As weather models continued to piece together an outlook on temperature trends into the second half of March, natural gas bulls and bears battled it out to a draw in the futures market Monday.
In the spot market, a frigid start to the month drove big gains from Texas into the Southeast and East, while prices moderated across much of the West and Midwest; the NGI Spot Gas National Avg. slid $1.385 to $4.610/MMBtu.
April Nymex futures settled at $2.857 Monday, down 0.2 cents on the day after trading in a range between $2.821 and $2.888. The May contract also settled at $2.857 after falling 0.6 cents on the day.
The midday weather data came in slightly warmer for next week but showed better potential for colder temperatures to develop across the United States March 16-20, including into the East, according to NatGasWeather.
“After this week there will be a mix of cold shots and milder breaks” making for a “relatively neutral pattern” starting Saturday (March 9) and continuing through March 15, NatGasWeather said. By the third week of March, both the American and European models “continue to favor colder than normal conditions returning across much of the country” to potentially return demand to stronger than normal levels.
Once the next three Energy Information Administration storage reports are accounted for, deficits could increase to close to 600 Bcf below the five-year average, according to the forecaster.
“Prices have been choppy...as bulls and bears battle for control,” NatGasWeather said. “Bulls have the momentum with prices well off the lows from recent weeks, but they need to hold $2.80 to maintain it.”
Based on past seasonal trends, it’s possible prices have established a floor and could work higher heading into the cooling season, EBW Analytics Group CEO Andy Weissman.
“Natural gas futures often bottom out in February or early March and then gradually rise in anticipation of peak summer demand,” Weissman said. “It’s possible that this scenario will repeat this year, driven in part by program trading and traders betting historical patterns will repeat.”
Weissman attributed Friday’s rally to the widespread near-term cold that has helped lift physical prices.
“Our analysis, however, indicates that at last Friday’s prices, the year-over-year storage deficit will quickly be eliminated starting in Week 4 -- and replaced by a surplus that could grow to 500 Bcf by the end of this year’s injection season unless prices fall. Further, starting in mid-April, injections could average nearly 110 Bcf during a 12-week period, stunning the market.
“Extreme cold weather is expected to start fading next weekend. Once it does and the market starts to look toward the injection season, prices are likely to start to fall slowly.”
Freeze Prompts Texas-Sized Gains
Freezing conditions probing deep into the southern United States helped spur spot prices higher in Texas Monday and sent benchmark Henry Hub north of $4.
Houston Ship Channel jumped $1.025 to average $4.365 as Radiant Solutions was calling for temperatures in Houston to average around 20 degrees colder than normal Tuesday and Wednesday, including lows in the upper 20s to low 30s.
“Frigid temperatures with polar air will cover the northern, central and eastern U.S. this week, resulting in very strong demand with widespread lows of negative 20s to 20s,” NatGasWeather said. “Subfreezing air is also expected deep into Texas and portions of the southern U.S., with lows of 20s to 30s” and into the teens in North Texas.
Meanwhile, after the arrival of unseasonably strong cold spurred big gains heading into the weekend, prices reversed Monday across the Midwest, Midcontinent and Rockies. Chicago Citygate dropped $4.615 to $4.350, while Panhandle Eastern fell $3.765 to $4.185.
Energy Transfer LP’s Panhandle Eastern pipeline declared a force majeure following a rupture and fire on its system in Missouri Sunday. According to the Audrain County Sheriff's Office, the rupture occurred about one mile north of Mexico, MO. The incident caused a road closure, but no serious injuries were reported.
“There were no injuries and the area is secure,” Energy Transfer spokeswoman Vicki Granado told NGI. “The line was immediately shut in to stop the flow of gas and let it burn out safely. There will be an investigation into the cause of this incident, but we do not have that information at this time. There have been no disruptions to service on our system.”
Panhandle said in a notice to shippers the explosion occurred downstream of the Centralia Compressor Station (CS). The pipeline said nominations through the Haven compressor in Kansas along the boundary between Panhandle’s upstream Field Zone and its Market Zone would be limited to 1,125,000 MMBtu/d following the incident.
The event is not likely to impact Panhandle’s Field Zone since “flow through the Haven CS has averaged 1.06 Bcf/d,” according to Genscape analyst Vanessa Witte. “Overall flow has decreased only 25 MMcf/d” between Sunday’s and Monday’s evening cycle nominations.
The pipeline’s previously announced “cold weather restrictions” on its system remained in effect and it advised shippers to “bring in physical flowing gas from their primary receipt point, or physical market area receipt meters downstream of this outage in order to avoid the constraint, and potential scheduling reductions of their nominated activity.”
Elsewhere, trading activity at Northwest Sumas calmed somewhat Monday compared to Friday’s record-breaking spikes, when prices climbed as high as $200. That easily topped the most expensive individual North American natural gas trade on record at NGI -- a $175 trade recorded at Transco Zone 6 NY in January 2018.
On Monday, Northwest Sumas averaged $15.630, still the most expensive gas in the country but a fraction of Friday’s $161.330 average.
The recent record-smashing trading at the Pacific Northwest location came on a combination of pipeline constraints following an explosion last fall on the Enbridge Inc. Westcoast system and an uptick in heating demand with the latest cold snap.
“The Sumas hub tracks gas received by Northwest Pipeline from Westcoast at the U.S./Canada border. It has been facing increasing supply limitations over the last week due to reduced southbound flow on Westcoast related to inspections and maintenance following the explosion on October 9,” noted Genscape Inc. analyst Joe Bernardi. “After flow capacity through Westcoast’s Station 4B remained steady at 1650 MMcf/d for the first three weeks of February, maintenance events resulted in an average flow of 1363 MMcf/d for February 23-28.”
Heading into last weekend, expected flow capacities through the location for Saturday through Monday delivery were roughly 1,150-1,300 MMcf/d, while population-weighted heating degree days (HDD) in the Pacific Northwest were totaling about 10 HDD more than normal for this time of year, according to Bernardi.
Power prices in the region also shot through the roof amid the constraints. On Friday, Intercontinental Exchange daily indices for power delivered Monday showed prices averaging around $800-900 in the Mid C region in the Northwest. The Mid C indices settled back down to average in the $80-90 range Monday.
Enbridge posted an update Saturday stating that it would be increasing daily capacity through Station 4B to 1.6 million GJ for Sunday, Monday, Wednesday and Thursday of this week. Enbridge listed operational capacity for Tuesday at just above 1.2 million GJ coinciding with a tool run on the system.
Meanwhile, “Northwest Pipeline is also facing limitations on the storage front, with withdrawal capacity at the Jackson Prairie storage facility in southwestern Washington rapidly declining due to reduced inventory,” according to Bernardi. “Although inventories are only on the low end of the five-year normal range for this date, withdrawal capacity decreased by around 150 MMcf/d in less than a week due to reduced inventories and thus reduced field pressure.
“With inventories around the 8 Bcf mark, withdrawal capacity is now under 200 MMcf/d,” the analyst said, noting that Jackson Prairie withdrawals have exceeded the 200 MMcf/d mark on 46 days winter-to-date.
Other locations in the West sold off sharply Monday, easing off the weather-driven gains recorded Friday. In the Rockies, Cheyenne Hub gave up $3.540 to average $4.280. In California, Malin dropped $1.585 to average $4.955.
SoCal Citygate, meanwhile, moved the opposite direction, picking up $2.985 to average $8.825. The gains coincided with reports of a restriction upstream of the Southern California Gas (SoCalGas) system on the El Paso Natural Gas South Mainline.
Bernardi said planned maintenance on the South Mainline scheduled for Tuesday through Friday could impact up to 200 MMcf/d of flows through the “CASA C” meter in Arizona.
“This meter, located about 35 miles south of Phoenix, typically flows at or close to its operating capacity of 540-580 MMcf/d,” Bernardi said. “Tuesday and Thursday will see the operating capacity limited to 364 MMcf/d,” with capacity limited to 457 MMcf/d for Wednesday and Friday.
As of Monday, SoCalGas was expecting demand on its system to total just under 3 million Dth/d this week, compared to slightly under 2.5 million Dth/d of pipeline receipts.