• February Nymex futures down 10.8 cents to $1.895/MMBtu, March down 9.6 cents to $1.889
  • “Prices are now entering territory not seen for four years”: Enverus
  • “The data is about as bearish as it can get,” says NatGasWeather
  • Northern Natural, El Paso maintenance events impacting Permian outflows: Genscape

Buckling under the weight of a near-relentless run of warmer-than-normal temperatures in the peak of the winter heating season, natural gas prices -- both cash and futures -- plunged from coast to coast Tuesday. The February Nymex contract unequivocally broke below the $2/MMBtu barrier, dropping 10.8 cents to settle at $1.895. March settled at $1.889, down 9.6 cents on the day.

Meanwhile, expectations for milder conditions to take hold by the end of the work week also sent spot prices tumbling, especially in the populated Northeast; NGI’s Spot Gas National Avg. dropped 35.0 cents to $1.860.

“Prices are now entering territory not seen for four years,” analysts at Enverus said.

The bearishness in the weather outlook Tuesday saw prices test what Enverus had identified as a key support area at $1.870-1.909, reflecting the lows from April and May 2016.

“Beyond those lows is the March 2016 low at $1.611,” the Enverus analysts said. The open coming out of the weekend “created a small gap in prices” between $1.994 and $1.970. “Rallies will need to close that gap this week to mitigate the damage of the declines. Should prices break beyond that gap, the next move up is to test the area of $2.08-2.10, which had held declines until last week.”

The midday run from the Global Forecast System (GFS) Tuesday extended milder trends that had driven prices below $2 over the weekend, according to NatGasWeather.

“The data is about as bearish as it can get due to considerably warmer trends across much of the United States late January into early February,” the forecaster said. “...With prices now solidly under $2, the natural gas markets are clearly disappointed colder weather patterns have little chance of returning until around Feb. 3-4, but even then, the latest GFS data suggested it could be longer.”

The “much warmer” outlook from the major weather models has dashed any expectations for a shift to cooler-than-normal temperatures starting this week, according to analysts at EBW Analytics Group.

From Wednesday through the first week of February, “weather-driven demand for natural gas is expected to be nearly 90 Bcf below normal, putting intense downward pressure on cash prices and keeping the amount of gas in storage far above usual levels,” the EBW analysts said. “At the same time, U.S. gas production has continued to decline. There are also hints that normal weather could return” later next month.

“With blowtorch warmth expected for at least two weeks, however, gas prices at Henry Hub are likely to fall to record lows, pushing the February contract into the $1.80s or lower and setting the stage for even steeper price declines later this winter.”

Looking at the supply picture, Genscape Inc. estimates Tuesday showed Lower 48 dry gas production tracking toward a second straight month/month decline after averaging about 93.44 Bcf/d over the Martin Luther King Jr. Day weekend.

“That slightly trailed the month-to-date average heading into the weekend by 0.57 Bcf/d,” Genscape senior natural gas analyst Rick Margolin said. “It is also nearly 2.44 Bcf/d below the winter-to-date and all-time daily high of 95.88 Bcf/d printed back on Nov. 30. Since Nov. 30, production has been recording an average daily decline of 45 MMcf/d.”

Mild Conditions Returning

With frigid conditions to start the week expected to fade over the next day or two, spot gas prices headed lower across most regions Tuesday. The Northeast saw the heftiest discounts; Iroquois Zone 2 plummeted $3.080 to average $2.280. Transco Zone 6 NY shed $1.300 to $2.280.

NatGasWeather noted a “strong cold shot” over the Midwest and East Tuesday, with highs ranging from the single digits to the 30s. The forecaster expected conditions for Tuesday into Wednesday to drive “strong national demand,” aided by chilly temperatures in the South and Southeast, including lows down into the 20s and 30s.

However, “mild versus normal conditions will return across much of the United States Wednesday through Friday as high pressure strengthens,” NatGasWeather said. After Tuesday, highs were expected to warm into the 50s to 70s over the southern part of the country and into the 30s to 50s over the Great Lakes and Northeast, about 10-25 degrees above normal. “It will remain cold across the Northern Plains late in the week for the nation’s only cold spot.”

Discounts were also prominent in the Midwest and Midcontinent Tuesday. Chicago Citygate dropped 15.5 cents to $1.815, while Northern Border Ventura dropped 35.0 cents to $1.790.

Elsewhere, West Texas prices generally eased lower, remaining at a steep discount to surrounding regions. El Paso Permian skidded 5.0 cents to 65.0 cents.

Permian spot prices Tuesday were facing additional downward pressure from maintenance scheduled on the El Paso Natural Gas (EPNG) system, according to Genscape analyst Matthew McDowell. The work, also scheduled for Wednesday and Friday, impacts Permian volumes flowing through EPNG’s “CORN LPW” location, reducing capacity from 1,156 MMcf/d to 905 MMcf/d, the analyst said.

“However, these potential restrictions discount the fact that CORN LPW had been restricted from the period Dec. 14 through Jan. 5 due to a force majeure at EPNG’s Guadalupe compressor station,” according to McDowell.

“During that period, flow was limited to 979 MMcf/d. For the last two months, CORN LPW has been flowing nearly as full as operational capacity allows. This will likely translate to a realization of the maintenance’s full potential impact and further depress Waha cash prices.”

Meanwhile, Genscape analyst Joe Bernardi noted a force majeure event Monday at the Northern Natural Gas (NNG) system’s Spraberry compressor station in Midland County, TX. NNG said the event would impact volumes at its Spraberry 12-inch delivery allocation group until further notice.

Capacity for the Spraberry 12-inch group as of Tuesday had been cut in half, from 117 MMcf/d to 58 MMcf/d, Bernardi said.

“This point represents deliveries from NNG to the Atmos and Enterprise Texas intrastate pipelines,” the analyst said. “Combined, these deliveries have averaged 111 MMcf/d over the past month and dropped to match the reduced capacity of 58 MMcf/d during the early cycles” of Tuesday’s gas day.