The extended selloff that natural gas forward prices have been on for the last eight weeks was bound to come to an end and for traders, there was no better time than the new year.
With hints of chillier weather arriving later this month, February prices rose an average 6 cents from Jan. 2-7, according to NGI’s Forward Look. March climbed 8 cents on average, while summer (April-October) prices picked up 4 cents on average.
Weather models continue to show a mostly bearish setup through mid-January, and have been going back and forth on the amount of cold expected to move into the Midwest and Northeast beginning late next week. Without major changes in the overnight data, Bespoke Weather Services moved its forecast colder Wednesday morning as it brings a little more chill into those regions through the Jan. 18-19 weekend, which would boost national demand up to near-normal levels.
“The key question is whether or not we get what we’d define as a ‘material’ pattern shift, something that would keep demand up at least near normal for a sustainable period,” Bespoke chief meteorologist Brian Lovern said.
Oddly, the European ensemble model is the colder one overall, but does not show a pattern late in the 11- to 15-day outlook that would be able to sustain a change in pattern, with no blocking and a positive Eastern Pacific Oscillation, according to Bespoke. The Global Ensemble Forecast System “offers more hope for meaningful change” beyond Day 15, but has been the worst performing model in recent weeks.
NatGasWeather said the market should expect changes in the next few days, where colder trends are still possible for Jan. 16-21 based on the intensity over Canada. It will also be important to see if cold can linger past Jan. 20-21 since the weather data remains mixed on if a milder set-up will return.
Since Thanksgiving, there have been numerous false alarms in the weather data, with both the European and American models calling for cooler weather in the six- to 10-day and/or 11- to 15-day window, according to EBW Analytics Group. “Time after time, as expected cooler weather drew closer, it disappeared. It would not be surprising if this pattern were to be repeated again now.”
The next few model cycles will be critical, the firm said. If support for cooler weather builds, natural gas may finally rebound. “Given current storage levels, however, any rebound is likely to be limited, with prices testing new lows once cool weather fades,” EBW said.
The U.S. Energy Information Administration (EIA) is back on schedule after back-to-back holiday weeks, with the latest storage inventory report due out at 10:30 a.m. Thursday.
Estimates ahead of the EIA report are pointing to a storage withdrawal in the upper 40s Bcf to lower 60s Bcf, which would be a whopping 100 Bcf lighter than normal. A Bloomberg survey of eight analysts had withdrawal estimates ranging from 46 Bcf to 73 Bcf, with a median of 52 Bcf. A Reuters poll of 17 analysts had a slightly wider range that showed draws as low as 41 Bcf, but with the same median as the Bloomberg survey. NGI projected a 51 Bcf pull.
This would compare with last year’s 91 Bcf withdrawal and the 169 Bcf five-year average draw, according to EIA.
Total degree days (TDD) observed during the reporting period, for the week ending Jan. 3, were 164, which is nearly 60 TDD below the five-year average, according to Bespoke.
Last week, the EIA reported a 58 Bcf withdrawal that brought inventories down to 3,192 Bcf and trimmed the year/year surplus to 484 Bcf.
Given the substantial decline in demand observed in December and the bearish outlook for the first half of January, the current end-of-March storage trajectory points to 1,739 Bcf, 300 Bcf higher month/month and 600 Bcf higher year/year, according to EBW. “As a result, intense downward price pressure remains likely this spring.”
Nymex futures ended the Jan. 2-7 period with February sitting at $2.162, up 4 cents; March up 4 cents to $2.153 and April up almost 5 cents to $2.146.
A broader look at global gas markets shows the malaise in the gas market is not restricted to U.S. borders. The balance-of-the-year strip at Asian benchmark Japan Korea Marker is near $5/MMBtu, while Europe’s National Balancing Point marker is sub-$4.50/MMBtu, Mobius Risk Group noted.
“Over the past 20 days, temperatures in Japan, Europe and even the Rio de Janeiro/Sao Paulo area have been bearish versus normal,” the Houston-based firm said. “With natural gas increasingly becoming a globally traded product, weather in demand centers outside of the United States becomes more important.”
Net pipeline deliveries to U.S. liquefied natural gas (LNG) facilities have hovered near 8.1 Bcf/d (8.6% of current U.S. production volumes) since the start of the new year, according to data and analytics firm Genscape Inc. The figures align with data collected by NGI’s LNG Insight, which is also tracking daily feed gas deliveries to U.S. export facilities.
The recent uptick in average U.S. LNG feed gas nominations has occurred primarily in response to commissioning progress at the second production unit at Cameron LNG. Project sponsor Sempra Energy confirmed late last month Cameron Train 2 had produced initial LNG volumes.
“On Dec. 31, a new maximum single-day delivery to Cameron LNG just shy of 1.2 Bcf/d was achieved. This maximum daily delivery to the facility was repeated on consecutive days later that week, on Jan. 3 and 4,” Genscape LNG analyst Allison Hurley said.
With exports to Mexico ticking up in the last couple of days and production still nearly 3 Bcf off November highs, Bespoke said balances continue to look strong. If a step-change in weather forecasts occurs, that could be enough “to push us up to at least the $2.25 level in prompt-month pricing over the next week or so.”
West Forwards Surge
While densely populated regions like the Northeast have enjoyed generally mild weather so far this winter, the western United States has had more than its fair share of chilly, wet conditions.
The National Weather Service (NWS) said a low pressure system was forecast to track across the Northern Rockies to Northern Plains on Wednesday, and then progress eastward on Thursday. This system is projected to sweep a cold front across the western and central United States ahead of an upper-level trough, according to the NWS. Snow was likely for the Northwest on Wednesday, with some lower elevation rain continuing for the Pacific Northwest.
Into Thursday, “another surface low will move southeastward into California, helping cause additional lower elevation rain and higher elevation snow in much of the West,” NWS said. “Snowfall totals over the next two days could approach a foot in the Cascades, Northern Rockies and into the Tetons/Wind River Mountains.”
The projected bump in demand is a recurring theme across the region. Southern California Gas (SoCalGas) has withdrawn a total of 8.9 Bcf from the Aliso Canyon storage facility since Nov. 20 in response to elevated winter demand. In that time, SoCalGas’ average daily sendout averaged just under 3.0 Bcf/d, at 2.981 Bcf/d.
“This was the highest mark for this period of time since 2016, which came in only slightly higher at 3.004 Bcf/d,” said Genscape analyst Joe Bernardi. “However, during that stretch of time in 2016, SoCal Citygate basis price averaged just 16 cents and never got above 50 cents. This past year, from Nov. 20 through the end of the year, SoCal Citygate basis price averaged $3.34 and never got below $2.05.”
Although it has been much higher on average than some past years in the same period, SoCal Citygate has thus far failed to spike to the extreme highs it hit the past two winters, according to Genscape. For example, the winter-to-date maximum for SoCal Citygate basis is $4.23, but there were a total of 21 times in five months that last winter’s price rose above that mark, exceeding $10 seven times.
“The difference so far between this winter and the previous two has been greater availability for imports and storage withdrawals,” Bernardi said.
The new Aliso Canyon withdrawal protocol has been in effect since July 2019 and was intended to make it easier for SoCal to withdraw from that storage field without as exhaustive of a reliance on other options. The return of additional flow capacity has played a part as well, as SoCalGas’ average imports in November and December 2019 were also at their highest mark since 2016, Genscape said.
With forecasts for colder-than-normal weather in Southern California seen lasting another week and a half, more withdrawals from Aliso Canyon appear likely. Nevertheless, SoCalGas’ overall storage has remained fairly robust thus far, with the latest system-wide inventory at 111% of the average for this date following the Aliso leak, Bernardi said.
As for SoCal Citygate forward prices, February jumped 19 cents from Jan. 2-7 to reach $4.815, a $2.653 premium over U.S. benchmark Henry Hub, according to Forward Look. March prices rose a more substantial 30 cents to $3.645 (plus $1.492) and the summer strip picked up a dime to reach $3.16 (plus 90 cents).
Although SoCal Citygate is no stranger to volatility, other markets across the West also posted notable increases across the forward curve.
Malin February rose 24 cents from Jan. 2-7 to reach $2.865, March jumped 17 cents to $2.211 and the summer tacked on 9 cents to $1.99, Forward Look data show.
Northwest Sumas notched a 39-cent gain for the February contract, which hit $3.432 as of Tuesday. March was up 21 cents to $2.422 and the summer strip was up 7 cents to $2.21.
Part of the steep gains seen along the Northwest Pipeline (NWPL) stemmed from upstream maintenance being carried out on Westcoast Transmission that is limiting Station 4B southbound flows.
The work began Tuesday and is set to continue through Thursday, restricting southbound flows through 4B to 1,720 MMcf/d. The station has averaged 1,872 MMcfd of throughput over the past month, so this maintenance would cut 152 MMcf/d versus that average, according to Genscape.
“However, even the reduced flow levels required by this maintenance are much higher than flows through this point several months ago. For example, the October average flow was 1,161 MMcf/d,” Bernardi said.
Furthermore, despite the chilly outlook for the Pacific Northwest gas demand in December was more in line with five-year norms than it was in October or November, when both of those earlier months saw demand come in considerably higher than normal, according to Genscape. This relative decrease in demand in the month of December, together with the hefty increase in import capacity thanks to Westcoast’s flow enhancements following its October 2018 explosion, has taken pressure off storage.
“Average daily withdrawals last month from NWPL’s Jackson Prairie storage, at 22 MMcf/d, represented the lowest such average for any December in the past six years,” Bernardi said. “And storage inventories, which had plummeted to record lows in late October and early November, are now back in line with, even slightly in excess of, their five-year average.”
Permian, NE Sell-Off Continues
The surge in forward prices across the western United States could not save forward markets in upstream Permian Basin.
Waha February prices slipped 4 cents from Jan. 2-7 to average just 83.7 cents, according to Forward Look. March rose just as much but averaged just 33.3 cents, while the summer strip fell 3 cents to a 62-cent average.
RBN Energy LLC analyst Jason Ferguson cautioned that the start of the new decade won’t look much different than the end of the last one. There is still way too much supply and not enough takeaway capacity.
“That means that regardless of what happens at Henry Hub, the U.S. benchmark for natural gas prices, Permian producers should expect dismal values for their natural gas in 2020.”
Over on the East Coast, a winter “heat wave” is set to throttle up temperatures even more than they have been since the start of the new year. Both daytime highs and nighttime lows are projected to flirt with record levels from the south-central to the eastern United States during what is typically the coldest part of the year, according to AccuWeather.
“Exactly how warm it will become during the day will depend on the amount of rain versus cloud cover and dry weather, said AccuWeather forecaster Brett Anderson.
Temperatures this weekend are forecast to approach record levels in the Northeast and could hit 70 or higher in Washington, D.C.. Highs could climb into the 60s in New York City and could reach 60 in Boston on Saturday.
The balmy outlook sent Transco Zone 6 NY prices for February down 11 cents from Jan. 2-7 to reach $4.064, according to Forward Look. March, however, rose 9 cents to $2.618 and the summer strip picked up 3 cents to hit $1.95.
Algonquin Citygate February was down 16 cents to $5.709, while March was down 8 cents to $3.879. Summer, however, moved up 3 cents to $2.31.