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Frigid Temps Boost Natural Gas Futures, Cash Prices

  • Nymex natural gas futures strip gains as weather models see colder end to February
  • Span of wintry temperatures could expand storage deficits before end of March, but analysts not concerned
  • Spot gas prices mixed, but substantial gains seen in regions expected to see chilliest weather
  • AECO slips, but relative strength so far this winter not seen lasting

The long Presidents’ Day weekend was too much to bear for natural gas traders facing another cold blast that was set to linger through the week. With the latest forecasts showing more chilly weather to finish out the month, and the latest models intensifying that cold, the Nymex March gas futures contract settled Friday at $2.625, up 5.2 cents. April rose 4.6 cents to $2.656.

Spot gas prices were mixed as two storms with snow, ice and rain were forecast to hit areas from the Midwest to the northeastern United States through the middle of the week, fresh on the heels of a light wintry mix set for the holiday weekend. Still, strong increases on the East and West coasts sent the NGI Spot Gas National Avg. up 22 cents to $3.28.

The spate of cold weather that was to begin during the weekend had been expected, but the possibility of more intense cold later this month is what has kept futures prices bouncing in and out of positive territory throughout the week. Overnight Thursday, weather model guidance trended toward an even more favorable long-range pattern, with a developing upstream negative Eastern Pacific Oscillation/positive Pacific North American duo that could allow significant cold to slide from the Midwest into the East into early March, according to Bespoke Weather Services.

A weak negative North Atlantic Oscillation looked to help intensify the cold as well, fitting  in with expectations as the firm looked for tropical forcing to continue gradually propagating. European guidance added a small number of gas-weighted degree days with Global Ensemble Forecast System guidance losing a few, “though losses were in the shorter-term, and we generally see them being canceled out by a long-range pattern that is significantly more favorable for sustained cold.

“These cold signals have struggled to roll forward in the current pattern in the past, but the most recent signal appears to have more staying power as it shows up across models and has been consistent for several runs,” Bespoke chief meteorologist Jacob Meisel said.

Indeed, the midday Global Forecast System model trended a bit colder for the Feb. 23-March 2 period, adding seven heating degree days (HDD) versus Thursday’s midday run and 14 HDDs compared to Thursday night’s data, according to NatGasWeather. The late European model added 12 HDDs versus Thursday’s runs.

Still, after the coming series of storms moves out of the country late in the week, a mild period of several days is expected. That is what has kept futures from gaining more ground, the firm said.

To its view, the weather data could trend a little milder beginning Thursday (Feb. 21) through Feb. 26, but colder trends continued to have better odds for the Feb. 28-March 3 period. “The risk is if the mild ridge over the East holds longer or stronger than what the data currently shows, and the reason we believe this could be a dangerous weekend to hold where the open is likely to be in the direction of temperature trends Feb. 28-March 5,” NatGasWeather said.

Regardless of the coming cold, the market had high confidence in adequate supplies for the duration of the winter and expected production growth should easily refill deficits, several analysts said. The next three storage weeks could push the deficit out by more than 40 Bcf per week and lead to the final month of withdrawal season beginning with a 150 Bcf-plus year/year deficit, Mobius Risk Group said.

“On one hand, this, coupled with a colder-than-normal start to March, could generate renewed buying interest. Alternatively, production is still up meaningfully year/year and enough so to embolden market bears,” Mobius analysts said.

For its part, Bespoke said although it was still possible for inventories to fall as low as 1.1 Tcf before the end of March, a sub-1 Tcf level was “essentially out of the question at this stage.”

On Thursday, the Energy Information Administration reported a 78 Bcf withdrawal that left inventories as of Feb. 8 at 1,882 Bcf, 30 Bcf below last year and 333 Bcf below the five-year average.

Gas burn was down around 4 Bcf/d week/week because of a large decline in degree days and demand, along with an uptick in wind and other renewables, according to Genscape Inc. Still, the firm saw a material increase in gas demand versus coal.

“Though total gas burn was down around 4 Bcf/d, the week/week decline in coal generation was significantly larger (especially in PJM and Southeast Electric Reliability Council). As a result, gas as a percent of thermal generation increased by 2% week/week across the United States as whole. This is precisely what we would expect given Henry Hub cash was down 40 cents versus the previous week,” Genscape natural gas analyst Eric Fell said.

The Feb. 4-8 week was a low demand week (roughly 235 average GW hours of thermal generation). Based on the large decline in overall thermal generation, gas burn would normally have been expected to be down around 5 Bcf/d last week, but price-induced coal switching added nearly 1 Bcf/d of gas burn, which reduced the w/w decline to around minus 4 Bcf/d, Fell said.

On a more macro level, the gas market was about 4 Bcf/d oversupplied on a weather-adjusted basis, according to Tudor, Pickering, Holt & Co. (TPH) To Friday month to date, February had been more than 3 Bcf/d oversupplied on a weather-adjusted basis, a roughly 2.0 Bcf/d increase from the January average, analysts said.

The 15% deficit to the five-year norm remains a function of inventories entering the 2018/2019 injection season at a roughly 600 Bcf deficit (15.5%), meaning that season to date, supply adds have equaled demand adds.

“However, despite having about 6% more total degree days than normal, cumulative 2018/2019 withdrawals are 16% below average,” TPH analysts said.

The firm continues to expect record supply keeping periodic cold spells in check before inventories begin building aggressively in April/May.

Spot Gas Mostly Higher

Spot gas prices were a mixed bag Friday as a series of storms was set to move across the country’s midsection during the holiday weekend followed by two more following quickly behind, driving up demand.

The storms were expected to hit population-dense areas including Chicago, Detroit, Pittsburgh, Baltimore, Philadelphia, New York City and Boston, according to AccuWeather. The first storm was forecast to be somewhat starved of moisture with gaps in precipitation across areas from the Midwest to the Northeast as a result, the firm said.

“Accumulations with this event spanning late Saturday to early Monday will generally range from a coating to a few inches,” AccuWeather senior meteorologist Alex Sosnowski said.

A wintry mix may extend across portions of West Virginia, northern Virginia, Maryland, Delaware and southern New Jersey to close out the weekend. By Monday morning, the snow was expected to wind down over New York and New England.

The big storm of the bunch was forecast to roll northeastward from the Gulf Coast on Tuesday and track along or just west of the Appalachians on Wednesday, then exit the Northeast on Thursday, according to AccuWeather.

“Since this storm will have a great deal of moisture available to it from the Gulf of Mexico and the Atlantic Ocean, a substantial amount of precipitation is likely,” Sosnowski said.

While heavy rain was likely to fall on parts of the lower Mississippi, Tennessee and Ohio valleys, southern Appalachians and the lower part of the mid-Atlantic, the storm was forecast to encounter progressively colder air to the north. As such, areas of ice, wintry mix and snow are in store, the forecaster said.

The storm and its moisture, similar to one that hit earlier this month, “will run into a dome of Arctic air over New England. High pressure associated with that Arctic air will put up some resistance and keep some areas below freezing until the very last gasp of the storm,” Sosnowski said.

Given the blast of frigid air, prices across the Northeast charged higher in Friday trading, which was for gas delivered through Tuesday. New England’s Algonquin Citygate jumped more than 80 cents to $3.855, and Transco Zone 6 NY rose 16.5 cents to $2.78.

Prices in Appalachia rose less than a dime, while Southeast markets were up as much as 12 cents.

Modest price shifts were seen at most other pricing locations across the country, outside of the West, which saw significant gains as the state continues to be battered by unusual winter storms at the same time that various supply restrictions were in place.

Kern River spot gas shot up nearly $1 to $8.215, while Opal jumped slightly more than that to average $8.255.

In California, SoCal Citygate rose more than $2.15 to $10.115, and PG&E Citygate jumped 90.5 cents to $8.665.

Interestingly, prices north of the border in Canada softened despite the ongoing frigid conditions in the country. NOVA/AECO C spot gas slipped a penny to C$2.845.

While AECO prices remained generally strong, “the problem is, one month of strong weather demand doesn't fix things, much like the perfect Valentine’s date doesn't make up for the prior 11 months of sub-par courtship,” TPH analysts said.

While the weather is helping draw down inventories and the price boost is certainly welcomed, TPH analysts expect to be market to be roughly balanced in 2019, “meaning it's hard to see pricing being materially better than last year.”

Western Canada reported a 21 Bcf draw for the week, ahead of TPH’s 19 Bcf forecast and the five-year average of 15 Bcf. That would put inventories 5% below the five-year average, which TPH expects to widen to 10% by the end of the month as the cold snap drags on. In Eastern Canada, the reported 12 Bcf draw was slightly below the five-year average draw of 14 Bcf, and storage sat 3% above the five-year average.

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