Mother Nature’s timing in unleashing frigid Arctic air on the United States resulted in some of the most extreme volatility the natural gas market has seen during bidweek in quite some time. The vast majority of markets posted hefty gains as frosty conditions and subzero temperatures spread across the country’s midsection, boosting NGI’s November Bidweek National Avg. to $2.375, up 37.0 cents month/month.
Despite the stout increase, the November bidweek price still finished some 81.0 cents below the November 2018 bidweek average. It also falls short of the November Nymex futures contract’s $2.597 expiration.
Nevertheless, the November bidweek rally has gotten the natural gas market winter season off to a strong start. On the weather front, bone-chilling air descended into the Midwest, Rockies and as far south as Texas in the last few days of October, setting the stage for a powerful storm to move east across the country.
When the storm arrived on the East Coast Halloween night, soaking rains, snow and strong winds wreaked havoc on the region and cut short trick-or-treating festivities. The “lake-effect machine” was forecast to make a brief appearance in the Great Lakes over the weekend as cold winds blast across the region, according to AccuWeather.
This reinforcing shot of cold and wind was expected to usher into the Great Lakes beginning Friday night as a storm system tracks through Canada, releasing the coldest air of the season so far for many areas, the forecaster said. As this colder air travels across the relatively warm water of the lakes, it was expected to pick up moisture, generating precipitation downwind of the lakes. Away from the immediate lakeshore, most of the precipitation was forecast to fall as snow.
The wintry mix boosted November bidweek prices across the Midwest by as much as 85.5 cents, although most pricing hubs climbed between 30 and 50 cents. Chicago Citygate jumped 34.5 cents to $2.460, while Dawn surged 73.0 cents to $2.665.
With overnight temperatures dropping into the 20s and 30s across Texas, natural gas buyers were out in full force during bidweek. Carthage November bidweek prices rose 28.5 cents to $2.375, posting one of the steepest gains in the state.
However, farther west, Permian Basin pricing came under pressure as the sustained uplift many analysts had predicted would occur after Gulf Coast Express (GCX) achieved full operations failed to pan out. With the 2 Bcf/d gas pipeline filling in about a month’s time, the producing region quickly became constrained again.
Waha November bidweek prices averaged just 72.5 cents after plunging 90 cents month/month.
Compounding the bottleneck issue is news that Kinder Morgan Inc.’s second gas takeaway project in the basin, the 2 Bcf/d Permian Highway pipeline, is now scheduled for in-service in early 2021, rather than the originally targeted late 2020 time frame.
“Keeping track of the roller-coaster ride of Permian gas prices and the drivers behind the highs and lows continues to keep heads spinning,” said RBN Energy analyst Jason Ferguson. “We expected the available takeaway capacity on GCX to hold Permian prices in positive territory (i.e., above zero), at least until ‘the holidays.’ Turns out that holiday in question may have been Columbus Day.”
Rampant production, which caused Permian prices to fluctuate in and out of negative territory throughout the spring and summer, is once again at the forefront of the most recent price weakness, according to RBN. Until GCX came online, gas production in the basin had been trending sideways for most of this year, with flows already having exhausted all the pipeline capacity for moving gas out of Waha to other regions of the United States and Mexico.
The Permian was also relying heavily on the local power-generation and gas-storage sectors to soak up as much production as possible, Ferguson said. Once GCX began full operation in late September, however, production immediately ramped higher, eclipsing the previous record highs of just over 10.0 Bcf/d and charging up to near 11.5 Bcf/d in recent days.
In addition to the sharp uptick in production, GCX pulled away some volumes from the previously mentioned power and storage operators in the Permian, and a small amount of gas was also diverted to GCX from other pipelines, particularly gas that had been flowing from the Permian north to the Midcontinent, according to Ferguson.
“As a result, GCX filled to near capacity almost immediately. Then, throw in a few capacity-reducing maintenance events on the basin’s already-constrained legacy takeaway pipes, and gas prices at Waha once again came under pressure, less than a month after a brand-new pipeline had started up,” he said.
There are a number of scenarios that could play out over the next year in the Permian. With no new takeaway expected online, the most severe outcome would be for producers to shut in dry gas production -- and potentially wet gas production, particularly if it doesn’t require shutting in wells that focus on crude oil, according to Ferguson.
“There is reason to believe next year’s takeaway constraints, which we see starting sometime in the first quarter, could be more severe and last longer than those of 2019. That means that the volumes required to be curtailed could be larger,” he said.
Meanwhile, shutting in more Permian gas than 2019 would require even lower prices, “which implies that 2020 could test the record-setting negative price levels seen earlier this year.”
Bidweek volatility, although to the upside, was also prevalent in the Rockies. Northwest Sumas shot up 81.0 cents to $3.340, a nearly $1 premium to the next highest-priced location in the region. Most other pricing hubs notched gains of less than 40 cents.
The volatility at Sumas occurred despite Northwest Pipeline wrapping up its three-week outage at the Jackson Prairie storage facility and Westcoast Transmission increasing southbound export capacity. However, with Arctic air blanketing Canada, demand has been strong north of the border and has limited southbound flows into the Rockies.
Southbound capacity through Westcoast’s Station 4B was set at 1,552,366 gigajoules for Saturday through Monday, although an unplanned compression outage in T-North was expected to cause high pressures that would then likely result in lower pressures farther south. Furthermore, planned integrity maintenance on the McMahon mainline was limiting the pipeline’s ability to absorb additional production in the north.
Westcoast continued to monitor linepack and indicated it would provide updates as needed.
The chilly conditions across the country serve as a stark reminder of last year’s early-season cold blast that kicked off the winter season and ultimately left storage inventories depleted to unprecedented levels. However, there are signs emerging that a return to more seasonal weather could be around the corner.
There were warmer changes in weather models in the most recent runs, with the change coming in the 11- to 15-day period. The models haven’t moved “warm” but have at least reverted back to a normal national demand pattern in the medium range, with cold in the northern tier, a warm west and variability elsewhere, according to Bespoke Weather Services.
“What happens from here is a little uncertain, however, as the pattern at the end of the runs still shows lingering upper level ridging along the West Coast, which means risk of more downstream colder shots into the eastern United States, despite the lack of any blocking on the Atlantic side,” Bespoke chief meteorologist Brian Lovern said. “This tells us that we could well have more model volatility to come, and that any switch to a true warmer pattern versus normal has to wait longer yet.”
Given the uncertainty of the chillier-than-normal conditions continuing through the rest of November, benchmark Henry Hub bidweek prices climbed just 16.5 cents to $2.595. The more moderate increases at the Gulf Coast pricing hub were also reflective of the healthy storage situation in the country that has masked record liquefied natural gas feed gas deliveries, which have consistently come in above 7 Bcf/d over the last week or so.
On Thursday, the Energy Information Administration reported that inventories had grown 89 Bcf week/week to 3,695 Bcf, propelling stocks as of Oct. 25 to a 559 Bcf surplus over last year and a 52 Bcf surplus to the five-year average.
Broken down by region, the South Central added 44 Bcf into storage stocks, including a 25 Bcf build into salt facilities and a 19 Bcf injection into nonsalts, the EIA said. Midwest inventories grew by 26 Bcf, while East stocks rose by 15 Bcf.
“This was the ninth straight week that was marked by an expansion of the year/year surplus, and over that time it has increased by approximately 175 Bcf,” Mobius Risk Group said. “Over the next two reporting periods, the storage surplus should contract, and this may bring a tailwind back to near-term prices. Weather forecasts for the second half of November will be the battle cry for market bulls or bears, with no clarity yet as to whether warmth or cold will prevail.”
Over on the East Coast, the arrival of the winter blast combined with planned pipeline maintenance to drive up prices substantially across the board. Unsurprisingly, some of the largest swings occurred in New England as Algonquin Gas Transmission’s winter capacities went into effect on Friday through the 26-inch diameter Main Line from the Southeast to Cromwell compressor stations.
Revisions to this event have been more bearish as it’s now set to be resolved before Nov. 15, with maintenance capacity being revised up to 901 MMcf/d from 728 MMcf/d originally, according to Genscape Inc.
However, over the last two years, November flows have reached above 900 MMcf/d as early as Nov. 2 and maxed at 1,224 MMcf/d on Nov. 15, 2018, “meaning there is still room for some short-term upside for AGT Citygate prices, especially with temperatures dropping rapidly,” Genscape analyst Josh Garcia said.