The latest forecasts Monday failed to deliver the kind of intense cold needed to impress the natural gas futures market, lowering heating demand expectations into early next month and prompting a steep sell-off. The December Nymex contract settled at $2.566/MMBtu, down 12.2 cents from Friday. The January contract dropped 12.0 cents to $2.630.
In the spot market, seasonal temperatures inspired discounts for most of the country, although big gains in California proved a notable exception; NGI’s Spot Gas National Avg. fell 10.5 cents to $2.415.
After trending milder over the weekend and again overnight, the midday Global Forecast System (GFS) data advertised a slightly warmer outlook for early next week and a “quite seasonal pattern” for Nov. 29-Dec. 2; shots of cooler -- but not particularly cold -- temperatures were expected for northern portions of the country during this period, according to NatGasWeather.
Data later Monday from the European model came in “much milder trending” for next week and for early December, dropping another 9 heating degree days (HDD) from the outlook after losing 8 HDDs overnight, the forecaster said.
“Seasonal weather systems will not be cold enough this year as they need to be much colder than normal to overcome very strong production,” NatGasWeather said.
In the wake of warmer forecast trends over the weekend and into Monday, Friday’s settlement at $2.688 “could become a near-term ceiling” for the front month, analysts at EBW Analytics Group said.
“With no significant cold anomalies in the forecast, we expect the year/year storage surplus to grow by 70 Bcf over the next three weeks, pushing natural gas prices significantly lower,” the EBW analysts said.
The potential remains for colder weather to return around the second week of December, according to the firm.
“If it does not, however, the January contract could test support in the mid- to lower $2.40s after it becomes the front month,” EBW said.
The latest supply picture Monday offered little comfort for bulls. According to updated Genscape Inc. estimates, Lower 48 production showed signs of recovering from last week’s freeze-offs but remained “well below” record highs prior to the recent cold. Production averaged about 93.7 Bcf/d over the weekend, the firm said.
“That is about 0.4 Bcf/d above the prior week’s daily average and nearly 0.7 Bcf/d above the trough” last Tuesday when frigid temperatures “curtailed output from Northeast, Texas, Permian and Rockies producing areas,” Genscape senior natural gas analyst Rick Margolin said. “Prior to the freeze-offs, production set a record high of 94.33 Bcf/d on Nov. 9.”
Meanwhile, analysts at Enverus said market internals based on last week’s trading “confirmed a neutral to negative bias.” They noted that prices tested the “island top” formed in the chart after prices gapped lower to open the Nov. 11 trade date.
“Prices rallied to test the island top three different times and on Friday, managed to pierce the gap by nearly a penny” before failing to “close the gap,” the Enverus analysts said. “...The action last week, trying three times to attack the gap from the Monday open, has reinforced that area of resistance to future gains in prices.”
The gap from $2.724 to $2.755 “will continue to provide selling opportunities in the coming week. Should the forecasts continue to moderate, expect the support from last week at $2.570 down to $2.520 to find buyers.”
Spot price gains in California stood in contrast to the discounts that spread throughout most of the rest of the Lower 48 to open the trading week.
Pacific Gas & Electric (PG&E) was scheduled to conduct maintenance on the Hinkley and Topock compressor stations, impacting flows through its Baja Path for Tuesday.
According to Genscape analyst Joseph Bernardi, this work affects PG&E’s interconnects with the Transwestern and El Paso Natural Gas pipelines and could also impact deliveries into Southern California Gas (SoCalGas) from PG&E.
As is typical, SoCalGas was preparing for a ramp-up in system demand coming out of the weekend, with deliveries expected to climb to slightly more than 2.4 million Dth/d Monday and Tuesday, then ramp to around 2.7 million Dth/d Wednesday and Thursday. That’s compared to 2.1 million Dth/d for Sunday, according to the utility.
Also in California, PG&E said Monday it began giving 48-hour advanced notice ahead of another potential Public Safety Power Shutoff event impacting at least 264,000 customers in parts of 22 counties. The utility cited “worsening dry conditions and expected high wind gusts” posing “an increased risk for damage and sparks on the electric system” that could lead to wildfires.
Looking at the forecast for the rest of the country, “there will be several weather systems impacting the United States this week, just not very cold ones for this time of the year,” NatGasWeather said Monday. “One is bringing gusty winds and localized showers to the Northeast. A weak system over the East-Central and Southeast United States is also bringing localized showers.
“A third system will track into the West in the coming days, including California, with showers and modest cooling,” resulting in highs in the 40s and 50s, the forecaster said.
With the kind of extreme cold experienced last week nowhere to be found in the latest forecast maps, Genscape analysts predicted a “quiet week” in terms of weather-driven demand in the Lower 48.
“Demand projects to be relatively steady and near seasonal norms this week, with weather forecasts calling for mild temperatures across the country,” Margolin said. “Western markets are forecast to enjoy a few days of warmth before a cold front moves in around Wednesday. Central markets will be at normal levels until the end of the week when the western cold front migrates eastward.
“Temperatures across the eastern portion of the country are forecast to run right at seasonal norms. Collectively, this translates into our demand forecast averaging about 86.7 Bcf/d.”
Genscape’s demand estimate for Monday totaled 90.5 Bcf/d, with that number expected to decline to around 84.7 Bcf/d by Wednesday.
Reflecting moderate demand expectations, hubs throughout the eastern two thirds of the Lower 48 sold off for the most part Monday. Along the Gulf Coast, discounts of around a nickel to a dime were the norm. Katy slid 8.5 cents to $2.410. Henry Hub dropped 10.5 cents to $2.580.
Separate maintenance events on the Texas Eastern Transmission (Tetco) system could impact flows this week in Ohio and Louisiana, according to Genscape analyst Josh Garcia. In Louisiana, Tetco was expected to shut in its interconnect with Creole Trail at Gillis, LA, on Tuesday, and flows through this location have run as high as 535 MMcf/d over the past two weeks. Given “ample supply options,” the Sabine Pass liquefied natural gas terminal shouldn’t see any impact from this event, Garcia said.
Meanwhile, maintenance scheduled for Wednesday and Thursday from Summerfield, OH, to Berne, OH, will reduce capacity through Summerfield to 341 MMcf/d, according to Garcia.
“This same outage occurred on Nov. 13, but flows fell to 372 MMcf/d, slightly above the maintenance operating capacity,” Garcia said. “Flows through Summerfield have averaged 612 MMcf/d and maxed at 694 MMcf/d over the last two weeks.”
In Appalachia, Texas Eastern M-2, 30 Receipt eased 2.5 cents Monday to average $2.310.