Increasingly warm weather outlooks had natural gas bears on the prowl from Dec. 13 to 18, but bone-chilling conditions that swept across the country this week sent cash and forward prices surging in some key demand centers.
When the dust settled, January prices fell just 2 cents on average, while February fell 6 cents and the balance of winter (January-March) dropped 4 cents, according to NGI’s Forward Look. Smaller losses were seen further out the curve.
It’s been a rather mild start to the winter season, with only brief periods of strong demand to counter record production. However, the tide turned -- if only for a moment -- when Artic air sent temperatures plummeting and demand surging over the last four days.
Hefty gains in the West Coast and Rockies cash markets spilled over into forwards even as long-range weather outlooks became increasingly bearish during that time.
Unsurprisingly, the Southern California forward curve was most impacted as January prices shot up 65 cents from Dec. 13-18 to reach $5.546, according to Forward Look. The stout increases occurred as SoCal Citygate spot gas traded as high as $6.40 earlier in the week, with the dramatic surge having ripple effects farther east in the Rockies.
In the middle of 2019, the narrative regarding Western gas markets was one of stranded gas supplies that would have to find a home in a market with declining demand as a result of renewable power generation growth, according to Mobius Risk Group.
However, “reality has shown that this third of the country can quickly find itself short supply, and with forward strip pricing still discouraging production growth, it is not yet clear when the aggressive bid for near-term molecules will subside,” the Houston-based firm said.
The cold air that hit the region this week was accompanied by dousing rains, which are expected to improve the hydro outlook for the Pacific Northwest. The region, until recently, had experienced below-average rainfall, according to forecasts. With hydro supplies getting a boost and easing temperatures expected to close out 2019, forward prices posted far less substantial gains throughout the rest of the curve.
SoCal Citygate February climbed 11 cents from Dec. 13-18 to reach $4.374, the balance of winter jumped 27 cents to $4.383 and the summer 2020 strip (April-October) tacked on just 3 cents to $3.03, according to Forward Look.
In the Rockies, Northwest Wyoming Pool January rose 27 cents to $2.895, February climbed 10 cents to $2.599 and the balance of winter picked up 13 cents to reach $2.502. The summer 2020 strip, meanwhile, slipped a penny to $1.81.
Some Northeast points also strengthened during the Dec. 13-18 period as cash prices soared to levels not seen in nearly a year. However, the milder weather on tap for the rest of the year, not to mention robust storage inventories, painted a healthy supply picture that limited those gains.
Algonquin Citygate January prices rose 9 cents to $7.173, February tacked on 3 cents to $7.18 and the balance of winter edged up 2 cents to $6.262, Forward Look data show. The summer 2020 strip slipped 2 cents to $2.32.
At Transco Zone 6-NY, January was up 7 cents to $5.865, but February was down 4 cents to $5.502 and the balance of winter was down 3 cents to $4.796. Summer 2020 also eased by a couple of cents to $1.97.
The losses further out the New York curve were nearly in line with other forward curves across the country. In Appalachia, Dominion South posted losses of less than a nickel across the board.
Chicago Citygates put up a bit stronger declines. The three remaining winter months each fell 7 cents to $2.404, $2.407 and $2.336, respectively. The summer 2020 strip was down 2 cents to $2.04, Forward Look data show.
Meanwhile, Henry Hub Nymex futures ended the Dec. 13-18 period with the January contract down 4 cents to $2.286. February dropped 6 cents to $2.264, the balance of winter fell a nickel to $2.254 and the summer 2020 strip slipped 2 cents to $2.259.
Trading patterns were rather subdued this week despite the surge in demand from the Alberta clipper that moved across the country. Gains and losses were limited to less than a nickel day/day as traders got more clarity in long-range weather forecasts.
Both the American Global Forecast System (GFS) and European models consistently trended warmer in recent days, and the latest outlooks show the span of mild temperatures likely pushing further into January than originally forecast.
Bespoke Weather Services had expected this would be the risk to outlooks, as the Pacific pattern and its positive Eastern Pacific Oscillation configuration “is in no big hurry to break down.” This increases the risk of the eastern United States being warmer into the first week of January.
“We do still see reasons to think the pattern can finally head back colder beyond that point, based on tropical forcing cycles, but patience is required, and once we do re-establish a connection with stronger cold, it is more likely, at least initially, to dump into areas from the Plains into the West, limiting impact in key areas for natural gas consumption,” Bespoke chief meteorologist Brian Lovern said.
Meanwhile, the GFS’ midday run was much milder trending Dec. 30-Jan 3 with not nearly as much cold air into the Lower 48 as it had been advertising, according to NatGasWeather. Because of this milder start to January in the latest GFS, it shed another 10 heating degree days over the 16-day run for further bearish trends overall.
“It will take much colder weather maps in early January to rid current strong bearish weather headwinds, and the latest GFS didn't help the cause,” NatGasWeather said.
The latest government storage data, however, did attempt to break the cycle. The U.S. Energy Information (EIA) reported a massive 107 Bcf withdrawal from natural gas storage for the week ending Dec. 13.
The reported draw was far above consensus estimates of a pull in the low 90s Bcf and was even several Bcf above the highest projection in market surveys. However, the 107 Bcf withdrawal was still far below the 132 Bcf withdrawal EIA recorded in the year-ago period and several Bcf below the 112 Bcf five-year average draw.
Nevertheless, the triple-digit pull took the natural gas market by surprise, with prices responding immediately to the latest EIA data. About five minutes before the 10:30 a.m. ET report, the January Nymex gas futures contract was trading at $2.257, down 2.9 cents from Wednesday’s settle.
As the EIA print crossed trading desks, however, the prompt month strengthened to trade just fractionally lower at $2.278.
“A massive draw. Way beyond expectations,” said Het Shah, managing director of The Desk’s energy industry chat platform Enelyst.com.
Ahead of the report, a Reuters poll of 16 analysts estimated withdrawals ranging from 68 Bcf to 102 Bcf, with a median draw of 92 Bcf. NGI expected to see a draw of 86 Bcf.
Andrea Paltrinieri, markets adviser to NatGasWeather, said the tighter draw sets the stage for a potential 160 Bcf withdrawal in the next EIA report. His 104 Bcf estimate for this week’s report was considered a highballer, but given the actual print, “if we keep this tightening, it will be an interesting time ahead.”
Broken down by region, the Midwest reported the largest withdrawal of 40 Bcf, and the East came in second with a 29 Bcf pull, according to EIA. The South Central withdrew 26 Bcf out of storage, including a stout 24 Bcf pull from nonsalt facilities and a 2 Bcf pull from salts.
“The South Central is the biggest miss here,” said independent weather forecaster Corey Lefkov. “Don’t mess with Texas.”
Total working gas in storage as of Dec. 13 stood at 3,411 Bcf, 618 Bcf higher than the year-ago period and 9 Bcf below the five-year average, according to EIA.
Looking ahead, the combination of low cash prices, max power burns and record liquefied natural gas demand could make for some volatile days ahead. However, “if we torch up the first two weeks of January, my view is that weather always wins in wintertime,” Paltrinieri said.
NatGasWeather meteorologist Rhett Milne agreed and said although weather models are starting to tease at colder air arriving in early January, it’s “going to be a painful stretch of weather to get through during the next 10-12 days.”
The January Nymex gas futures contract went on to settle Thursday at $2.273, down 1.3 cents from Wednesday’s close. February finished the day one-tenth of a cent higher at $2.265.
“The battle for $2.30 continues, but with bears gaining back the edge” on Thursday, NatGasWeather said. “It's clearly a battle of awful/red/bearish weather patterns versus a tighter supply/demand balance”, which was highlighted in Thursday’s bullish EIA storage report miss.