An unusually mild Christmas Week that had Santa and his elves delivering gifts across the United States in shorts and flip flops sent natural gas forward prices tumbling for the seventh week in a row. January prices fell 16 cents on average from Dec. 19-24, while February dropped an average 13 cents, according to NGI’s Forward Look.
Prices further out the curve also declined, but the double-digit losses ended with the balance of winter (January-March), with the summer strip (April-October) and the winter 2020-2021 each slipping less than a nickel on average.
The declines seen across the country were similar to those across the Nymex futures strip in which the January contract lost about a dime to settle Tuesday at $2.172 and the February contract slid nearly 8 cents to $2.187. The balance of winter was down about 8 cents to $2.166.
The extended streak of losses for natural gas prices comes as long-range weather outlooks have shown unseasonably mild weather lingering awhile longer. Furthermore, any hints of cooler air returning have been quickly dismissed as weather models remain at odds, with the American data persistently colder than the European data.
Thursday’s forecast told a couple of different stories, moving warmer yet again through the end of next week but shifting colder in the 11- to 15-day period, “a little surprising” given a continued tendency toward a positive Eastern Pacific Oscillation (EPO)/positive North Atlantic Oscillation (NAO) regime, according to Bespoke Weather Services.
“This gives us some pause, as this suggests that either 1) the projected 11- to 15-day cold weakens again as it rolls into the six- to 10-day, or 2) the cold shot is real, but just a narrow colder window in the sea of a warmer pattern type,” Bespoke chief meteorologist Brian Lovern said.
The firm adjusted its forecast colder starting on Jan. 5, but did not move as cold as the current model consensus, as it wants to see progression forward or more pronounced changes in the EPO/NAO configuration that would be more supportive of a material colder turn.
NatGasWeather said it will look to see if the Jan. 4-10 period is able to trend colder since it’s likely the pattern for Dec. 26-Jan. 3 will remain much too warm/bearish. The Global Forecast System’s midday run was relatively stable, leaving the forecaster to consider other factors at play that led to a sharp rally after the Christmas holiday.
One reason could be the upcoming expiration of the January Nymex contract as speculators remain heavily short, the forecaster said. The rally also could be due to a technical or seasonal bounce, “or from players expecting a bullish Energy Information Administration (EIA) storage report miss” since last week's report suggested the supply/demand balance had tightened in recent weeks.
Estimates ahead of the EIA report, pushed back to 10:30 a.m. ET Friday due to the Christmas Day holiday, point to a withdrawal in the upper 140s Bcf. A preliminary Bloomberg survey, which showed draws ranging from 139 Bcf to 155 Bcf, had a median estimate of 147 Bcf. A Reuters poll of 12 analysts estimated withdrawals ranging from 136 Bcf to 164 Bcf, with a median draw of 148 Bcf. NGI projected a 158 Bcf pull.
Last year, the EIA recorded a 61 Bcf withdrawal for the similar week, while the five-year average withdrawal sits at 101 Bcf. Inventories as of Dec. 13 stood at 3,411 Bcf, 618 Bcf above year-ago levels and 9 Bcf below the five-year average.
Meanwhile, production still remains around 94.2 Bcf, nearly 3 Bcf off highs, according to Bespoke. Power burns look much weaker as well, which the firm attributes to the holiday period.
“Our main concern still lies with the weather,” Lovern said. “If we do shift to even a sustainable ‘normal’ pattern, prices can move higher, but the concern is that the days that are in the 11- to 15-day period” on Thursday shift warmer as they progress forward into the 6-10 day, “resulting in losses in forecast demand yet again.”
Looking ahead, liquefied natural gas (LNG) remains a bright spot for natural gas prices as exports continue to rise. The Cameron and Freeport LNG terminals are expected to see new production units come online in the first quarter of 2020, and recent activity at the facilities has helped push feed gas deliveries to record volumes this month. Pipeline volumes flowing to the facilities peaked at 8.59 Bcf/d on Dec. 20, according to NGI’s U.S. LNG Export Tracker.
However, there are concerns over whether U.S. cargoes could get shut in next year as the European market remains mired in an astounding glut and other demand markets have a multitude of cheap options from which to get their gas.
In Europe, the year/year surplus -- now more than 920 Bcf -- has expanded by more than 250 Bcf since early November as a warm start to the heating season and a surplus of LNG cargoes that have unloaded in recent weeks replenished supplies, according to EBW Analytics Group. The recent Russia-Ukraine transit agreement is further bearish news for the market, sidestepping a potential reduction in Russian imports and leading European gas prices to tumble 5%.
“With a vast storage surplus and elevated supply in Europe, U.S. LNG exports are at increased risk of economic shut-ins next year, potentially foreshadowing increased downward pressure on Nymex natural gas futures for 2020,” EBW said.
As of Tuesday, the Calendar year 2020 Nymex strip stood at around $2.25.
With nary a winter storm or Arctic air in the forecast for the next several days, and unseasonably mild weather seen lingering through the first couple of weeks of January, forward prices were lower across the country, and especially so across the Northeast.
AccuWeather forecasters were monitoring a potential weak storm that could materialize in the coming days and threaten the tranquil outlook for the key Northeast demand region. However, “dry weather looks likely for the ball drop” in New York City, with temperatures running slightly above normal in the 30s to near 40 degrees, according to AccuWeather senior meteorologist Brian Thompson.
The potential storm that may form along the Northeast coast during the last days of 2019 puts the greatest risk of precipitation across the region from the Great Lakes to the interior Northeast, where widespread snow showers and flurries can occur, Anderson said.
As for forwards, Transco Zone 6 NY January prices plummeted 68 cents from Dec. 19-24 to reach $4.827, while February dropped 42 cents to $4.732 and the balance of winter slipped 41 cents to $4.107. The summer 2020 strip was down just 4 cents to $1.92, according to Forward Look.
In New England, Algonquin Citygate January was down 54 cents to $6.287, February was down 51 cents to $6.367 and the balance of winter was down 28 cents to $5.706. Algonquin Citygate’s summer strip fell just 3 cents to $2.28.
In Appalachia, most pricing hubs generally followed the lead of Nymex futures, with the most significant decreases occurring at the front of the curve. More substantial losses were seen at Texas Eastern M-3 as a major outage on the Texas Eastern Transmission (Tetco) pipeline was set to be lifted before the end of the year.
Tetco’s Delmont outage is set to be lifted on Dec. 28, with a full return to service targeted for after an additional Entriken outage, around Jan. 2, per a notice released by the pipeline on Dec. 24. Based on the results of the in-line inspection tool run reports received in early December, Tetco determined that once remediation of certain anomalies are completed, Line 12 between Delmont and Perulack on the Penn-Jersey line would be fit for service and normal operating pressure could resume, according to Genscape Inc.
“This will take several days as Line 12 is isolated from Lines 19, 27 and 28, and the current return date is targeted for Dec. 28,” Genscape natural gas analyst Josh Garcia said. “Capacity through Line 12 from Delmont to Perulack will be increased by roughly 85 MMcf/d, and was already 50 MMcf/d higher after the Perulack to Shermansdale outage was lifted late on Dec. 23.”
After the Delmont outage is lifted, Tetco is scheduled to immediately commence an outage on its Entriken compressor station to repair a separate issue. According to the pipeline, this would minimize the likelihood of an unplanned outage later this winter.
“This outage will take roughly five days, and its return to service is currently targeted for Jan. 2, 2020. Line 12 from Delmont to Perulack will only return to full capacity after the Entriken outage is lifted, increasing operational capacity through the line by roughly 430 MMcf/d,” Garcia said.
A status update for Line 19 between Bechtelsville and Lambertville is expected around Dec. 30, which will increase delivery capacity to the end of the line by roughly 150 MMcf/d, according to Genscape.
Texas Eastern M-3 January prices plunged 40 cents from Dec. 19-24 to reach $3.972, while February dropped 23 cents to $3.925 and the balance of winter slid 25 cents to $3.423, Forward Look data show. Summer prices were down just 4 cents to $1.90.
Also on the pipeline front, U.S. exports to Mexico’s Sur de Texas-Tuxpan pipeline are set to be cut to zero for a one-day planned maintenance event Jan. 14 on the Valley Crossing pipeline, the sole source of supply for the Sur de Texas-Tuxpan (SDT-Tux) system.
Since Sept. 17, when SDT-Tux came online, Valley Crossing has delivered an average 683 MMcf/d, with a peak of 887 MMcf/d registered on both Dec. 17 and 18, according to Genscape. Over the past 30 days, volumes sent to SDT-Tux have averaged 768 MMcf/d.
“The impact to total U.S. exports, however, may be slightly smaller as some reroute optionality is available via the Los Ramones pipeline,” Genscape analyst Ricardo Falcon said.
Elsewhere around the United States, forward markets in the West posted some of the only gains across the country as the region has been hit with multiple winter storms that have dropped temperatures and lifted demand.
In the Rockies, Northwest Sumas January prices rose 9 cents from Dec. 19-24 to reach $3.945, while February climbed 4 cents to $3.301 and the balance of winter rose 8 cents to $3.233, according to Forward Look. Given the lack of significant rainfall in the Pacific Northwest that provides headwinds to hydro output next summer, the summer 2020 strip was also up a solid 8 cents to $1.88.
Farther west, SoCal Citygate jumped 15 cents to $5.717, February climbed 18 cents to $4.702 and the balance of winter tacked on 11 cents to hit $4.655. Summer prices inched up just 2 cents to $3.07.