. 18, and hinted at the possibility of more winter storms to follow. The Nymex March gas futures contract edged up 3.2 cents to settle at $2.583, while April rose 3.2 cents to $2.604.
Spot gas prices, meanwhile, were mostly lower as a mass of frigid air that blanketed the eastern half of the country was set to ease by the start of the week. Western markets posted the most significant declines but also remained among the highest priced in the country. Nevertheless, the NGI Spot Gas National Avg. rose 9.5 cents to $4.195.
Given the risk in holding short positions ahead of the weekend -- not to mention one in which weather conditions are forecast to be the second coldest of the winter so far -- traders sent the March gas contract to an intraday high of $2.616 before going on to settle a couple of cents below that level.
Still, the gains are rather modest given how low the March contract is currently priced and considering that there are still five weeks remaining in the calendar winter season. After all, last week’s Arctic blast sent total natural gas demand to a new single-day high, topping the previous record that was set a year ago.
Total estimated consumption by the power, industrial and residential/commercial sectors and total estimated natural gas exports -- by pipeline and as feedstock to liquefied natural gas (LNG) facilities -- reached 145.9 Bcf on Jan. 30, compared with the previous record of 143.9 Bcf set in 2018, according to data from PointLogic Energy.
The polar vortex in the Midwest and Northeast led to much colder-than-normal temperatures, with daily temperatures in the Lower 48 states averaging 28 degrees for the week ending Jan. 31, which was 6 degrees lower than the 30-year average for the same period and 11 degrees lower than year-ago levels, according to data from the National Oceanic and Atmospheric Administration (NOAA). The Midwest was the most heavily affected, with temperatures coming in at least 25 degrees below normal for three consecutive days.
Nicor Gas broke some of its records during the polar blast, delivering more than 4.8 Bcf to its 2.2 million customers throughout northern Illinois. This is the single largest delivery of natural gas in the company’s history and surpassed previous records set during the 2014 polar vortex.
The bitter conditions led to record send-out from Excelerate Energy LP's Northeast Gateway Deepwater Terminal offshore Boston. As strong demand in pipeline-constrained New England soared, the terminal reached a peak send-out flow rate of more than 800,000 MMBtu/d on Feb. 1, a first for the terminal.
The operation was completed by two of Excelerate's floating storage regasification units (FSRU), discharging in parallel through offshore buoys. At a flow rate of 800,000 MMBtu/d, this represents roughly the average gas demand of power generators during recent January-February periods, the company said.
Williams also said it also set a delivery record on Transcontinental Gas Pipe Line, aka Transco, the nation’s largest-volume natural gas transmission system. Transco delivered a record-breaking 15.68 MMDth on Jan. 21, surpassing the previous high that was set on Jan. 5, 2018. The Transco system, which stretches from South Texas to New York City, also established a three-day market area delivery record, averaging 15.30 MMDth from Jan. 30 to Feb. 1.
Despite the record cold, the natural gas market has remained largely unimpressed. Bearish sentiment became even more evident Thursday after the Energy Information Administration (EIA) reported a smaller-than-expected withdrawal from storage inventories for the week ending Feb. 1, which was the coldest of the winter so far. Inventories stood at 1,960 Bcf, 135 Bcf below last year and 415 Bcf below the five-year average, according to EIA.
Thursday's sell-off “most likely went a little too far a little too quickly,” EBW Analytics CEO Andy Weissman said. The longer term picture, however, remains bearish as a period of warmer-than-normal weather is expected to start near the end of the week.
Indeed, the latest weather models trended milder for that period, especially over the South and East, according to NatGas Weather. Models then turned colder with the pattern across the Great Lakes and Northeast Feb. 17-22.
The pattern for Monday through Friday (Feb. 11-15) “and beyond is messy with weather systems and associated cold shots sweeping across the northern, central and eastern United States every few days,” the firm said.
The breaks between cold shots over the South and East for the week continued to trend milder with high temperatures returning to the upper 60s to lower 80s across the southern United States, and the 40s and 50s over the Ohio Valley and Northeast, according to NatGasWeather.
“However, the back end of the forecast for Feb. 16-22 has trended back a bit colder overnight and in the midday Global Forecast System model, favoring stronger cold shots across the northern United States for a return to stronger-than-normal national demand.”
As for the European model, it too turned much colder in its Friday afternoon run, adding a hefty 20 heating degree days compared to Thursday night’s run and 10 HDDs compared to Thursday afternoon, according to NatGasWeather.
“Whether the data holds this trend through the weekend is where the danger lies,” the firm said.
Meanwhile, Nymex futures continued to strengthen after Friday’s close, hitting a high of $2.62 at presstime.
Based on the latest data, colder trends have better odds in the weeks ahead, according to NatGasWeather forecasters. “But even then, will that be enough to rally prices that refuse to get off the mat? Supplies are still relatively tight with deficits set to bounce between 300 and 425 Bcf the next several weeks. Although, the natural gas markets must see it as not intimidating enough, or prices wouldn't have continued the freefall this week.”
Looking ahead, most analysts see a continued retreat in prices as storage concerns have abated. Even with storage deficits, the market needs only modest supply growth from Appalachia (and likely declines in most other gas plays) to balance, according to Raymond James & Associates Inc.
Although the firm expects 2019 to be a positive year for gas demand as both exports to Mexico and outbound liquefied natural gas tanker activity ramp up, it also expects to see more associated gas supply growth from oil drilling. “However, we believe an increasing domestic gas supply and growth in renewables that are increasingly becoming more cost competitive with gas are putting further pressure on Henry Hub gas prices,” Raymond James analysts said.
Spot Gas Retreats As Cold Eases
Spot gas prices across most the country slid into the red Friday as the cold air that swept over the Midwest and into the southern and eastern United States through the weekend was expected to dissipate by Sunday, paving the way for far milder temperatures. The West, meanwhile, which had seen record demand in recent days, was expected to be unsettled and cool to cold, according to forecasts.
Still, it was the West that posted the steepest price drops, as market hubs across California and the Rockies shed several dollars but still remained among the highest priced in the nation after setting records in recent days.
PG&E Citygate spot gas fell about $3.325 to $14.385.
Meanwhile, Nova Gas Transmission Ltd. (NGTL) in Alberta experienced an unexpected flow reduction Thursday in its export capacity to the southwest. This disruption trickled down through the U.S. Pacific Northwest to Pacific Gas & Electric Corp. (PG&E), which has massively ramped up its storage withdrawals, according to Genscape Inc.
Subsequently, PG&E Citygate basis skyrocketed Thursday to a new record high for this decade at $15.11 before tightening Friday.
Farther south, SoCal Citygate spot gas fell $2.345 to about $16 even as Southern California demand remained exceptionally high at around 3.8 Bcf/d for Friday, which is down slightly from recent days when it was running at around 4.0 Bcf/d, according to Genscape.
“That 3.8 Bcf/d is still more than 33% higher than the January average,” Genscape natural gas analyst Bernardi said.
Meanwhile, the frigid air was forecast to continue through part of the week, and Aliso Canyon’s withdrawal capacity remains limited because of unplanned repairs.
Across the northern border in Canada, Alberta demand was still peaking from exceptionally cold weather stationed over the province, which has led to more than 4.4 Bcf of production lost to freeze-offs, Genscape said.
“NGTL’s export capacity to Foothills, BC, dropped to 88.5% of firm, translating to a about 450 MMcf/d drop in Foothills’ deliveries to Gas Transmission Northwest (GTN) at the Kingsgate border point, relative to the previous two-week average. GTN then distributed the effects of this cut with a roughly 350 MMcf/d decrease in its deliveries to Pacific Gas & Electric at Malin, along with a roughly 60 MMcf/d drop in deliveries to Northwest Pipeline at Stanfield,” Bernardi said.
Kingsgate spot gas dropped $4.335 Friday to average $14.315 as a return to more normal temperatures in the Rockies was expected during the weekend.
Elsewhere across the country, Northeast market hubs were among the only ones in the black on Friday. New England’s Algonquin Citygate jumped $2.175 to $5.05, while Transco Zone 6 NY rose just 14 cents to $2.70.
Prices across the Southeast and into Louisiana were mostly down less than a nickel, while Midcontinent prices tumbled as little as 4 cents and as much as 82 cents. Midwest pricing hubs posted more uniform declines of 5-15 cents.