• Natural gas futures bounce as weather models trend colder
  • Cold potentially returning late-February/early March
  • Cash prices crater as latest cold blast expected to move out quickly

A notably more frigid weather outlook developed over the holiday weekend, helping to send natural gas futures sharply higher in early trading Tuesday. The March Nymex contract was trading at $1.949/MMBtu at around 8:40 a.m. ET, up 11.2 cents from last Friday’s settle.

Natural gas futures capped last week with a modest gain as the latest weather data gave bulls enough momentum to prevent another leg lower ahead of the long holiday weekend. The March Nymex gas futures contract climbed 1.1 cents to settle Friday at $1.837. April was unchanged at $1.856.

Cash prices were not as supported. With Presidents’ Day extending the weekend by a day and a winter blast set to exit key demand regions fairly quickly, the NGI Spot Gas National Avg. tumbled 20.0 cents to $1.700.

Both the Global Forecast System (GFS) and European models lost around 10 heating degree days (HDD) or more Thursday night, but the midday GFS flipped back colder by gaining back those losses and more, according to NatGasWeather. The European model also added back demand, gaining 7 HDDs in Friday afternoon’s run.

Both models still show a rather mild break across most of the United States Feb. 22-26, but then indicate cold making a return push into the country Feb. 28-March 1, the forecaster said. “If this were to hold through the weekend break, the back end would be cold weighted.

“Essentially, both the GFS and European models are very similar on the overall pattern into March 1. They both added some demand back in the latest data, but that milder break Feb. 23-26 stands out. It might be overlooked as long as the Feb. 28-March 1 period proves to show cold pushing back into the northern United States after the weekend break.”

But there are concerns weighing on the market. Feed gas deliveries to liquefied natural gas (LNG) export facilities surged to a record high just weeks ago and remained well above 9 million Dth earlier this month. However, intake began to soften during the second week of February as maintenance at the Sabine Pass and Cameron facilities got under way, and by Friday had declined to just 7.6 million Dth. Although the work at Sabine Pass was planned and the work at Cameron was part of the commissioning process at one of its production units, a change in gas flows at Dominion Energy’s Cove Point terminal may signal more troubling times ahead for the LNG market.

Genscape Inc. said that deliveries to the Cove Point pipeline system switched from an intake of more than 700 MMcf/d to a net sendout of more than 100 MMcf/d on Friday. The switch occurred as regional temperatures near the Lusby, MD, facility are forecast to plunge throughout the day, driving up demand in the combined Southeast and Mid-Atlantic regions to 21.28 Bcf/d on Friday, up from a weekly low of 16.69 Bcf/d on Tuesday.

The gas is being funneled through the Transcontinental Gas Pipe Line (Transco) system, which reversed to net receipts of more than 400 MMcf/d on Friday, according to the firm. “Cove is sending out to domestic markets via Transco. Keep in mind that Cove Point LNG has the ability to send out regas volumes while simultaneously liquefying gas. As such, our cameras do not show any impact to operations at Cove Point LNG’s large liquefier,” Genscape lead LNG analyst Allison Hurley said.

But the timing of Dominion’s move to send gas into the domestic market could sound the alarm for the U.S. gas market. Global gas prices, already near historic lows, have suffered a double whammy now that the coronavirus has disrupted markets. Although the full extent of the coronavirus’ impact on the global gas market is still unknown, Energy Aspects analysts expect Japan Korea Marker spot prices to remain at record lows over the coming months, trading near parity with the Dutch Title Transfer Facility because of the ongoing impact of the outbreak on Chinese gas demand.

The unusually mild winter in Asia and Europe has left gas inventories near record levels for this time of year, calling into question where diverted cargoes could go. Both Total SA and Royal Dutch Shell plc rejected force majeure declarations by China National Offshore Oil Corp. (CNOOC) last week, but Total reportedly agreed to divert other cargoes in return for CNOOC taking in a cargo at the Tianjin terminal in China. Some other Chinese buyers were aiming to delay or divert cargoes set to arrive through April, rather than declare force majeure, according to ship brokerage Poten & Partners.

Meanwhile, the recovery in demand may be slower than previously expected, with the potential year/year LNG demand slowdown running into 2Q2020 as quarantine measures remain partially in place and not all businesses have restarted activity following the extended Lunar New Year, according to Energy Aspects.

“The impact on Northeast Asian LNG demand could easily roll into 2Q2020 if Chinese firms are unsuccessful in declaring force majeure on their cargoes,” Energy Aspects said. “Having to receive cargoes now bolsters what are anecdotally already high Chinese LNG inventories, which then slows Chinese spot buying for 2Q2020.”

Demand destruction will continue longer if China’s unprecedented measures to end the spread of the outbreak prove insufficient, according to the firm, and it is unclear if the number of infected is close to its peak. “China has been claiming a slowdown in the number of new cases in recent days,” which has been confirmed by the World Health Organization (WHO.) “But the WHO also cautioned that the spread of the virus could again accelerate.”

Northeast Fizzles

Thursday’s price surge in the spot gas market, driven largely in part to frigid Arctic air dropping into the key Northeast, proved to be fleeting as a quick return to more moderate temperatures sent prices plummeting on Friday.

Algonquin Citygate led the declines as it tumbled $1.585 to average $2.160 for gas delivery through Tuesday. Transco Zone 6 non-NY dropped 63.0 cents to $1.805.

The winter blast continued to impact the Midwest and Northeast on Friday, where lows of minus 20s to 20s were expected the next few mornings, including below-zero temperatures from Chicago to New York City and chilly 30s deep into the South and Southeast, according to NatGasWeather. However, a mild break was forecast to quickly follow across the South and East beginning late in the weekend and continuing through early in the week for a swing back to light demand. The forecaster noted, however, that a second strong cold shot remains on track to impact the Midwest and Northeast during the second half of next week, “with another round of lows reaching the minus 10s to 20s.”

Nevertheless, the rapid warmup and three-day holiday weekend sapped cash markets. Appalachia prices fell as much as 63.5 cents at Texas Eastern M-3, Delivery to average $1.765 for gas delivered through Tuesday. Other regional points fell less than 20 cents day/day, however.

In the Southeast, Dominion Energy Cove Point spot gas was down 47.5 cents to $1.900, while benchmark Henry Hub was down just 3.0 cents to $1.855.

The majority of losses through the Midcontinent and Midwest were limited to around 15 cents, while markets across much of Texas were capped at less than a dime.

In West Texas, Waha spot gas plunged 32.0 cents day/day to average 65.0 cents for gas delivered through Tuesday, while markets farther west generally fell by the single digits.