• Nymex futures plunge as weather data reverts back warmer; January expires near $2.15
  • Cash prices sink as exports to Mexico plunge
  • EIA reports massive 161 Bcf withdrawal, reflecting tightening in supply/demand balances

Weather models remained at the forefront of natural gas trading Friday, with futures quickly reversing the previous day’s gains as overnight data trended warmer. With volumes remaining light after the Christmas holiday, the January Nymex gas futures contract expired 13.6 cents lower day/day at $2.158/MMBtu. February, which takes the prompt position on Monday, settled at $2.231, down 5.4 cents.

Spot gas prices were also weak as weather patterns were expected to remain unusually mild over most of the United States through Monday, except for some unsettling storms out West. The NGI Spot Gas National Avg. fell 11.5 cents to $1.910.

Traders have continued to look for signs that the streak of unseasonably mild temperatures could come to an end as the calendar flips to January, typically one of the coldest months of winter.

Thursday’s weather model data had showed signs that chillier air could arrive by the second week of January, but then the overnight models moved significantly warmer for the next couple of weeks. The European model alone lost a hefty 24 heating degree days (HDD), according to NatGasWeather.

The afternoon European model gained back 14 HDDs by seeing a stronger cold push into the northern United States Jan. 6-9, the forecaster said Friday. “The pattern before then remained exceptionally bearish with HDDs for the next 10 days, running a massive 50 HDDs below normal.”

With the Global Forecast System losing 15 HDDs in the mid-Friday run and the European model gaining 14 HDDs, the two models are now close together on the 15-day forecast, according to NatGasWeather. Although the market was likely glad to see the European model add some demand back, “it doesn't change the fact that the overall pattern is still quite bearish other than the Jan. 6-8 cold shot.”

As such, the weather data would need to show cold lasting into Jan. 9-11 across the northern part of the country to help the bullish case, “because if it doesn't, then HDDs will drop right back below normal at the end of the 15-day forecast once the markets reopen,” NatGasWeather said.

The firm noted that futures rallied into the close, which may have been aided by the European model adding back demand, but it viewed the bounce as more about the expiration of the January contract instead of ominous weather patterns.

Indeed, not even another bullish surprise in the latest government storage data could sway the market on Friday. The U.S. Energy Information Administration (EIA) reported a massive 161 Bcf pull from inventories for the week ending Dec. 20.

Traders, however, shrugged off the data, with prices barely budging after the government report was released. The January Nymex futures contract hit an early intraday high of $2.286 before going on to expire a few cents above its intraday low.

Speaking on The Desk’s energy industry chat platform Enelyst.com, the chief meteorologist for Bespoke Weather Services, Brian Lovern, said the market appeared to expect a higher number. “Henry Hub cash being in the $1.70s is not helping matters either.”

Enelyst.com managing director Het Shah noted that the unseasonably warm weather in December has prices sitting near three-month lows. Although prompt-month prices reached similarly low levels this past summer, “that was for the September contract, a shoulder month. This is $2 for January, the coldest month of the year. It doesn’t seem right.”

Estimates ahead of the EIA report ranged widely but generally clustered around a withdrawal in the upper 140s Bcf. Last year, the EIA recorded a 61 Bcf withdrawal for the similar week, while the five-year average withdrawal stood at 101 Bcf.

Broken down by region, the Midwest withdrew a stout 50 Bcf, and the South Central pulled 48 Bcf, including a 37 Bcf draw from nonsalt facilities and a 10 Bcf draw from salts, EIA said. The East reported a 42 Bcf withdrawal, and the Pacific posted a 13 Bcf pull.

Shah said weak Henry Hub cash pricing “is keeping the salts from drawing” in the South Central “until late season, when they’ll all draw uneconomically. It could be a bloodbath in March.”

The hefty cumulative 161 Bcf draw tightened up the year/year storage overhang by 100 Bcf and expanded the deficit to the five-year average by 60 Bcf. Total working gas in storage as of Dec. 20 stood at 3,250 Bcf, 518 Bcf higher than last year at this time and 69 Bcf below the five-year average, according to EIA.

“We remain mostly at the mercy of weather, and if we stay warmer, price declines are still likely,” Bespoke said. “Normal would likely be bullish, given balances.”

Cash Sporting $1 Handle

Mild temperatures and light weekend demand combined to send spot gas prices sharply lower on Friday, with prices across much of the country sinking below $2.

Benchmark Henry Hub gas for delivery through Monday averaged $1.820, down 26.5 cents day/day. Similarly steep losses were seen throughout South Louisiana, Texas and across the Southeast.

The sharp retreat seen in prices across South Texas could be partially attributed to lower exports to Mexico. Genscape Inc. said exports to Mexico have plummeted beyond expectations in recent days on unplanned maintenance. The firm had expected exports to fall by about 1 Bcf/d starting with the Christmas holiday and lasting through New Year’s Day, as is typical this time of year.

“However, on Christmas Day, exports sank to just 3,774 MMcf/d, about 1.5 Bcf/d below the prior 30-day average. And the lowest single-day level since April, when maintenance on the Los Ramones system cut South Texas exports by more than 60% for two days,” Genscape senior natural gas analyst Rick Margolin said.

The recent declines on Christmas were exaggerated by an “unplanned operational upset” on the new Sur de Texas-Tuxpan pipeline at its interconnect with the Sistrangas system at Monte Grande, according to Genscape. Flows on Sur de Texas dropped to 368 MMcf/d on Christmas after having averaged 764 MMcf/d in the prior 30 days.

Margolin said TC Energy Corp., the operator of Sur de Texas, indicated the line had to be vented because of overpressure, but no one was hurt and the repairs were completed.

Total U.S.-to-Mexico exports for Friday were estimated at 4,524 MMcf/d, which was more in line with Genscape’s expectations based on normal (albeit seasonal) operations.

With little demand in downstream markets, the writing was on the wall for Permian Basin prices. After trading as low as 10.0 cents on Thursday, Waha spot gas for delivery through Monday plunged as low as minus 75.0 cents, the first time since August that Permian prices have gone negative. Spot gas went on to average minus 14.0 cents, down 41.0 cents day/day.

Out West, the messy weather pattern was set to continue, and prices rose accordingly. Gains were mostly small at less than a dime, although a handful of pricing hubs notched much larger increases.

Southern Border, PG&E cash shot up 54.0 cents to $2.720, and Kingsgate in the Rockies jumped 50.5 cents to $3.035.

On the opposite coast, a couple of Northeast points sank below $2, while some markets in New England hung on by a thread. Transco Zone 6-NY spot gas dropped 19.0 cents to $1.765. Algonquin Citygate tumbled 21.0 cents to $2.005.