• Colder-trending weather models boost natural gas futures
  • Permian Basin pricing returns to negatives. Goldman Sachs analysts said with Permian Highway delayed, they expect “the extended bottleneck to keep Waha gas prices under pressure for longer, with relief dependent on seasonal support to demand and exports to Mexico”

Variability in the latest weather models worked in favor of natural gas bulls on Tuesday, with data pointing to chillier temperatures at the end of October/early November. With strong cash prices in tow, the supportive weather data boosted November Nymex gas futures by 3.4 cents to settle at $2.272. December climbed less than a penny to $2.449.

Cash prices continued to strengthen as a strong weather system tracked across the Midwest and into the East with rain and snow, while others were fresh on its tail. One glaring exception to the overall market strength was in the Permian Basin, where prices once again plunged below zero. The NGI Spot Gas National Avg. ultimately jumped a dime to $2.010.

There is no denying that the United States is on the cusp of widespread cold as the latest weather data showed a series of weather systems intensifying as each one travels across the country, according to NatGasWeather. In the near term, a strong weather system with rain and snow continued tracking across the Midwest and into the East, along with cooler conditions as overnight temperatures dip into the 20s to 40s.

A reinforcing cold shot was forecast to follow into the Midwest and east/central United States Thursday to Saturday for stronger national demand, the forecaster said. However, a pronounced break over the eastern half of the United States was still expected late this weekend with highs in the 60s to 80s.

“...The strongest cold shot in the series remains on track to advance into the northern and central United States Oct. 28-Nov. 3 with widespread lows of teens to 30s for strong demand,” NatGasWeather said. It is this system that the midday Global Forecast System weather model showed being more extreme and moving deeper into the South.

However, a warmer flow is within the eastern third during this time period, leading to more widespread above-normal temperatures from the Midwest to South and East, according to Maxar’s Weather Desk. There is additional warm risk if a more amplified pattern takes shape across the East, and this is reflected best within the European model as it supports above-normal anomalies.

“While a week of solid cold is helpful, is it going to be enough to resume the strong rally if warming quickly follows, especially when considering yet another record in production?” NatGasWeather said.

Indeed, production hit record levels over the weekend and has proven to be resilient over the last four months even as Henry Hub prices have averaged just above $2.25 in that time, according to Mobius Risk Group.

“The typical season decline in demand from mid-July through the fall has helped to keep production levels in the limelight versus demand intensity/degree day,” the Houston-based firm said.

The average storage injection over the past seven weeks has been 95 Bcf, with average weekly population-weighted degree days totaling 68, according to Mobius. Under similar weather conditions during the spring, the seven-week average injection was 103 Bcf.

“Directionally, it is clear the market has tightened as prices have fallen; however, a storage surplus of approximately 500 Bcf, more than 5 Bcf/d of year/year production growth and at least four more weeks until withdrawals begin is enough to embolden market bears who have continually looked for selling opportunities.”

Weather aside, there are some other supportive fundamentals at play, according to Bespoke Weather Services.

Liquefied natural gas intake continues to hold near 7 Bcf, and power burns were revised a little stronger and now show some improvement over last week, the firm said. “So the balance picture in total today is a little improved day/day, although still is quite weak overall.”

With the weather pattern showing some cold on the way entering November, price support in the low $2.20s may be able to hold for awhile, according to the firm. “Durability is still our biggest concern” and thus, Bespoke maintains a neutral near-term view with the current combination of weather and fundamentals.

Waha Bargain Basement

The price improvement experienced after Permian associated gas volumes started flowing on Kinder Morgan Inc.’s Gulf Coast Express (GCX) has taken a dramatic turn only a month after the 2 Bcf/d pipeline’s full in-service.

After nearing $2 in the weeks after GCX went online, Permian cash prices have sunk to the bargain-basement levels experienced this summer. Waha cash plunged 43 cents to average only 5 cents on Tuesday, although trades were seen as low as minus 30 cents. Other regional pricing hubs traded only marginally higher.

The price weakness was to be expected as rampant production growth in the Permian has necessitated additional gas takeaway in the region. Kinder Morgan executives have indicated that GCX is already running full, and the targeted startup for the second Permian project, Permian Highway Pipeline, has been extended from October 2020 to early 2021.

In a recent note, Goldman Sachs analysts said with Permian Highway delayed, they expect “the extended bottleneck to keep Waha gas prices under pressure for longer, with relief dependent on seasonal support to demand and exports to Mexico.”

And with temperatures in California starting to recede a bit, demand in that downstream market is waning. SoCal Citygate spot gas tumbled 39 cents to $3.475.

Prices elsewhere in Texas were stronger from the chillier temperatures on tap for the rest of the week. Katy next-day gas climbed 13 cents to $2.065.

Similar strength was seen in the Midcontinent, although Southern Star jumped a more pronounced 19.5 cents to $1.745 on some restrictions set to be implemented.

From Wednesday to Thursday, Southern Star Pipeline is scheduled to conduct emergency shutdown tests around the Blackwell compressor station in Kay County, OK. While several meters and compressor stations would be restricted during this time, the most critical of the limitations would be at the Blackwell compressor station itself, which directs gas toward Southern Star’s Market Area.

Flows through Blackwell have averaged 530 MMcf/d over the past 30 days, and operational capacity is to be limited to 311 MMcf/d for the two-day period, according to Genscape Inc. Around 219 MMcf/d of flows would be restricted at a time when the latest forecasts indicate that regional temperatures will be about 10 cooling degree days colder than seasonal averages.

Planned maintenance was also set to begin Wednesday on Texas Gas Transmission (TGT), limiting capacity at the Columbia compressor station in Caldwell Parish, LA, through Saturday. Flows through the station have averaged 1.11 Bcf/d (maxing at 1.13 Bcf/d) over the past 30 days, and would be limited to 1.04 Bcf/d during this event, according to Genscape. On average, this should limit 70 MMcf/d northbound to TGT’s mainline.

Given the slightly colder-than-normal outlook for the downstream Midwest market for the rest of the week, prices were up between 10 cents and 20 cents across the region.

Similar increases were seen across Louisiana as well as Appalachia. The exception in the Northeast producing region was at Tennessee Zn 4 313 Pool, where next-day gas shot up 29 cents to $2.045.

In the Northeast, Transco Zone 6 non-NY climbed 21.5 cents to $2.08.