After Black Friday brought about one of the largest single-day losses of the year for natural gas futures, prices bounced back a little on Monday with help from one of the major weather models. The January Nymex futures contract climbed 4.8 cents to settle at $2.329/MMBtu. February rose 4.6 cents to $2.308.
Spot gas sold off in dramatic fashion Monday even as parts of the Northeast remained under a winter weather advisory due to a major snowstorm that hit the region over the weekend. The NGI Spot Gas National Avg. dropped 16.0 cents to $2.315.
Intense selling following the Thanksgiving Day holiday laid the groundwork for a possible recovery to start the first week of December. However, it was a colder shift in the latest American weather model data that provided the support to a market facing a multitude of bearish headwinds otherwise.
Last week, both the Global Ensemble Forecast System (GEFS) and European models agreed on a transition into a warmer regime heading into the middle third of December. However, the GEFS has since backed away from this, and while not outright cold, is considerably chillier than what it showed previously and closer to the long-term normal for the next 15 days as a whole, according to Bespoke Weather Services.
In contrast, the European model is even warmer than it was back on Friday, the firm said. The main difference lies in the Pacific side of the pattern, as the GEFS no longer shows a trough over Alaska out in the 11- to 15-day time period, which allows some colder air back into the pattern across the United States.
“While we do think cold can come back late month, we do not believe the GEFS is correct here and now,” Bespoke chief meteorologist Brian Lovern said. He noted that Bespoke’s forecast was closer to the European model’s as the “tropical forcing in the pattern supports this idea more than the GEFS.”
Even as winter storms gripped much of the country over the Thanksgiving break, demand came in lower than what Genscape Inc. had expected, as extreme cold took longer to migrate out of the West than had been forecast. Since last Wednesday, demand has only reached a high of 92.8 Bcf/d, which occurred on Sunday.
“The average for Thanksgiving and the ensuing long weekend came in at 87.7 Bcf/d,” Genscape senior natural gas analyst Rick Margolin said. “This was, however, about 3 Bcf/d stronger than the demand average during last year’s Thanksgiving stretch.”
For the week ahead, seasonally mild conditions are forecast for the Lower 48, resulting in total demand forecast to average about 96 Bcf/d through Sunday, according to Genscape. There is the possibility for slightly-colder than normal temperatures to move into the market next week and push demand above the 100 Bcf/d mark, although weather forecast revisions the past couple of weeks have tended to moderate to the warmer side.
Meanwhile, Lower 48 production has remained strong, but December could be the last month of growth for awhile, according to Genscape.
“Since Thursday, our estimate of Lower 48 production has averaged 94.27 Bcf/d, including yet another record daily high of 94.71 Bcf/d marked on Nov. 30,” Margolin said. “Our SpringRock Production Forecast anticipates December production will come in slightly higher than November for what may be the last month/month increase for awhile.”
Growth in the Permian Basin, Rockies and Gulf of Mexico is expected to “just barely” outpace the anticipated turning over of production in the East, as well as the continuation of declines in the Midcontinent.
“With regards to the former, the East may already be in decline,” Margolin said.
Ohio production topped out back in early September; West Virginia peaked in late October; Southwest Pennsylvania peaked in early November; and Northeast Pennsylvania production might have peaked two weeks ago, according to Genscape.
Despite the projected stalling in supply growth, the generally mild weather outlooks for December could mean further downside ahead for prices. In EBW Analytics Group’s most likely weather scenario between now and the end of March, at Friday’s closing price, the Nymex natural gas forward curve was reasonably priced, end-of-March storage inventories most likely sitting just below 1,500 Bcf and peak injection-season storage reaching just below 3,700 Bcf.
“Over the next 30 days, however, gas prices are not likely to remain stagnant at this level,” EBW said.
Instead, if its current forecast for an extended period of much warmer-than-normal weather validates, natural gas cash market demand is likely to remain weak during most of December, and the year/year storage surplus could reach 650 Bcf or higher. “As this occurs, downward price pressure is likely to continue to mount, pushing the January contract to $2.09 or lower.”
A train of storms set to continue rolling through the Western United States this week had little bearing on spot gas prices in the region on Monday.
Some points in the Rockies posted losses of nearly 90 cents, while prices in California posted declines that were nearly as pronounced even as the wet pattern that marked the weekend was forecast to continue through this week. The very next storm in the series will focus on Southern California at midweek, although the threat for rain and mountain snow will expand northward into this weekend, according to AccuWeather.
However, the rain may come as a relief to the Pacific Northwest, which saw only a fraction of its normal rainfall levels in November. Seattle recorded their fourth driest November on record, recording only 26% of its average rainfall. Similarly, Portland, OR, only recorded 27% of its average rainfall last month, AccuWeather said.
"While a small storm is expected to bring some rain and mountain snow to the Northwest during the middle of the week, a larger storm looks to push into the region by the end of the week and into the weekend." AccuWeather meteorologist Maura Kelly said.
The exact track of the storm system late week will help to determine how much beneficial rain and snow falls across the Northwest, according to the forecaster. A more northerly track of the center of the storm will help to bring more moisture into the Northwest. A more southerly track would bring the heaviest precipitation into Northern California.
Regardless of the exact storm track, the unsettled pattern may stick around across the Northwest into next week as more storm systems are forecast to track into the West Coast, AccuWeather said.
Despite the bitter conditions projected in the region, Northwest Wyoming Pool spot gas plunged 91.0 cents to average $2.555. Northwest Sumas posted a region-leading decline of $2.320 to average $2.605.
In California, Malin cash dropped 83.5 cents to $2.655.
Interestingly, Permian Basin prices posted some of the country’s only gains despite the softening of prices in other regions. Waha next-day gas jumped 15.5 cents to average $1.120.
In the Midcontinent, prices were generally lower, coming off less than 20 cents across the region. Midwest markets posted similar declines, while most declines across the Southeast were capped at around a dime.
Planned pipeline work in Appalachia led to some volatility along the Texas Eastern Transmission (Tetco) pipeline.
First, from Tuesday through Dec. 16, Tetco will conduct further investigations on its 30-inch diameter line from Mt. Pleasant to Gladeville, TN, and from Danville, KY, to Wheelersburg, OH. During these investigations, southbound capacity from the Berne 30-inch diameter compressor to the Barton compressor will be reduced by up to 536 MMcf/d compared to two-week max flows through Tompkinsville, although this capacity will incrementally increase throughout the two-week outage.
“Capacity through this line is still reduced by roughly 750 MMcf/d year/year from the Danville explosion, and this outage will further constrain it,” Genscape analyst Josh Garcia said.
Also, on Tuesday through Thursday, Tetco was scheduled to conduct tool runs on its 24-inch diameter Line 1 from Lebanon to Five Points in Ohio. During these tool runs, capacity through the Five Points compressor will be reduced by up to 368 MMcf/d, based on the two-week maximum through the compressor.
Finally, on Wednesday Tetco is scheduled to conduct an in-line inspection tool from the Somerset to Summerfield compressors on the 26-inch diameter line that is parallel to the aforementioned 24-inch line. During this outage, flows through the Summerfield compressor will be reduced by roughly 250 MMcf/d compared to the previous two-week maximum flows.
“Overall, M2 export capacity will be reduced by roughly 0.9 Bcf/d over the next few days over two separate lines, which brings strong bearish pressure on M2 prices as gas competes to get out of the region,” Garcia said.
Meanwhile, the Rockies Express Pipeline (REX) was scheduled to begin planned work on Tuesday that could limit up to 271 MMcf/d of westbound flow in Ohio through Wednesday. The work, being performed at the Columbus compressor station, will limit flows through “SEG 380” to 2,581 MMcf/d for the duration of the maintenance.
“Over the past 30 days, flows through SEG 380 have averaged 2,736 MMcf/d and maxed at 2,851 MMcf/d,” Genscape analyst Anthony Ferrara said. “Based off these historical values, we could see flow cuts of up to 271 MMcf/d.”
Millennium Pipeline was also set to conduct maintenance on its Highland compressor station on Wednesday, reducing capacity through the Wagoner West throughput meter by 15%, to 1,036 MMcf/d from 1,216 MMcf/d, representing a 122 MMcf/d reduction compared to the previous two-week maximum flows.
With current forecasts showing slightly colder-than-average temperatures for downstream New England markets Wednesday, Algonquin Citygate spot gas climbed 3.0 cents to $4.655.