Tighter balances and signs of colder temperatures returning by the first week of January helped bolster natural gas futures prices Friday. After trading as high as $2.345/MMBtu, the January contract went on to settle at $2.328, up 5.5 cents day/day. February picked up 4.5 cents to settle at $2.310.
In the spot market, declines along the East Coast overshadowed strengthening at several West Coast hubs, and NGI’s Spot Gas National Avg. slid 49.0 cents to $2.465.
The midday Global Forecast System (GFS) data Friday showed stronger cooling for the Northern United States Jan. 1-4, according to NatGasWeather. Afternoon data from the European model also showed colder air moving into the northern part of the country but was not as cold as its American counterpart.
“They both show a better pattern to start January,” the forecaster said. “Not bullish without colder trends, but better. It’s possible the weather data has trended too warm since both the GFS and European models currently show” accumulated national heating degree days (HDD) coming in more than 50 HDDs below normal for the 15-day outlook period.
“Therefore, adding numerous HDDs back wouldn’t be a surprise,” according to NatGasWeather. “But what will be of primary interest is if the weather data is able to trend colder for the first week of January” and thus “counter the damage done from the coming 12 days of very warm December temperatures.”
Meanwhile, analysts were mulling the balance implications of Thursday’s Energy Information Administration (EIA) storage report, which surprised the market with a triple-digit withdrawal. EIA reported a 107 Bcf pull for the week ending Dec. 13, compared with a 132 Bcf withdrawal recorded in the year-ago period and the 112 Bcf five-year average draw.
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.
Analysts at Raymond James & Associates Inc. had pegged consensus estimates at minus 89 Bcf for the week, making the actual figure nearly 20 Bcf bullish to expectations.
“Excluding weather-related demand, Thursday’s withdrawal implies that market demand was 2.57 Bcf/d tighter versus the same week last year and has averaged 0.26 Bcf/d tighter over the past four weeks,” the analysts said.
Tudor, Pickering, Holt & Co. (TPH) analysts viewed the 107 Bcf print as implying a 1.5 Bcf/d undersupplied market when adjusting for weather, breaking from a trend of oversupplied weekly balances that stretches back to May.
“Demand continues to do its part for the U.S. gas market,” the TPH analysts said. Feed gas flowing to liquefied natural gas (LNG) export terminals has been a “big driver of the stronger than expected demand, hitting a weekly high of 7.93 Bcf/d, and we expect this to push above 8 Bcf/d” during the upcoming week.
“Warm forecasts continue to be a headwind for gas, but to date, the winter has been very strong, resulting in cumulative draws 22% above the five-year average and potentially setting up a tight market in the second half of 2020.”
Spot prices moderated throughout the Northeast Friday as forecasts showed more temperate conditions ahead. After experiencing lows in the teens and 20s Friday, Boston and New York were expected to see average temperatures climb into the low 40s by Monday, according to Maxar’s Weather Desk.
Transco Zone 6 NY tumbled 80.0 cents Friday to $2.625. Meanwhile, in New England, Algonquin Citygate plummeted $5.830 to $6.400. That’s less than half of the $13.970 average price recorded there in Wednesday’s trading.
The elevated basis in New England earlier in the week was driven by a combination of increased reliance on natural gas-fired electric generation in the region and pipeline constraints that were exacerbated by maintenance in Texas Eastern Transmission Co.’s M-3 zone, according to Genscape Inc.
Limited pipeline capacity into New England is a longstanding driver of winter volatility at hubs like Algonquin Citygate. When the coldest days push heating and electric demand above pipeline capacity, the region is now turning to LNG imports for balance, Genscape analysts Julien Vandal and Josh Garcia said in a recent blog post.
“When temperatures average below 20 degrees in New England, residential and commercial heating load will exceed total import capacity on the pipeline network, so LNG is required to support any amount of gas-fired generation in the supply stack outside of Southwest Connecticut,” the analysts said.
New England’s largest LNG receipt point is the Northeast Gateway in Massachusetts Bay, according to Vandal and Garcia. The price spikes over the past week could offer a glimpse into what price action will be like in New England’s gas and electric markets later this winter, the analysts said.
If price gains over the past week lead to “Algonquin futures rallying for January or February, this could incentivize Excelerate to send a tanker to the Northeast Gateway, as Algonquin competes” with the National Balancing Point (NBP) in the UK for LNG contracts, they said. “If the UK NBP index continues to fall as it has lately, and Algonquin contracts begin to pick up, this is a good indication that more LNG may be coming to the region in a few weeks.”
Meanwhile, on the West Coast a number of hubs strengthened Friday ahead of a stormy pattern in the forecast for California and the Pacific Northwest.
“Heavy rain and high elevation snow will continue to make weather headlines from Northern California to western Washington as an atmospheric river advects deep Pacific moisture inland across the region,” the National Weather Services said Friday. “...Extended periods of moderate to heavy rain could result in additional rainfall amounts on the order of three-to-six inches over portions of western Oregon and northwest California through Saturday evening.
“Over the higher elevations of the Cascades and Olympic Mountains, heavy snow is expected, with accumulations of one-to-three feet possible.”
Southern California Gas (SoCalGas) was experiencing strong demand on its system to close out the work week, with actual system sendout topping 3.5 million Dth/d on Thursday. It was expected to exceed 3.2 million Dth/d Friday and again on Monday. The utility expected composite weighted average temperatures in its service territory to fall over the weekend, from 59 degrees on Friday to 53 degrees by Monday.