• Exceptionally bearish weather pattern drives Nymex natural gas futures lower
  • Cash prices recover; Permian prices gain $1-plus

After struggling to hold their head above water, natural gas futures sank Monday as sustained cold weather remained absent from long-range forecasts. The February Nymex gas futures contract, in its first day in the prompt-month position, settled at $2.186/MMBtu, down 4.5 cents from Friday’s close. March slipped 1.6 cents to $2.157.

Spot gas prices recovered Monday as several market hubs posted significant gains of 20-30 cents and even heftier increases were seen in West Texas. Countered by some losses out West, the NGI Spot Gas National Avg. rose 23.5 cents to $2.145.

Despite the lower volumes that have accompanied the holiday season, volatility has remained prevalent as Nymex futures posted significant swings following Christmas. Traders took somewhat of a breather on Monday, however, as the entire curve shifted only a few pennies at best.

At issue is the absence of lasting cold weather to support prices. Last week, weather models hinted at a blast of chilly air moving into the Midwest and Northeast by the middle of next week, but the intensity of that cold front is now seen leading to only a modest bump in demand.

Furthermore, the Global Forecast System (GFS) and European weather models show a significant warmer shift taking place immediately afterward as the next upper level trough dumps into the western half of the nation, amplifying a warmer ridge again farther east, according to Bespoke Weather Services.

“We still see no change in the higher latitude pattern that suggests a material colder shift can occur anytime soon for key natural gas consuming regions,” Bespoke chief meteorologist Brian Lovern said. “We can get an occasional colder day, but the base state of the pattern favors warmer overall, outside of the western states. This sets us up for a warmer January than we saw last winter rather easily, barring a change into the second half of the month.”

The GFS midday run reinforced that theory as it dropped nearly 15 heating degree days (HDD) from its outlook. Although it was colder with the projected front next week, the consequence of this is the more impressive cold shot that was to follow into the northern United States Jan. 7-8 backed off considerably, according to NatGasWeather. The Jan. 10-14 period also doesn't look cold enough in the latest GFS and didn't as well in the overnight or afternoon European model.

“Essentially, the coming pattern has trended further bearish with only one to two days of the next 16 with HDDs above normal, and barely so. Simply not cold enough,” NatGasWeather said.

Any major move to the frigid side could provide a lifeline to the struggling gas market, which saw the January contract stumble to a fresh four-month low as it rolled off the board, according to EBW Analytics Group. In fact, the January contract’s final settlement put the contract at a 2-cent discount to the April contract.

After Monday’s session, February sat at a 3.7-cent premium to April, while March was less than 1 cent above April.

“Although February and March retain a modest premium to injection-season contracts, January's descent into contango highlights an overflowing storage trajectory but suggests that further near-term declines may be slower and choppier,” EBW said.

The U.S. Energy Information Administration said storage inventories fell by 161 Bcf for the week ending Dec. 20, pushing stocks to 3,250 Bcf. Despite the hefty draw, total working gas in storage is still 518 Bcf above year-ago levels and only 69 Bcf below the five-year average.

In both of the prior winters, sharp declines for natural gas as winter premiums faded in December were followed by significant gains of more than 65 cents as cold weather arrived in January, according to EBW. “If the January forecast turns colder, a robust increase in Nymex gas futures may be in store to start 2020.”

A stronger start to the new year also could be supported by the supply side, if an expected increase in production doesn’t pan out. Lower 48 production dipped slightly during the weekend at an average 94.13 Bcf/d, about 0.43 Bcf/d below the seven-day average prior to the weekend, according to Genscape Inc. About 0.3 Bcf/d of the declines were in Texas, followed by 0.11 Bcf/d of drops in both the New Mexico Permian Basin and northern Louisiana.

“Production volumes should, however, recover this week as there are very few planned maintenance events and weather in freeze-prone areas is forecast to be mild,” Genscape senior natural gas analyst Rick Margolin said. “Freeze-offs earlier in the month were influential in bringing the current month-to-date production average of 94.36 Bcf/d in below our forecast for 94.6 Bcf/d.”

Demand “should remain quiet” through the New Year’s holiday, according to Genscape. The combination of the holiday effect followed by a weekend and weather forecasts continuing to trend mild are collectively contributing to the firm’s coming seven-day demand forecast averaging about 92.8 Bcf/d, roughly 4.2 Bcf/d weaker than the prior 30-day average.

In addition, exports to Mexico are not expected to rebound back to the roughly 5 Bcf/d level until after the new year, and feed gas to liquefied natural gas terminals has been volatile, with operational issues at the Freeport and Sabine Pass terminals, Margolin said.

For now, though, balances remain supportive given “quite healthy” power burns despite weak demand, according to Bespoke. “The problem is that the weather pattern overall is skewed solidly to the warmer side, a colder day here and there notwithstanding. As long as this continues, we risk seeing continued declines in prompt-month prices.”

Cash Recovers

Spot gas prices bounced back from Friday’s doldrums as a strong winter storm tracks through the central United States/Midwest with rain, snow and chilly conditions.

This central U.S. system will track into the East on Tuesday, leaving temperatures only slightly cooler than normal by the time it arrives, according to NatGasWeather. So although national demand is set to increase, it will likely remain below normal.

Nevertheless, the expected bump in demand sent prices across most of the country much higher than Friday.

The sharpest gains occurred in the Permian Basin, where prices on Friday had plunged below zero for the first time since August. On Monday, Waha next-day gas jumped $1.205 to average $1.065, and similar increases of more than $1 were seen across the region.

Elsewhere across Texas, Houston Ship Channel climbed 20.0 cents to $1.910.

Increases were wide ranging in the Midcontinent, where NGPL Midcontinent cash was up 42.5 cents to average 84.5 cents.

Gains of 20-30 cents were seen across most of Louisiana, while Transco Zone 5 in the Southeast picked up 38.0 cents to average $2.140.

On the pipeline front, Southern Natural Gas Co. LLC declared a force majeure on its system because of an unplanned outage at its Fairburn, GA, compressor. As a result, nominations at its Fairburn interconnect with Transcontinental Gas Pipe Line will be shut in.

“The interconnect has received as much as 191 MMcf/d in the last month during peak demand, but has only averaged 14 MMcf/d in receipts over the last nine days as temperatures have gotten warmer. As such, impact of this outage is dependent on weather demand,” Genscape analyst Josh Garcia said.

In Appalachia, one of the points along Texas Eastern Transmission posted the region’s largest gains as one of the outages on the system was expected to be lifted over the weekend. Texas Eastern M-3, Delivery spot gas rose 27.5 cents to $2.00.

Northeast cash prices were up anywhere from a nickel to as much as 75.0 cents.

Prices out West posted the only losses on Monday, although they weren’t widespread. In the Rockies, CIG jumped 19.0 cents to $1.940.

In California, SoCal Citygate climbed 14.5 cents to $6.040.