After a one-week reprieve, natural gas forwards resumed their slide, with sharp double-digit decreases seen across much of the United States as warm weather appears to prevail for the rest of the month.
February prices fell 12 cents on average from Jan. 9-15, and the balance of winter (February-March) slipped 11 cents on average, according to NGI’s Forward Look. Summer losses were less extreme, falling an average of 6 cents, while the winter 2020-21 strip slid an average of 4 cents.
With Nymex Henry Hub futures reflecting prices that typically are more reflective of summer weather -- the February contract settled Wednesday at $2.120 and March sat at $2.083 and then fell even further to close out the week -- bears have gotten rather comfortable in the driver’s seat. That’s largely because, despite it being the middle of January, kids in Texas are going to school in shorts and t-shirts while snow in the Northeast has been little and sporadic.
There were hints that chillier weather could arrive by the end of January, but large warmer revisions to the forecast were made Friday as all models significantly reduce the amount of cold air that is able to move into the United States. Bespoke Weather Services was concerned about warmer risks given the look of the upper air pattern in the higher latitudes, but said the magnitude of Friday’s change is “quite extreme for just a 24-hour period.
“It now appears that any below-normal temperatures for more than a day or two here and there will be confined mostly to the southwestern quadrant of the nation, with the Midwest to Northeast tending to stay warmer than normal.”
The weather pattern has a very “El Niño-like” look to it, which makes sense given the massive risk in Global Angular Momentum underway combined with a lack of blocking, according to the forecaster. The projected pattern in the 11- to 15-day would suggest that not much changes into early February, with warmer risks in the northern half of the United States.
Meanwhile, supply/demand balances appear at least as tight as the previous week’s as production dropped another Bcf early Friday and is now a “whopping” 4.5 Bcf off late-November highs at 91.6 Bcf. Power burns are not quite as strong as expected given the late-week bump in demand, and liquefied natural gas (LNG) also remains down considerably to 6.5 Bcf due to fog limiting shipping in the Gulf Coast.
The steep decline in feed gas deliveries was confirmed in NGI’s U.S. LNG Export Tracker, which showed deliveries to Cheniere Energy Inc.’s Sabine Pass facility plunging to less than 2,200,000 Dth on Thursday, down from around 4,095,000 Dth at the start of the work week.
Market observers on energy industry chat platform Enelyst.com noted the large drop in deliveries to the Sabine Pass terminal, as the heavy fog hindered operations since the facility continues to operate with only three storage tanks. Two remain out of commission after leaks were detected.
James Bevan, an analyst at Criterion Research LLC, said that flows were being redirected, resulting in an influx of South Central gas moving into the Southeast. Transcontinental Gas Pipe Line (Transco) accounted for more than 1 Bcf/d of those flow increases from the South Central.
“Interestingly, since Jan. 13, Transco’s deliveries into Sabine Pass LNG have fallen by 1.1 Bcf/d, while Transco’s outflows into the Southeast rose by 1.3 Bcf/d. So Transco shifted a bulk of its LNG deliveries into Southeastern flows.”
Genscape Inc. LNG lead analyst Allison Hurley told NGI that there are multiple ships awaiting entry to Sabine Pass and other Gulf Coast LNG facilities thanks to ship channels being closed due to heavy fog across the region. Its cameras detected Sabine Train 1 shut down on Wednesday.
“Since Monday, Jan. 13, our cameras have indicated the presence of operational upsets at Sabine Pass trains.”
The substantial decline in LNG demand this week was seen factoring into next week’s storage inventory report, with Bevan pointing out that when Sabine Pass experienced a similar fog issue last year, the facility took out capacity at the Pine Prairie storage facility. Transactional reporting at Pine Prairie shows the terminal elected to do the same on Thursday.
As for this week’s U.S. Energy Information Administration (EIA) storage data, the agency said that inventories dropped by 109 Bcf for the week ending Jan. 10. The triple-digit withdrawal stunned market observers, who had projected a much smaller draw in the mid-90s Bcf.
Ahead of the EIA report, major surveys had landed on a pull around 93-95 Bcf, with responses ranging from minus 84 Bcf to minus 101 Bcf.
Bespoke, which had projected a 96 Bcf pull that already reflected a tightening of balances, said that while one could say the misses of the two previous weeks are close to cancelling out, “we see this number as more important, clear of any holiday impact, and therefore consider it bullish with any weather at all. Obviously we will need to see how the next couple of reports shake out, but data indicates that we are running at least as tight currently, though LNG lagging this week hinders things slightly.”
The reported 109 Bcf withdrawal compares with last year’s 82 Bcf pull and the 184 Bcf five-year average.
Broken down by region, the East pulled out 40 Bcf from storage, and the Midwest withdrew 34 Bcf, according to EIA. The South Central reported a net withdrawal of 21 Bcf, including an 18 Bcf draw from nonsalts and a 3 Bcf pull from salts.
Total working gas in storage as of Jan. 10 stood at 3,039 Bcf, 494 Bcf above year-ago levels and 149 Bcf above the five-year average, EIA said.
Houston-based Mobius Risk Group said with early indications suggesting next week’s EIA data could see the storage surplus balloon by as much as 100 Bcf, “the market is back to hinging almost exclusively on temperatures over the next four to six weeks.”
After hitting an intraday high of $2.170 following Thursday’s EIA bullish report, the prompt month lost its footing and closed the day at $2.077, down 4.3 cents day/day. Given Friday’s large weather forecast changes, Bespoke said “continued warmth would likely to send us under $2.00 at some point, balance-related bounces aside.”
Unlike the rest of the country, the western United States has had its fair share of wintry weather this season. Heavy rains and snow have combined with below-average temperatures to keep forward prices in the region well supported despite overwhelmingly bearish fundamentals farther east.
The latest storm to wreak havoc in the region barrelled into the Northwest on Wednesday and was expected to bring another dose of heavy snow and rain to the Pacific coast through the rest of the week.
The storm system intensified quickly enough early Wednesday to qualify as a “bomb cyclone” as the central barometric pressure dropped 0.74 of an inch of mercury in 12 hours, according to AccuWeather. The National Weather Service in Seattle said winds approached hurricane force (74 mph or greater) on Destruction Island late Wednesday when winds gusted to 72 mph. The island is located about 3 miles off the coast of Washington.
A new round of snow was in store for much of Washington, including some coastal areas as the storm pushes inland prior to the end of the week, according to AccuWeather. The greatest amount of snow was expected to hit the Oregon Cascades, the northern Sierra Nevada and the Coast Ranges from southwestern Oregon to northwestern California.
Snow was also expected to fall farther south over California, including areas that experience snow only a couple of times each winter, according to the forecaster. Several inches of snow were also in store for the mountains in Southern California north and east of Los Angeles and east of San Diego.
The continued lashing of winter storms had little bearing on forward markets out West. Northwest Sumas February prices plunged $1.27 from Jan. 9-15 to reach $2.539, while the balance of winter tumbled 86 cents to $2.252, according to Forward Look. The steep losses extended further out the curve as well, with summer sliding 19 cents to $2.07 and next winter dropping 11 cents to $3.15.
February prices at Malin were down 40 cents to $2.379, and the balance of winter was down 35 cents to $2.115. Malin summer prices averaged 15 cents lower at $1.84, while the winter 2020-21 strip fell 11 cents on average to $2.51.
Steep discounts were also seen throughout California, although declines were more pronounced in the southern part of the state.
The widespread losses may have played a hand in Permian Basin weakness as well, with prices continuing to slip during the Jan. 9-15 period.
Waha February dropped 14 cents to average just 67.7 cents, while the balance of winter fell a dime to average 47.1 cents, Forward Look data show. Summer was down 13 cents, as was the winter 2020-21 strip, which landed at $1.10.
Losses throughout the rest of the country were generally capped at around a dime throughout the forward curve. Interestingly, Transco Zone 6 NY held up fairly well as the February contract stayed flat on the week at $3.87. The balance of winter was down 2 cents to $3.203, and summer was down 6 cents to $1.90.
The comparative strength comes as total EIA East-region demand climbed to slightly more than 36 Bcf/d Thursday, an increase of about 7 Bcf/d versus the prior seven-day average, according to Genscape Inc. This rise occurred just days after major cities throughout the region broke high-temperature records.
Several pipelines in the regions, including Transco, declared Operational Flow Orders due to the colder weather. Columbia Gas Transmission warned of the risk of declaration of a Transport Critical Day due to an alert on Millennium Pipeline, and Dominion Transmission implemented weather-triggered restrictions on its Northern system.
“Weather forecasts show current temps lingering to close out the work week” and the firm’s daily supply & demand model indicated East demand could reach 40 Bcf/d Friday before retreating with milder weather and the weekend,” Genscape senior natural gas analyst Rick Margolin said.