Continued weakness in the outlook for weather-driven demand into early 2020 extended declines in the natural gas futures market Tuesday. The January Nymex contract dropped 4.2 cents to settle at $2.172/MMBtu. February eased 3.0 cents to $2.187.
In the spot market, a mild forecast for much of the eastern two thirds of the Lower 48 accompanied widespread discounts on deals for two-day delivery over the Christmas holiday; NGI’s Spot Gas National Avg. fell 14.0 cents to $2.130/MMBtu.
Forecasts Tuesday “dropped another chunk” of projected gas-weighted degree days from the outlook, and the combination of a positive Eastern Pacific Oscillation (EPO) and positive North Atlantic Oscillation (NAO) in the 11-15 day time frame pointed to additional warming going forward, according to Bespoke Weather Services.
“In addition, the pattern signals suggest that at least the 16-20 day would also be warmer, setting us up for a solidly warm first half of January,” the forecaster said. “...At this point, the EPO/NAO regime seems quite locked in, so it is unclear when we may see a turn back materially colder should one come. These regimes can be quite difficult to break down once they have become established.”
Given low liquidity with the holiday period and a “very bleak” outlook for weather-driven demand, prices could break support and drop toward the $2.10 area this week, according to Bespoke.
“We feel that once the fog of the holiday period passes, balances should remain tight enough to carve out a bottom if the weather can get out of super warm mode,” Bespoke said. “Otherwise, we continue to grind even lower.”
Meanwhile, looking ahead to this week’s Energy Information Administration (EIA) inventory report, pushed back to a Friday release to account for Wednesday’s Christmas holiday, analysts were expecting a withdrawal well into the triple digits.
Energy Aspects issued a preliminary estimate for a 168 Bcf pull for the week ended Dec. 20.
“Freeze-offs have dragged on production” recently, the firm said. “Sub-freezing temperatures have cost Appalachia 0.5 Bcf/d since Dec. 15 amid winter storms, while the Rockies, San Juan and Haynesville also lost 0.2 Bcf/d each between Dec. 17-18. We expect total Lower 48 production to drop by 1.0 Bcf/d week/week as a result.”
Meanwhile, liquefied natural gas (LNG) feed gas demand has reached new highs, recently topping the 8 Bcf/d mark.
“Increased flows to Cameron Train 2 moved the terminal over 1.0 Bcf/d for the first time on Dec. 18, while intake at Sabine Pass and Corpus Christi continues to exceed nameplate capacity,” Energy Aspects said.
Analysts at Genscape Inc. estimated a 153 Bcf pull for Friday’s EIA report.
“While this would be the largest pull so far this winter, and notably larger than last winter’s same-date draw, it would still be looser than the five-year average by about 1.3 Bcf/d,” Genscape senior natural gas analyst Eric Fell said.
Discounts were the norm throughout the Lower 48 Tuesday as forecasts pointed to dry conditions and a wide swath of unseasonably warm temperatures. Benchmark Henry Hub fell 6.0 cents to $2.100.
“The demand outlook for the rest of 2019 continues to weaken, with weather forecasts continually revising warmer,” Genscape’s Fell said.
Forecast revisions as of Tuesday had led the firm to remove nearly 80 Bcf of weather-sensitive demand from its projections compared to a week earlier.
Mild weather and holiday impacts “portend the likelihood for daily demand to remain below the 90 Bcf/d mark through the end of the year,” Fell said.
The mild conditions made a large dent in the winter premiums in New England in Tuesday’s spot trading. Algonquin Citygate shed $1.195 to average $3.255. Upstream in Appalachia, Dominion South skidded 15.0 cents to $1.715.
The National Weather Service (NWS) on Tuesday called for “relatively dry and mild conditions” across regions east of the Rockies.
“A frontal boundary will waver over the Central Plains through the Corn Belt and Great Lakes into the Mid-Atlantic,” the forecaster said. “Southerly flow to the south of the boundary will bring well above normal temperatures to the areas along Interstate 70 between western Kansas to the Appalachians.
“Record highs are possible on Christmas Day around St. Louis in the lower 60s. Below normal temperatures are forecast for much of the Southwest behind the cold front, only in the upper 50s and low 60s for Southern California and the lower deserts of Arizona.”
Midwest and Midcontinent hubs generally saw small discounts Tuesday, with most locations trading below the $2 mark. Northern Natural Ventura fell 4.5 cents to $1.880.
Elsewhere, a number of points in the western United States continued to trade at premiums to Henry Hub. SoCal Border Avg. dropped 15.0 cents to $2.935. El Paso S. Mainline/N. Baja picked up 3.0 cents to $3.190.