Natural gas futures rallied to start the week as weather guidance trended colder with a weather system expected to hit the United States this weekend and others that would potentially last into March. The Nymex March gas futures contract climbed 5.9 cents to settle Monday at $2.642, while April jumped 5.5 cents to $2.659.
Spot gas prices, however, were mixed as weather conditions were expected to be rather mild in key demand regions for the better part of the week, before the cold snap moves into the country. Declines were steepest in California, where chilly temperatures remain but have eased a bit from the record levels seen last week. The NGI Spot Gas National Avg. fell 78.5 cents to $3.41.
With weather dominating Monday’s trading action, futures prices were strong even before the official start of the session as both the Global Forecast System (American) and European models were notably colder for the period beginning Saturday through Feb. 23. Statistically, the GFS added 10 HDDs total compared to Friday’s data while the European model add a heftier 18 HDDs, according to NatGasWeather. Before then, however, a mostly mild setup is expected for this week.
“While the coming cold shots into the northern and eastern United States Feb. 16-23 aren’t as extreme as recent ones, they don’t have to be with five-year average [storage] draws dropping to 104 Bcf three weeks out and much easier to exceed,” NatGasWeather said.
The midday GFS data didn’t change much, showing a mix of some days a little milder and some slightly cooler, but overall little changed in terms of 16-day total accumulated HDDs, the firm said. Still, the data must not have been as convincing, since the March contract had soared as high as $2.744 earlier in the session.
Meanwhile, indications are that the frigid conditions could have staying power with an active upstream Madden-Julian Oscillation propagation and climate guidance finally catching on to cold lingering into Weeks 3-4, according to Bespoke Weather Services. Any flexing of the southeastern ridge can temporarily eat into gas-weighted degree days (GWDD), which is possible, “but the bias into the end of February is clearly colder.”
The firm’s sentiment remains slightly bullish, as the natural gas market has priced in a decent chunk of the weekend GWDD additions already. “But given additional cold risks down the road and expectations of gradual market tightening moving forward with imports still near lows and exports back elevated, we still see risk skewed higher through the week,” Bespoke chief meteorologist Jacob Meisel said.
Furthermore, production is not yet back at highs, and although recent balances have been loose, the firm is seeing risks again that storage could dip below 1.2 Tcf should cold linger into March.
“This can keep a solid bid at the front of the curve and has us at least see $2.75 resistance finally in play again this week. $2.80 is certainly doable if we continue to add GWDDs as well, even with another bearish Energy Information Administration print likely Thursday,” Meisel said.
Regardless, after technical support held at $2.545 last week, at least a modest rebound seemed likely, according to EBW Analytics. A major bullish weather forecast shift over the weekend, however, “adds oomph to the rebound, creating the potential for prices to rise 12-15 cents above last Friday's close.”
Still, the firm sees last week's ultra-warm weather as having reduced the storage deficit to a more manageable level. “Even after this weekend's forecast shift, the withdrawals in Weeks 2-4 are likely to be far too small to create a storage squeeze during the short time remaining before the withdrawal season ends, limiting upside potential for Nymex gas,” EBW CEO Andy Weissman said.
EBW’s projected end-of-March storage inventory, as of Friday’s strip prices, is 1,240 Bcf.
If, however, the coming cold snaps draw gas stocks down more than expected, growing production should alleviate any renewed concerns about supplies, Weissman said.
Gas- and oil-directed drilling activity have moved in opposite directions recently, with a softening oil market outlook reducing incentives for incremental rig deployments. Gas-directed rig deployments, meanwhile, are at the highest level since last May and up by 15 since mid-December, according to EBW.
“Incremental deployments should filter into production growth over the next several months, potentially exacerbating market oversupply concerns and weighing on prices. It's likely the gas-directed rig count will decline once more as a result,” Weissman said.
Spot Gas Mixed On Messy Weather
Spot gas prices were mixed Monday as a messy weather pattern with numerous systems were forecast to bring areas of rain and snow, but also with mild breaks in between. The South and East were expected to warm early this week, but then a weather system Tuesday-Wednesday could bring rain, snow and cooling. That system was expected to be followed by another milder break late in the week, according to NatGasWeather.
The West, where unusually chilly conditions last week sent demand to record highs, was forecast to be mostly cool to cold and unsettled. The southern United States was expected to be mild to warm with highs of 60s to 80s, although cooling late in the week, the forecaster said.
On the minus side of the ledger, California markets posted the steepest declines of the day as pricing hubs across the region shed several dollars. Malin tumbled $8.415 to $5.75, and SoCal Citygate plunged $6.935 to $9.06.
In the Rockies, Northwest Sumas came off recent highs that were reminiscent of the spikes seen after the Westcoast Transmission explosion last October. Northwest Sumas spot gas plummeted $5.755 to $42.93.
The declines came even as demand remains strong in the region and supply challenges are ongoing. Current demand is up near 3.15 Bcf/d, the highest February demand levels have reached since 2014, according to Genscape Inc.
“The Pacific Northwest is in the bullseye of a train of storms sweeping in from Alaska featuring notably colder-than-normal temperatures and heavy snowfall,” Genscape natural gas analyst Joe Bernardi said. “Temperature forecasts indicate the below-normal pattern will continue through the 14-day window.”
To serve the demand, the region has been pulling in more than 1.3 Bcf/d of imports from the Rockies and Western Canada, as well as significantly holding back southbound flows normally destined for the Northern California market, according to Genscape. This comes as upstream supply hubs experience their own price volatility because of demand elsewhere and constraints on exporting systems. Net imports to the Pacific Northwest are averaging 2.55 Bcf/d this month-to-date, about 0.5 Bcf/d above last February and the average of the prior three years, Bernardi said.
In Texas, prices rose 10 to 20 cents across most pricing hubs, although Houston Ship Channel’s gain paled in comparison as it rose less than a nickel to $2.705. El Paso-Permian next-day jumped 21.5 cents to $1.515.
On the pipeline front, Destin Pipeline on Sunday completed maintenance on its 24-inch diameter lateral, lifting the force majeure that had been in effect since Feb. 1. However, impacted production had not yet fully recovered by early Monday, Genscape said.
Receipts had been impacted by as much as roughly 650 MMcf/d compared to 2019 peaks, but only about 215 MMcf/d has recovered since the initial outage, Garcia said. The majority of lost volumes is from Delta House and Okeanos.
Midcontinent spot gas prices tacked on anywhere from 3 cents to as much as 15 cents, although OGT tumbled 22 cents to $2.14.
In Appalachia, gains of about a dime were the norm. Tennessee Zone 4 Marcellus rose 15.5 cents to $2.55.
Meanwhile, the end of repairs on a section of Texas Eastern Transmission that exploded Jan. 21 was still unclear. Genscape on Friday flew a reconnaissance plane over the site of the Berne explosion site, and the site was still under heavy construction, “though it is not clear what remains to be completed or what the current efforts are towards completion,” natural gas analyst Colette Breshears said.
The firm’s analysts believe that there may be some additional repairs being made above and beyond the replacement of the ruptured section of pipeline, possibly including a second replacement across the original rupture area.
“The extent of the damage to the pipe and what needs to be repaired are still large unknowns. However, it does not look like this is a simple fix, and the pipe will continue to be out of service for some time,” Breshears said.
Prices in the Northeast were mixed. New England points declined as much as 12.5 cents and Transco Zone 6 NY jumped 13.5 cents to $2.835.
Transcontinental Gas Pipe Line updated available capacity at its market and production constraint locations. In a nutshell, the changes reflect increased North to South deliverability out of Z6 into Z5, but decreased deliverability (ie higher constraints) in Z6 NY and Z6 market laterals, according to Genscape.
“This corresponds with the elevated price volatility at Z6 that we saw during last month’s polar vortex, as well as decreased volatility in Z5 compared to Z6,” Josh Garcia said.