Despite weather trending milder for the next week, natural gas futures prices strengthened Tuesday as the back end of forecasts showed cold weather returning and possibly lingering through the first third of March. The Nymex March gas futures contract settled 3.7 cents higher at $2.662. April climbed 4.1 cents to $2.697.
Spot gas prices also strengthened Tuesday as a winter storm was likely to hammer the Great Lakes, Ohio Valley and Northeast into Wednesday. With showers and cooling also sweeping across North Texas and the South and chilly air lingering over the West, the NGI Spot Gas National Avg. rose 26 cents to $3.54.
The current blast of frigid air is expected to be followed by mild temperatures that are forecast to last through early next week. Meanwhile, confidence in widespread Week 2 cold increased through the weekend as models moved more convincingly toward an upstream negative Eastern Pacific Oscillation/positive Pacific North American teleconnection duo that could spread intense cold into the Midwest and eventually East, according to Bespoke Weather Services.
“This fits with our expectations given upstream Madden Julian Oscillation propagation and allows us to likely see very significant cold through the first third of March. From there, we are concerned the pattern breaks down and we moderate into mid-March, but we have at least a few weeks of risk skewed solidly colder before we would look to for temperatures to finally normalize sustainably,” Bespoke chief meteorologist Jacob Meisel said.
The latest midday Global Forecast System model trended a little milder, losing eight heating degree days (HDD) but still six HDDs more than Monday’s data and holding much colder-than-normal conditions over the northern two-thirds of the United States Feb. 28-March 6, according to NatGasWeather.
“The data remains a bit too mild late this week through early next week to impress and the primary reason the coming pattern is only modestly bullish instead of strongly bullish,” the firm said.
EBW Analytics went a bit further and said that the coming cold pattern is too little too late. “By the time the dust settles, the March contract is likely to continue to lose ground -- albeit slowly.”
This late in the winter, the risk of a storage squeeze is over, according to the firm. With hours of sunlight increasing every day, the withdrawal season is reaching a stage during which even a major cold weather anomaly has only a moderate impact on demand.
“Absent a huge shift in the weather forecast, therefore, the risk of a storage squeeze this winter is over, limiting the upside potential for Nymex natural gas,” EBW CEO Andy Weissman said.
If that were all there was to the story, the March and April contracts -- already in contango versus the rest of the curve -- would be likely to immediately come under further downward pressure to avoid excess gas accumulating in storage during this year’s injection season. “At least for the next three weeks, however, demand is likely to be strong enough to prevent cash market prices from cratering,” Weissman said.
Energy Aspects analysts agreed that a colder-than-normal March could help to relieve some downward pressure on prices during the upcoming injection season. Under a 10% colder-than-normal scenario for March, combined residential/commercial and industrial heating demand would increase by just under 2 Bcf/d, with power sector gas demand likely to grow nearly 3 Bcf/d versus its estimate under 10-year normal weather.
“Given the heating and power impacts, the end-March storage carryout would be around 1.1 Tcf,” Energy Aspects analysts said.
Meanwhile, a 5% colder-than-normal scenario for March would put end-March carryout at 1.2 Tcf, although freeze-offs could push that carryout figure even lower.
The latest production data from Genscape Inc., however, shows that production is in the midst of a steady rebound as freeze-offs and maintenance relinquish their grips, and the Haynesville resumes growing.
The firm’s estimate of Sunday’s Lower 48 production topped the 86 Bcf/d mark for the first time since Jan. 14. Sunday’s output versus the start of February is more than 2.15 Bcf/d higher, according to Genscape senior natural gas analyst Rick Margolin.
More than half of the increase from month’s start (plus 1.5 Bcf/d) is from the East, with each sub-region posting 0.3 Bcf/d higher volumes. The East has been hit by a combination of maintenance events on major mainline and processing plants, as well as freeze-offs. Genscape’s analysis shows freeze-offs in the East knocked out more than 1.8 Bcf/d of production earlier this month.
Gulf Coast production gains are also driving the rebound from Feb. 1. Gulf Coast production is up nearly 0.76 Bcf/d with the return-to-service of Destin Pipeline offshore and sustained growth out of the Haynesville. Genscape’s estimate of North Louisiana production on Sunday reached a record 8.26 Bcf/d, nearly 0.4 Bcf/d higher than the start of February.
“While gas prices have again come back down to earth past the early winter spike, rigs in the Haynesville have increased, but we don’t see this as simply temporary,” Margolin said.
Meanwhile, gradually easing freeze-offs are helping San Juan volumes contribute to the overall uptick (up 0.17 Bcf/d from month’s start.) Rockies production however, has yet to fully recover. Current Rockies production is lurking around the 10 Bcf/d mark, about 0.23 Bcf/d below the month’s start. Genscape’s analysis shows the region started losing volumes right after Christmas and continues through today.
“At its peak, freeze-offs knocked out more than 0.8 Bcf/d of Rockies production (gas day Jan. 4) and currently is choking back more than 0.5 Bcf/d. The brunt of the impact tends to be around the Opal Hub and Bakken areas,” Margolin said.
The bump in production and increased imports explain some of the weakness along the futures strip, however, Bespoke expects to see a far more supportive storage withdrawal on Thursday and increasing cold risks moving forward.
This “should keep $2.60 firm as demand tightens over the coming week and puts $2.70 and $2.75 resistance in play through the week. It may be difficult for prices to move much higher given rebounding production and spreads that are not supportive, but we still see a firm floor for prices this week as risk overall looks skewed to the upside with bullish weather/demand,” Meisel said.
Spot Gas Rallies On Cold
Spot gas prices were higher at most pricing hubs across the country as a frigid cold shot was forecast to continue across the central and northern United States into Wednesday, according to NatGasWeather.
With lows of minus 10 to 20s, the coldest weather was expected across the Midwest to Northeast. Texas was also expected to be rather chilly as a weather system sweeps through with rain and snow showers, and the West was forecast to remain cool to cold.
High pressure remained on track to build across the southern and eastern United States Wednesday into early next week, however. Conditions were forecast to become unseasonably mild over the Ohio Valley and Northeast as highs reach the 40s and 50s, while spring-like temperatures take over the Southeast and Mid-Atlantic Coast, where highs will reach the upper 60s to 80s, the firm said.
Given the moderating outlook for the next week or so, the bulk of this week’s HDDs are concentrated in western and northeastern markets. Genscape shows demand “topping out Tuesday at around 105 Bcf/d, falling to a low of 88 Bcf/d by the weekend, then returning above the 100 Bcf/d level by next Monday,” Margolin said.
Interestingly, only points along Transcontinental Gas Pipe Line in the Northeast posted gains. Transco Zone 6 non-NY jumped 26 cents to $2.93.
Appalachia prices rose as much as 24 cents at Texas Eastern M-3, Delivery, which hit $2.825, while most pricing hubs in the Southeast rose less than a dime.
Midcontinent gains were capped at less than 20 cents, while benchmark Henry Hub tacked on 7.5 cents to $2.68.
While prices were up across Texas, it was points in the western part of the state that posted the largest increases. Waha jumped 16.5 cents to $2.065.
The strong prices seen in the region aren’t likely to last, however. Some of the strength seen in the region in recent weeks has been because of lower Pacific Coast renewable generation, according to EBW. Pacific Coast renewable generation has averaged 361 GWh/d since the beginning of the year, down 107 GWh/d (-22.9%) versus the same period in 2018.
“Both hydro and non-hydro renewable output are down year/year, with lower Pacific Northwest hydro generation responsible for the bulk of the decline versus winter 2018. All else equal, lost renewable output has contributed to an incremental 0.15 Bcf/d of regional power sector natural gas demand since the beginning of the year,” Weissman said.
The year/year shortfall is likely to narrow considerably this spring, however, from so-called atmospheric river conditions across Northern California dumping ample rain and snowfall this winter. Incremental renewable output is likely to tamp down on power sector natural gas demand and weigh on regional gas prices, according to EBW.
Indeed, runoff levels at the Columbia River Dalles Dam bottomed out in late January at just 84% of normal, according to National Oceanic and Atmospheric Administration data. But recent storms that have brought significant rain -- and record demand -- to the region have since boosted runoff levels to about 87% of normal.
In California, lower hydroelectric imports from the Bonneville Power Administration have laid the groundwork for stronger baseline gas burn this winter. And with the wet, wintry mix of storms bolstering demand in the region at the same time that storage restrictions have been in place, prices have been volatile.