• December Nymex futures down 15.2 cents to $2.637; January down 14.5 cents to $2.728
  • “The market has made it clear that strong cold needs to stick around to support prices at levels we saw last week,” says Bespoke
  • U.S. Lower 48 production set new record high over weekend: Genscape
  • “With the flip in the weather forecasts, declines between $2.575 and $2.520 should occur in the coming weeks”: Enverus

Natural gas futures opened the week at a steep discount as forecasts failed to predict the kind of sustained early-winter cold needed to offset ample supply. After gapping lower over the weekend, the December Nymex contract settled at $2.637/MMBtu, down 15.2 cents. January gave up 14.5 cents to settle at $2.728.

In the spot market, East Coast hubs rallied on potentially record-setting cold moving in this week, while the conclusion of pipeline maintenance in Oklahoma boosted prices at production-area hubs in the Midcontinent and West Texas; NGI’s Spot Gas National Avg. rallied 31.0 cents to $2.870.

Guidance Monday advertised a “material warmer shift in the pattern” that would bring a “step change” from frigid near-term temperatures to more seasonal conditions after this week, according to Bespoke Weather Services.

Given signs of continued production growth, “the market has made it clear that strong cold needs to stick around to support prices at levels we saw last week,” Bespoke said. “The ends of the model runs point to some uncertainty” for temperatures later this month, with the pattern in the Pacific looking “less favorable for cold” but with blocking developing on the Atlantic side that could “blunt some of the warmer influence from the Pacific side.”

Looking at the supply picture, production set a new record high over the weekend, with Lower 48 dry gas output totaling 94.32 Bcf/d on Saturday, topping the previous high of 94.11 Bcf/d recorded Nov. 3, according to estimates from Genscape Inc.

“Notable within this latest record high is that East production this past weekend came in below the prior 30-day average, primarily due to the 1.2 Bcf/d planned outage of the Nexus pipeline cutting off a key outlet for Ohio production,” Genscape senior natural gas analyst Rick Margolin said.

Potentially cutting into the recent uptick in output, cold weather this week raises the risk of freeze-offs, Margolin said.

“Temperatures took a sharp drop” Sunday night in the Rockies and northern Midcontinent, he said. “We are not seeing freeze-off impacts yet; however, cold weather impacts are likely this week given the forecast for sustained lower temperatures.”

Meanwhile, last week’s Commodity Futures Trading Commission (CFTC) data, reflecting trading activity as of last Tuesday (Nov. 5), pointed to further short covering, with managed money short positions shrinking by 72,718 contracts week/week and managed money long positions increasing by 10,777 contracts, according to analysts at Enverus.

“The extension of the previous week’s advances sent prices to the highest level since the end of February” when the front month set an intraday high of $2.905 last Tuesday, the Enverus analysts said. “From that advance, there was a steady amount of selling, and with the large gap opening” from $2.755 to $2.716 to start the week “offsetting the large gap last Monday, the trade has developed an ‘island top’ for traders to consider.

“With the flip in the weather forecasts, declines between $2.575 and $2.520 should occur in the coming weeks. Any reversals stronger than that will run into sellers at the gap formed” this week from $2.716 up to $2.755.

Temperature, Demand Records Possible

Spot prices surged along the East Coast Monday as forecasts showed near-record cold associated with Arctic air and wintry precipitation moving through the central and eastern Lower 48 this week.

In fact, conditions could prove chilly enough to set new November demand records, according to Genscape’s Margolin.

“With the potential for areas across the Midwest, East and South Central regions to set record lows for this time of year, our Lower 48 demand forecast rises well in excess of 100 Bcf/d,” the analyst said.

This aligns with the first 100 Bcf/d-plus demand days recorded for the 2018/19 winter. The 2015/16 winter didn’t see a 100 Bcf/d demand day until January, while the 2016/17 and 2017/18 winters each saw their first 100 Bcf/d-plus demand days in December, according to Margolin.

“The brunt of the cold will come Tuesday, which is driving our demand forecast to 108.5 Bcf/d,” he said. “Wednesday is also forecast to hit 108 Bcf/d, followed by 100 Bcf/d on Thursday. If the 108.5 Bcf/d mark is realized, it will represent a new record high for the month of November, topping the 108.1 Bcf/d monthly record set last year on Nov. 27.”

The National Weather Service (NWS) called for a mass of Arctic air settled over the northern and central United States to push south and east, resulting in abnormally cold temperatures for the Southeast and East Tuesday and into Wednesday.

“Much of the central and eastern United States will be enveloped in a region of much below-average temperatures over the next two days, along with potential for widespread record cold morning low temperatures and record low afternoon high temperatures,” the NWS said. “...An area of low pressure developing along the Arctic front over the Ohio Valley will push northeast into the northern Mid-Atlantic and New England” Monday night into Tuesday.

“Heavy snows are likely on the northern and northwest side of this low from western to northern New York state into northern New England. A large region of winter storm warnings are in effect across these areas, with snowfall accumulations of six to 12 inches likely to produce hazardous travel conditions.”

In the Northeast, Iroquois Zone 2 jumped $2.780 to $5.630, while Tenn Zone 6 200L shot up $2.595 to $5.565. Farther south, Transco Zone 5 rallied $1.345 to $4.155.

Annual testing at Tennessee Gas Pipeline’s Compressor Station 313 in Pennsylvania could cut about 335 MMcf/d of flows Tuesday, Genscape analyst Dominic Eggerman said.

“Operational capacity will be reduced from 783 MMcf/d to 388 MMcf/d,” Eggerman said. “Flows through the station towards the northern 200 mainline have averaged 723 MMcf/d over the past 30 days.”

Elsewhere, despite the frigid forecast, most Midwest hubs posted discounts Monday. Dawn eased 8.0 cents to $2.635. In the Midcontinent, Northern Natural Ventura slid 6.5 cents to $2.700. Meanwhile, as Natural Gas Pipeline Co. of America (NGPL) announced the conclusion of repairs at its Compressor Station (CS) 801 in Carter County, OK, NGPL Midcontinent shot up 59.5 cents to average $2.210.

NGPL had notified shippers that it would be installing a new permanent separator at CS 801 this month, restricting eastbound flows through Segment 15 of its Texok Zone for the first 11 days of November. The operator confirmed in a notice Monday that the restriction at CS 801 has been lifted.

Spot price action Monday suggested producers in both the Midcontinent and farther south in the Permian Basin enjoyed significant congestion relief from the return of the eastbound capacity through Oklahoma via NGPL’s system. Hubs throughout West Texas surged in Monday’s trading. Waha rallied 65.0 cents to $2.185.

During the NGPL maintenance, average prices at Waha went as low as 83.5 cents last Monday (Nov. 4), while NGPL Midcontinent prices set a recent low at 81.0 cents on the same trade date, Daily GPI historical data show.

Over on the West Coast, planned maintenance starting Tuesday could cut about 150 MMcf/d flowing into Southern California Gas (SoCalGas), primarily from Pacific Gas & Electric (PG&E), but SoCalGas could compensate by increasing imports from the Kern River and Mojave pipelines, according to Genscape analyst Joe Bernardi.

The maintenance will limit flows into SoCalGas through North Wheeler Ridge, representing interconnects with PG&E and Elk Hills, to 125 MMcf/d through Thursday. Flows through this location have averaged about 280 MMcf/d over the past 30 days, Bernardi said.

“When a similar one-day event took place in September, cutting about 375 MMcf/d day/day, receipts from the nearby Kern/Mojave interconnect increased by 289 MMcf/d,” the analyst said. “Past events have also seen storage withdrawals increase to make up for the lost imports, which can push up on SoCal Citygate basis.”

PG&E Citygate shed 12.0 cents to average $3.130 Monday, while SoCal Citygate climbed 49.5 cents to $3.985.