Increasingly warmer weather outlooks proved too much for natural gas traders to ignore on Tuesday, with prices erasing about half the gains picked up the previous day. The January Nymex gas futures contract settled at $2.319, down 2.2 cents day/day. February slipped 2.3 cents to $2.303.
Spot gas prices remained exceptionally strong in key demand regions as Wednesday was forecast to be considerably chillier than normal, even by mid-January standards. With gains of several dollars on the East Coast, the NGI Spot Gas National Avg. jumped 66.5 cents to $3.245.
Weather models flipped milder at the end of last week and have continued to warm the outlook for the rest of December. As of early Tuesday, the projected total gas-weighted degree day (GWDD) count for this month sat only 16 above the very warm December the market saw last year (815 in 2019 versus 799 in 2018), according to Bespoke Weather Services.
Tuesday’s warmer change was from a slower weakening of the positive Eastern Pacific Oscillation warm signal, which keeps warmth in the Midwest and East more pronounced into the final days of the month, the firm said. There are still reasons to believe that a colder shift into January could materialize, as tropical forcing signals cycle back around to a state that is more favorable for cold intrusions, but it is not clear whether it would occur in the first week of the new year.
“Given that models typically are too fast with changes, we could make the case that any true change would be delayed until after the first week of January,” Bespoke chief meteorologist Brian Lovern said.
The Global Forecast System’s midday run added a couple of heating degree days back into the forecast but still advertised an exceptionally warm and bearish pattern for much of the country beginning Friday (Dec. 20) through Dec. 28, according to NatGasWeather. The firm’s view remains that weather is far too bearish to justify any move to the upside.
“If prices gain, it would be for other reasons,” NatGasWeather said.
However, some of the reasons cited for Monday’s rally, which occurred despite the warming late-December outlook, may not hold up for long. Bespoke noted that power burns were not as strong Tuesday as they had been when there was a similar GWDD count.
Meanwhile, liquefied natural gas (LNG) demand was lower in the preliminary data, which NGI confirmed in its U.S. LNG Export Tracker, which showed that feed gas deliveries dropped 370,407 Dth day/day.
Some notable declines occurred at the Corpus Christi LNG export terminal, where intake was down 62,300 Dth from Monday, and Elba Island, which fell 55,638 Dth day/day. All four pipelines feeding into the Sabine Pass terminal also posted lower intakes, NGI data showed.
U.S. exports have hit multiple records in recent weeks, but deliveries could begin to slow a bit as Europe increasingly appears to be running down spare regasification capacity and storage. The continent’s stocks are a huge 670 Bcf higher year/year, according to Energy Aspects.
“Sendout at half of Europe’s LNG import facilities has risen to near capacity in recent days, leaving fewer destinations for shippers to deliver incremental supply over the rest of winter,” the firm said. “Much of this remaining capacity is at UK terminals.”
Of the terminals with remaining spare capacity, there are a number of factors that could prevent greater capacity utilization, according to Energy Aspects.
Spain is experiencing a recovery in hydroelectric reserves and is already exporting gas at the French border. Greece has spare capacity and appears to be stockpiling LNG in case a gas disruption stems from the ongoing negotiations between Russia and Ukraine, “but if that transit continues undisrupted, Greece will struggle to take in more LNG, especially as it is not well connected enough to the grid to deliver to major European demand centers,” Energy Aspects said.
However, on the bullish side of the equation, Lower 48 production has struggled to break above 95 Bcf/d for most of this month to date after setting a record high of 95.88 Bcf/d on Nov. 30, according to Genscape Inc. The firm recently made updates to its daily and forecast production estimates that resulted in upward revisions.
“Despite this, though, production has topped 95 Bcf/d just twice this month,” Genscape senior natural gas analyst Rick Margolin said.
Month-to-date production is averaging 94.55 Bcf/d, and Monday was the strongest print in 11 days at 94.9 Bcf/d, Genscape data show. Since Nov. 30’s record high, production in all basins has been recording average daily declines, with the Northeast showing the most at an average 86 MMcf/d lower, followed by Texas at 29 MMcf/d lower and the Midcontinent around 11 MMcf/d lower.
“With specific regards to the Northeast, we believe most of these declines have been prompted by planned and unplanned maintenance events amid a weak price environment,” Margolin said. “However, we do not believe the region has rolled over yet. We do not expect Northeast production to taper until later into 1Q2020.”
A look at spot gas markets across the United States reflected mostly lower prices for Wednesday delivery even as Arctic air began funneling across the eastern half of the country in the wake of back-to-back winter storm systems.
However, the Northeast put up substantial multi-dollar increases, showcasing volatility that is reminiscent of a time before a massive expansion of regional infrastructure helped alleviate supply constraints in the region. Of course, with lagging buildout in New England, Tuesday’s surge in the region was not the least bit surprising.
Algonquin Citygate rocketed $5.620 higher to average $11.080, a level not reached in nearly a year. However, the double-digit figure still comes in a couple of dollars shy of the 2019 record of $13.56 reached on Jan. 18, NGI historical data show.
Transco Zone 6 non-NY cash prices jumped $1.800 to average $4.335, while Texas Eastern M-3, Delivery shot up $2.355 to $5.020 as ongoing pipeline work led to increased volatility at that pricing hub. Other Appalachia markets shifted less than a dime.
The dramatic upswing in Northeast prices occurred as cold Canadian air continued to track south and east, with the best chances for snowfall to top a half-foot or more expected across portions of extreme northwestern Pennsylvania and western New York, according to AccuWeather. A brief snow shower could extend all the way to Boston, New York City, Philadelphia and the northern and western suburbs of Baltimore and Washington, DC late Wednesday.
Along with the accumulating snow, midwinterlike cold are expected to encompass the Great Lakes by midweek.
“Very cold air from Canada will build into the area behind the cold front starting Tuesday night. Temperatures will be 10-20 degrees below normal for this time of the year across the Great Lakes region,” AccuWeather meteorologist Clay Chaney said.
Air temperatures in the single digits and teens along with a “bone-chilling” northwest wind were expected to send real-feel temperatures below zero at times, especially Wednesday into Thursday, the forecaster said.
Already, several pipelines throughout the region implemented operational flow orders (OFO) and other flow restrictions in order to meet the surge in demand. Tennessee Gas Pipeline declared a critical day OFO for certain areas on Tuesday.
Eastbound flows out of TGP Z5 were already constrained, with the segment from STA 241 to STA 245 flowing above its roughly 1 Bcf/d operational capacity on Monday, and the segment from STA 321 to MLV 324 flowing at 99.9% of its roughly 1.95 Bcf/d capacity, according to Genscape natural gas analyst Josh Garcia.
Further south, Carolina Gas Transmission, East Tennessee Natural Gas Pipeline and Southern Natural Pipeline declared OFOs for Tuesday’s gas day, while Texas Eastern Transmission suspended its no-notice service for gas day on Wednesday (Dec. 18).
Across the country, a “Pineapple Express” (or atmospheric river) is forecast to bear down on the Pacific Northwest over the coming week. Areas of British Columbia could receive nearly 65 inches of snow over the course of the next five days.
Snowpack levels throughout the ranges of the Columbia and Fraser rivers have been running in the low 30%-of-normal range, according to Genscape. The state of Washington could see upward of 40 inches of snow during the next five days. Snowpack levels there are ranging from 29% of normal along the Puget Sound to 53% of normal in the more hydro-dense Columbia River Valley basins, the firm said.
The atmospheric river that is expected to hit the region is not expected to reach as far south as California, according to forecasts.
“Snowpack levels there, though, are in much better shape than the Pacific Northwest,” Genscape said. “California statewide average snowpack is sitting at more than 113% of normal, with the Northern Sierras right about at normal and the Southern Sierras sitting 131% of normal.”
In California, PG&E Citygate cash was up 26.5 cents to $3.645.
Meanwhile, losses seen throughout the country’s midsection were generally capped at around a dime, although some pricing hubs lost as much as 15 cents. Henry Hub fell 4.5 cents to $2.295.