- Natural gas futures take breather, hover not far above four-year low
- LNG feed gas deliveries crater amid work at multiple export terminals
- Cash prices steady as weather systems heads east
After sinking to a four-year low to start the week, natural gas futures bounced a bit Tuesday as a late-week cold blast was seen boosting demand possibly to the highest level of the winter so far. The March Nymex gas futures contract climbed 2.2 cents to settle at $1.788/MMBtu. April rose 1.9 cents to close at $1.823.
Spot gas prices held relatively steady on Tuesday despite chilly air already moving into the southern Plains/Texas. NGI’s Spot Gas National Avg. climbed 2.5 cents to $1.685.
Weather data has been volatile in recent runs, with a huge amount of demand slashed from weekend weather models only to be somewhat recovered in later runs on Monday. However, even with the revisions later in the day, the damage to the March Nymex gas futures contract was already done. The prompt month settled Monday at $1.766 after plunging 9.2 cents from Friday’s close.
Tuesday’s price action did little to reverse the damage as the March contract traded in a tight band between $1.753 and $1.787.
“A weather-driven headwind of this magnitude is often an insurmountable headwind this time of year because the lag effect from lower prices to sustained volumetric production impacts is measured in quarters or months rather than days or weeks, and because storage ratchets become increasingly impactful as winter draws to a close,” Mobius Risk Group said.
Six to nine months usually have to elapse before reduced producer activity levels and corresponding output can confidently be extrapolated through a subsequent injection/withdrawal season, according to Mobius.
Regarding storage ratchets, market participants need to appreciate the impact on physical pricing, as supply once earmarked for peak winter is increasingly dumped into a market that has remained consistently warmer than normal, Mobius said. Overall inventory levels are tracking toward the 1.825 Tcf mark, as bullish underlying supply and demand is matched one-for-one by Mother Nature.
“A cold shot later this week could provide a momentary glimpse into a future where price-elastic demand is stimulated, supply is discouraged and weather sensitivity is illuminated. However, the six- to 10-day and 11- to 15-day weather forecasts will be more broadly considered than daily data,” the firm said.
The latest Global Forecast System (GFS) was a little milder with the cold blast forecast to hit the United States late next week, and that could be viewed as somewhat disappointing to the market, according to NatGasWeather. But there's still a rather frigid blast to sweep across the Midwest and Northeast late this week that is expected to bring a surge in national demand.
“After a break late this weekend and early next week, another weather system will track into the central and northern United States mid and late next week,” the forecaster said. “It's this system that has the best potential to trend colder.”
Meanwhile, recent weather data teased colder air trying to push back into the United States around Feb. 25-26, “but that’s rather far out and is far from convincing. Overall, the weather data isn't quite as bearish as it was a couple days ago, but it’s not exactly bullish either, with the only truly cold days of the next 15 being this Thursday-Saturday unless late next week were to trend colder,” NatGasWeather said.
Not helping matters is that one of the major components of the recent tightness in the market has loosened considerably this week. Feed gas deliveries to U.S. liquefied natural gas (LNG) export facilities, which had reached well above 9 Bcf/d last week, sank to a three-week low of 7.44 Bcf/d on Monday. Tuesday’s nominations were up only slightly to 7.83 Bcf/d, according to Genscape Inc.
The firm alerted clients that its cameras detected the start of a partial outage at Sabine Pass Train 1, which coincides with maintenance Cheniere Energy Inc. scheduled on the Gillis compressor station. The work is set to limit the compressor’s capacity to varying levels through Friday, including a full shutdown for two hours on Tuesday.
Deliveries to Cameron LNG also have fallen nearly 50% from last week’s levels, with work being carried out on Train 2 as part of the commissioning process, according to spokesperson Anya McInnis. The maintenance is expected to last up to 10 days.
Despite the balmy winter so far this season, the lower price environment year/year has resulted in stronger gas consumption in the power sector, which may help support the market this summer. Gas consumption in the power sector is up by 2.6 Bcf/d this winter to date, including February estimates based on the latest weather forecasts, according to Energy Aspects. Gas has fought for market share by discounting price, as overall load has declined year/year nationally, with an 8% drop in the PJM Interconnection leading large independent system operators (ISO).
“We expect continued year/year demand declines in the eastern ISOs, though weather-normalized average load data since the start of November are mixed,” Energy Aspects said.
PJM declines are not at the pace seen in the first half of 2019, and while New York and New England are flat to higher, the firm does not expect growth to be sustained in the region. Instead, more favorable spring weather, lower nuclear output, the shutdown of three plants summer/summer and sub-$2.00/MMBtu gas prices will boost power burn by more than 2 Bcf/d again this summer.
Steady As A Rock
Spot gas price action was rather subdued on Tuesday as a weather system moved out of the Rockies and headed east. Most pricing hubs across the country picked up a few cents day/day, although a handful of western markets notched slightly more pronounced increases.
“So far this winter, most people across the northern Plains, Midwest and Great Lakes have been able to save a few extra dollars on heating costs thanks to the mild weather, but the upcoming forecast will have some heaters working overtime later this week,” said AccuWeather meteorologist Brandon Buckingham.
Along with the massive drop in temperatures, snow showers and a strong north wind could produce blizzard conditions across the northern Plains on Wednesday, according to AccuWeather. As the cold air mass continues to surge southward, it is expected to join forces with a separate storm system Wednesday night in the Midwest, “helping to inject a fresh shot of cold air on the back side.”
The combination of these two “atmospheric disturbances” could bring another round of snow to cities including Chicago, Detroit and Cleveland, according to AccuWeather. As the storm slides eastward into Thursday, accumulating snow is expected to track across the interior Northeast. The Arctic air mass may filter into the Northeast and Mid-Atlantic by Friday, sending temperatures much lower.
“For many areas around the Midwest and Northeast, this air mass will surpass the lowest temperatures of the winter so far by an average of 5 to 15 degrees, even though the mainly unfrozen waters of the Great Lakes will modify the air slightly,” AccuWeather senior meteorologist Alex Sosnowski said.
The cold blast of air is forecast to be fairly short-lived, as temperatures are expected to increase across the Plains and Midwest by Saturday and across the Northeast and East Coast by Sunday.
Nevertheless, Genscape added 9 heating degree days to its forecast for this week, compared to its forecast run Friday for the same period. “The colder temperatures are expected to lift Lower 48 demand above 100 Bcf/d by Wednesday, and reach a peak for the week on Thursday at 119 Bcf/d,” Genscape senior natural gas analyst Rick Margolin said.
Pipelines from the Rockies to the East have published warnings of operational challenges as the system moves across the country, including Colorado Interstate Gas, Wyoming Interstate Co., Southern Star Central Gas Pipeline, ANR, Northern Natural Gas, Columbia Gas Transmission and Millennium. But with the quick return of warm weather, cash prices failed to produce significant gains.
Permian Basin pricing continued to improve as gains of at least 10 cents day/day were seen across the region.
In the Midcontinent, Northern Natural Ventura spot gas climbed 9.0 cents to $1.765, while most prices in the Midwest were up no more than a couple of pennies on the day.