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Natural Gas Futures Extend Gains Despite Fluctuating Weather Data; Spot Gas Still Mixed

A choppy day of trading ended on a positive note for natural gas futures prices Friday as the latest weather forecasts added back the demand that was lost in overnight datasets. The Nymex March gas futures contract edged up 2 cents to settle at $2.717/MMBtu. April was up 1.5 cents to $2.739.

Spot gas prices remained mixed as mild weather forecast for the weekend was expected to give way to a brief cold snap on Monday. The NGI Spot Gas National Avg. fell 13.5 cents to $2.945.

With the last weeks of the winter season quickly winding down, all eyes have been on weather and the possibility of more cold returning before spring-like temperatures arrive. Weather models have been in agreement on that happening late in the week, but not before a mild break that was forecast to last several days.

Overnight model runs were generally warmer overnight, with the projected gas-weighted degree days (GWDD) count a little lower than what was seen Thursday afternoon, according to Bespoke Weather Services. The American and European models did not change the theme of an impressively cold pattern in the first week of March, once the cold in the western half of the nation finally slides farther east, but simply lowered the intensity of cold, overall, by a small amount, it said.

The latest midday Global Forecast System model was again milder for late next week, but held colder trends for March 6-9, overall adding back the five heating degree days (HDD) that were lost Thursday night, according to NatGasWeather.

“What happens March 8-11 is uncertain” as to whether the cold continues, but where more recent data suggests better odds of it occurring. “It’s at least a modestly bullish pattern overall with accumulated 15-day HDDs running considerably greater than normal,” the firm said.

The coming span of cold weather has market observers cautious of the potential impact to storage supplies. On Thursday, the Energy Information Administration (EIA) reported that inventories for the week ending Feb. 15 fell 177 Bcf to 1,705 Bcf, which put stocks 73 Bcf below last year and 362 Bcf below the five-year average.

Weather adjusted, the market was roughly 1.0 Bcf/d undersupplied, breaking a multi-month trend of a persistent 2.0 Bcf/d oversupply, according to Tudor, Pickering, Holt & Co. (TPH.)

“A shift in the market balance comes as a surprise and reinforces our caution around reading too much into a single data point,” analysts said. “We'll be looking to subsequent data points before declaring the oversupply gone, as it's difficult to believe the balance swung about 5.0 Bcfd week/week.”.

With a polar vortex poised to begin its march across the continental United States, however, it is easy to see the roughly 17.5% deficit to five-year inventories deepening in the coming weeks, the firm said. “The flip side is that by injection season, continued strength in U.S. production (up about 10.7 Bcfd year/year) means that inventories likely build at an accelerated pace....”

Growing liquefied natural gas exports (LNG) will also be watched closely this summer as existing export capacity is set to double this year. Volumes were up around 0.55 Bcf/d at Cheniere Energy Inc.’s Corpus Christi facility during the week of Feb. 11-15 as the project exits its maintenance period and prepares for a late-February commercial in-service, TPH said.

Liquefaction-driven gas consumption has rebounded from late January and early February, when both the Corpus Christi and Sabine Pass export facilities sharply reduced flows for commissioning and maintenance activities, respectively.

Even with a reduction in flow, however, U.S. LNG facilities have consumed an average of 3.9 Bcf/d since the beginning of the year, up 1.3 Bcf/d (50%) versus the 2016-2018 maximum for the same period, according to EBW Analytics Group.

LNG facility utilization rates are likely to remain elevated for the rest of winter but may once again tumble this spring as demand wanes and maintenance turnarounds begin, releasing additional gas onto the market and pressuring cash prices, EBW said.

“The timing of LNG train additions will factor heavily into the 2019 injection season outlook, with an expected doubling of nameplate liquefaction capacity critical to mitigating expected oversupply,” EBW CEO Andy Weissman said.

Spot Gas Still Mixed

Spot gas prices were mixed Friday as heavy showers were occurring along a boundary between the cooler central United States air and milder conditions over the Southeast and Mid-Atlantic, according to NatGasWeather. High pressure was forecast to further strengthen across the South and East through the weekend, bringing unseasonably mild conditions over the Ohio Valley and Northeast and even warmer weather across the Southeast and Mid-Atlantic Coast.

A quick cold shot was forecast across the Great Lakes and Northeast Monday for stronger demand, although temperatures were expected to quickly warm back up Tuesday to Wednesday, the forecaster said.

Given the erratic weather pattern during the next few days, Northeast prices were mixed. Tenn Zone 6 200L spot gas rose 45 cents to $3.885, while Transco Zone 6 NY fell 12.5 cents to $2.665.

Appalachia prices were more uniformly down, although losses were capped at a nickel at the majority of pricing hubs.

In the Southeast, spot gas prices slipped as much as 8 cents, while Louisiana prices budged a few pennies in either direction.

Midcontinent spot gas rose more than a nickel at most locations, but most Midwest gains were limited to less than that.

Spot gas prices in West Texas continued to tumble amid steep sell-offs on the West Coast and in the Rockies. Waha plunged 38 cents to $1.24.

Meanwhile, planned maintenance on Westcoast Transmission in British Columbia that was set to begin over the weekend and last through early this week could limit flows by as much as 375 MMcf/d, according to Genscape Inc. A cleaning tool run scheduled for Saturday would require Station 4B South operational capacity to drop to 1,272 MMcf/d, which would represent a cut of about 375 MMcf/d versus the month-to-date average. Capacity was projected to rebound to 1,552 MMcf/d on Sunday, but then drop again on Monday to 1,407 MMcf/d -- a cut of about 250 MMcf/d.

“Westcoast revised this maintenance plan Thursday, reducing Saturday’s capacity significantly. The pipe currently has additional highly restrictive maintenance scheduled for this coming Wednesday and Thursday,” Genscape natural gas analyst Joe Bernardi said.

Given the cuts to flows, Northwest Sumas in the Rockies shot up around $11 to average $16.65. Most other Rockies locations fell more than $1.

Substantial losses were also seen across California, and SoCal Citygate unsurprisingly took the top prize for the steepest day/day drop in the region. SoCal Citygate spot gas plunged almost $6.50 to average $6.46. Malin was down $1.35 to $4.03.

Meanwhile, in Western Canada, the unrelenting chilly air has led to a widening storage deficit in the region. The recent storage draw came in at 18 Bcf, 6 Bcf larger than the five-year average, “putting the storage deficit at a healthy 7% versus five-year norms,” according to TPH.

The gap is expected to widen further next week, thanks to Jack Frost's death grip on Western Canada as the firm is calling for a 16 Bcf draw, twice the normal amount.

“On the back of the cold weather, AECO prices have stayed resilient with February spot prices averaging above C$2.60/Mcf. However, pricing strength isn't expected to stick around with the 2Q2019 forward strip falling to C$1.25/Mcf and 2019 sitting at C$1.45,” TPH analysts said.

NOVA/AECO C traded at Cdn$3.22/Gj Friday, up 9 cents.

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