- Returning polar air sends March natural gas futures higher on expiry
- Some pullback in demand in latest weather outlooks sends April lower
- Spot prices still weak enough to incentivize cash purchases versus storage
- Spot gas mixed; Northwest Sumas surges on new Westcoast restrictions
Natural gas futures strengthened for a fourth consecutive day at the front of the curve as frigid air was set to bring in one of the coldest starts to March in U.S. history. Intensifying cold in some of the recent weather data helped send the Nymex March gas futures contract rolling off the board Tuesday at $2.855, up 1.9 cents. April, which becomes the new prompt month, settled 1.9 cents lower at $2.796.
Spot gas prices were also mixed as cold air lingered across the northern United States, with some of the chilliest weather across the Midwest. The NGI Spot Gas National Avg. rose 19.5 cents to $3.535.
Tuesday’s action on the futures front was convincingly stronger early Tuesday as overnight weather models again moved a little colder, especially the Global Ensemble Forecast System (GEFS) model, as the European ensemble was close to unchanged versus Monday afternoon, according to Bespoke Weather Services. The overall changes were not as strong as those during the weekend, but again pushed the opening week of March even colder, “making it one of the coldest starts to March seen in the historical record,” Bespoke chief meteorologist Jacob Meisel said.
The tropical forcing of the pattern still lines up nicely with cold across much of the United States in this time frame, but it also continues to show signs of progressing into milder weather toward the middle of the month, according to Bespoke. The ends of the ensembles were still moving in that direction, especially in the early morning GEFS run.
The midday Global Forecast System data was milder trending throughout the next two weeks to lose around 15 heating degree days (HDD), although it was much colder than the rest of the weather data, so it's now better in line with the others, according to NatGasWeather. The pullback in demand, however, trimmed earlier gains of as much as 7 cents for the March contract.
The focus for the next several days will be whether the March 10-13 warm ridge continues to hold in the weather data across the southern and eastern United States, and if so, how long it will last, NatGasWeather said. Overall, it viewed the pattern as moderately bullish, but said it would look more so if warming wasn't favored across the southern and eastern part of the country March 10-13.
“Bulls appeared to be gaining control going back to last week, but with prices selling off after being up 5 cents overnight, it’s possible bears have been waiting to sell the bounce hoping for milder-trending weather data after many successive days of trending colder,” the firm said.
Furthermore, it may be important to keep any eye on cash prices, according to EBW Analytics. “With projected end-of-March storage still at acceptable levels, the likelihood of a steep price spike remains low,” EBW CEO Andy Weissman said.
Energy Aspects analysts agreed that despite current balances indicating an end-March carryout just below 1.1 Tcf, a level similar to last year, it has not had much of an impact on pricing. Henry Hub cash has generally averaged below $2.70 in recent weeks. At that price point, physical purchases would likely be cheaper than a utility’s weighted-average cost of gas already in storage, especially given prices last injection season averaged more than $2.90, according to the firm.
“Such a price dynamic may help to keep gas prices bid, especially with another withdrawal on the order of 200 Bcf forecast for the week ending March 8. Thereafter, based on 10-year normal weather, the withdrawal rate is anticipated to shrink substantially as the market starts to transition to the injection season,” Energy Aspects analysts said.
With the March-December 2019 strip roughly equidistant from its 12-month low and 12-month high, the market appears to be debating the impact of beginning injection season with a sizable storage deficit and expected weather-adjusted looseness through at least the first half of summer, according to Mobius Risk Group. The firm views price changes during the past couple of weeks, including Monday’s substantial uptick, as an indication that $2.75 support remains robust.
“While volatility may be heightened for the next few weeks, it is certainly plausible that this summer could shape up similar to last year in that near-term prices could bounce around in the $2.75-$3.00 range,” Mobius analysts said.
Most Cash Prices Extend Gains
Spot gas prices continued to rise across much of the United States on Tuesday despite milder weather forecasts for the next few days. Most gains were limited to less than a quarter, although strong demand and another round of restrictions on Westcoast Transmission sent Northwest Sumas next-day gas to the fourth highest level since November.
Westcoast Station 4B South capacity will be limited to 1,272 MMcf/d on Wednesday and to 1,074 MMcf/d on Thursday, while the month-to-date average flow is 1,622 MMcf/d, according to Genscape Inc. This puts 350 MMcf/d and 548 MMcf/d at risk of being cut, respectively.
The average operational capacity at 4B South for the next 10 days starting Wednesday will be 1,263 MMcf/d, according to the pipeline’s latest maintenance schedule, “which would represent a cut of 359 MMcf/d versus the previously mentioned average,” Genscape natural gas analyst Joe Bernardi said.
Northwest Sumas prices have been extremely volatile during the last week as other maintenance events have cut flows at a time of strong demand from the cold weather. And with Genscape meteorologists forecasting sustained colder-than-normal temperatures for the Pacific Northwest through the coming weekend, Northwest Sumas spot gas shot up nearly $22 to average $39.405. Trades were seen as high as $50.
On the West Coast, prices moved lower despite conditions remaining cool and unsettled as weather systems continue to track through the region with rain and snow. Daily low temperatures for Los Angeles in February so far have averaged below 50 degrees, while daily lows in Sacramento have averaged just 40 degrees, according to Energy Aspects.
“March in the region can either be a net injection or a net withdrawal month, depending on weather (the first seven days of March are expected to be nearly 15% colder than normal),” the firm said.
With the cold weather widening storage deficits in recent weeks, Energy Aspects expects total end-March storage to be 75 Bcf (a year/year deficit of 50 Bcf) at Pacific Gas & Electric (PG&E) and 36 Bcf (a year/year deficit of 12 Bcf) at Southern California Gas (SoCalGas).
“For SoCalGas, that deficit does not appear severe, but it is only some 15 Bcf greater than its post-polar vortex carryout and carries with it limited operational flexibility this year,” Energy Aspects said.
There is a risk premium for SoCalGas around a potential heatwave amid a constrained system where limited storage withdrawals (Aliso Canyon) and limited pipeline receipts could force price spikes on high demand days, according to the firm. “Just such an occurrence caused record cash prints in July 2018. This concern is manifested with a May-December spread just over $2.00. Forward spreads for PG&E are not as extreme given low storage but no major operational constraints, with the May-December spread at 50 cents.”
While next-day prices were down across the state Tuesday, SoCal Citygate fell hardest, plunging nearly 40 cents to $4.84.
The overall weakness in California spilled over into West Texas markets as well, where a force majeure was already cutting flows from the Texas Panhandle and Oklahoma.
Natural Gas Pipeline Company of America (NGPL) issued the force majeure on Sunday because of a suspected pipeline leak and reduced northbound flow capacity into its Midcontinent Zone from its Permian Zone and from its Segments 5 and 6, which largely bring on production from southwestern Oklahoma and the Texas panhandle.
Beginning with Monday’s gas day and continuing until further notice, NGPL is limiting the combined receipt capacity to 83 MMcf/d for segments 5 and 6, Genscape said. “This limitation was originally posted as 181 MMcf/d, but was revised down in a subsequent notice Monday.
“The affected points’ receipts have averaged roughly 308 MMcf/d in the previous month, so this portion of the force Majeure cuts 222 MMcf/d,” Genscape analyst Matthew McDowell said.
Additionally, Permian Zone outflows into NGPL’s Midcontinent Zone will be limited by as much as 13%. Thus far, this cut has actualized as a drop of 9% versus the previous month’s average, or about 30 MMcf/d, McDowell said.
Given the trapped gas and weakness in California, Waha cash slipped 3.5 cents to $1.13.
Meanwhile, an unplanned maintenance event is cutting about 150 MMcf/d on the El Paso Natural Gas (EPNG) South Mainline. Flows on the high pressure system at the “ORACLE” throughput meter north of Tucson, AZ, dropped 89 MMcf/d day/day because of the unplanned repairs.
This event, which was announced Monday and took effect with Tuesday’s gas day, requires an operating capacity limitation of 413 MMcf/d, which is 148 MMcf/d below the previous 30-day average, according to Genscape.
“Past flow cuts at Oracle have not corresponded with reroutes of flows onto EPNG’s intermediate or low pressure systems. El Paso currently lists the end date for this work as Thursday, although this may be revised to end earlier or to extend into March,” Bernardi said.
Across the country on the East Coast, spot gas prices were mixed as sharp swings in both directions were seen. Algonquin Citygate tumbled 35 cents to $6.50, while Tenn Zone 5 200L jumped nearly a quarter to $5.445.
The weakness at Algonquin comes despite lingering cold in the region, just days ahead of more sustained Arctic air this weekend. Genscape projected New England to reach around 45 average HDDs on Wednesday, up 14 average HDDs from Monday.
Despite Tuesday’s decline, with prices still remaining well above $6, the absence of liquefied natural gas imports from Northeast Gateway is evident. “These volumes have gone a long way in keeping Algonquin Citygate prices down during previous cold spells this winter by providing alternative supply to demand downstream of Burrillville that are normally supply constrained,” Genscape analyst Josh Garcia said.
Northeast Gateway last received imports on Feb. 21. With no storage at Northeast Gateway, “ships must be present to provide that supply as needed, and no ships are currently headed that direction,” Garcia said.
Meanwhile, the frigid cold shots with lows of minus 20s to 20s are expected to arrive over much of the country this weekend and last through next week, according to NatGasWeather. As such, Genscape’s Daily Supply & Demand report showed near-term demand increasing, adding about 64 HDDs to the two-week outlook since last Friday.
“This is generating the addition of 91 Bcf of demand over the course of the two-week period, with most of the additions impacting the week ending March 8,” Genscape senior natural gas analyst Rick Margolin said.