Further cold trends for an already chilly early-season forecast helped extend a natural gas futures rally Tuesday, although analysts pointed to risks for a reversal given structural oversupply in the market. The December Nymex contract added 4.1 cents to settle at $2.862/MMBtu. January settled at $2.940, up 4.2 cents.
In the spot market, chilly temperatures and a mix of rain and snow in the forecast for areas of the Midwest and Northeast accompanied higher prices for those regions; NGI’s Spot Gas National Avg. rose 12.5 cents to $2.530.
The afternoon European model run Tuesday added 8-9 heating degree days (HDD) compared to its overnight run and 13 HDDs compared to 24 hours earlier, according to NatGasWeather.
The European data strengthened an “Arctic blast” expected to arrive next week and also showed colder temperatures lingering over the eastern half of the country during the Nov. 15-18 period. The Global Forecast System also shifted toward an even chillier outlook Tuesday after advertising colder trends overnight, the forecaster said.
“There will be two strong cold shots into the coming weekend, but the big story will be next week’s Arctic blast that’s expected to push deep into the Midwest, Mid-Atlantic and Northeast” with lows ranging from the 20s down to around zero, NatGasWeather said. “This is impressively cold for this early in the season, with temperatures 20-45 degrees below normal.
“...Where the more recent data has also been colder trending is across the northern and eastern United States Nov. 16-19 by seeing better prospects of cold shots continuing, focused over the Midwest and Northeast.”
Looking ahead to this week’s Energy Information Administration (EIA) storage report, Energy Aspects issued a preliminary estimate for a 40 Bcf build for the period ended Nov. 1.
“Heating loads will sharply rise week/week as the injection rate more than halves,” the firm said. “That slowdown also corresponds to a 0.4 Bcf/d week/week output decline.”
The recent cold shift in the forecasts has added substantially to what the firm previously expected to be an “anemic” 40 Bcf withdrawal for the month of November, an estimate based on 10-year normal weather.
“Given our outlook for a high end-March 2020 carryout,” the boost to weather-driven demand this month “could provide minor relief to a loose set of short-term seasonal balances,” Energy Aspects said. “With the short bias of the market, revisions colder to the forecast could temporarily boost trading. However, the degree to which cold materializes in late November and early December (and the degree of production growth) will be key to price formation as balances are still looking loose.”
Analysts at Tudor, Pickering, Holt & Co. (TPH) called for a 47 Bcf build for this week’s EIA report. An injection in this range is “not materially different from norms” around 56 Bcf, even as degree days came in a “frosty 29% above normal last week” and liquefied natural gas (LNG) demand reached new record highs.
“And in the face of residential/commercial demand adding another 6.5 Bcf/d this week and LNG pushing further into record territory, week-to-date numbers would imply a 31 Bcf build in next week’s report...In our view, the underwhelming inventory projections boil down to production,” the TPH team said. “Flow data indicates supply has been pushing all-time highs of nearly 96 Bcf/d, primarily driven by the Northeast and further exacerbating structural oversupply in the market.
“...We see it taking a winter with degree days about 10% or more above normal...to exit the winter in line with the five-year average, while a normal winter could push inventories to 15% above average entering spring. The early cold blast has certainly been a boon for gas prices, but given the underlying fundamentals, if weather normalizes, pricing could see a swift reversal.”
Northeast spot prices rallied Tuesday as forecasts called for a pattern of chilly temperatures and mixed precipitation to spread across northern portions of the Lower 48 this week. Algonquin Citygate surged 51.0 cents to $2.845, while Transco Zone 6 NY gained 56.5 cents to $2.405.
The National Weather Service (NWS) said a cold front will be “swinging through the central and eastern portions of the country” over the next few days.
“On the northern side of the system, a mix of rain and snow will stretch from the Northern High Plains to the Great Lakes” Tuesday night into Wednesday morning, the forecaster said. “By Thursday, mixed precipitation will enter interior sections of the Northeast. A general 2-4 inches of snow is currently forecast across these areas, with locally higher amounts possible.
“...Below-average temperatures are forecast behind the cold front across the Great Plains, as well as across the Great Lakes, Midwest and Northeast as clouds and precipitation impact the region.”
Benefiting from stronger pricing downstream at Northeast hubs, prices in Appalachia rebounded Tuesday after posting heavy discounts a day earlier. Dominion South added 25.0 cents to average $1.905, while Texas Eastern M-2, 30 Receipt picked up 39.0 cents to $1.910.
Starting Thursday, maintenance at Columbia Gulf’s Stanton Compressor Station in Kentucky could restrict more than 600 MMcf/d of flows, according to Genscape Inc. analyst Dominic Eggerman. The maintenance, scheduled to conclude Nov. 14, is expected to limit operational capacity through the Stanton station to 1.31-1.46 Bcf/d.
“Flows through the station have averaged 2.10 Bcf/d over the past 30 days, meaning that anywhere from 0.64-0.79 Bcf/d could be cut with this event,” Eggerman said. “This will have a significant effect on gas flows on the system as substantial cold sweeps across the Midwest and Northeast.”
Elsewhere on the Columbia Gulf system, pigging at the Alexandria Compressor Station in Louisiana is restricting about 223 MMcf/d on the Columbia mainline, with that event expected to wrap up on Friday, the analyst said.
On the heels of robust gains recorded in Monday’s trading, Midwest prices continued to strengthen Tuesday. Joliet picked up another 8.0 cents to average $2.755.
Over on the West Coast, SoCal Citygate rallied sharply for a second straight day Tuesday, surging 51.0 cents to average $4.390.
Demand on the habitually import-constrained Southern California Gas system exceeded 2.7 million Dth Monday, topping total receipts of around 2.6 million Dth and forcing a small net withdrawal from storage. As of Tuesday, the utility estimated that demand would hover around 2.4-2.6 million Dth/d over the next several days.
The NWS called for warm conditions to remain over areas west of the Rockies over the next couple days, with temperatures generally 10-20 degrees above average.