Weekend weather models achieved a feat that has remained elusive over the winter so far, turning massively colder over the extended holiday weekend and sending the natural gas futures surging to start the work week. The March Nymex gas futures contract jumped 14.4 cents to settle Tuesday at $1.981/MMBtu. April shot up 11.5 cents to $1.971.
Spot gas prices also rebounded Tuesday as a solid cold shot was forecast to sweep across the northern United States beginning Wednesday. NGI’s Spot Gas National Avg. climbed 15.5 cents to $1.855.
This winter’s track record has been to shed demand as colder days on the back end of the 15-day forecast roll forward, but the latest weather model runs continue to reflect a “better/more bullish” pattern for the Feb. 27-March 3 period, according to NatGasWeather. “As long as cold doesn't back off in the weather maps, the coming pattern will satisfy after the past few months have failed to.”
The late February/early March pattern trended further colder in the Global Forecast System midday run, which added a few more heating degree days to the outlook, according to the forecaster. This is a “much better” pattern compared to the past few months as numerous cold shots finally “cash in” on a tighter supply/demand balance to reduce storage surpluses versus the five-year average in the coming weeks, the firm said.
As of Feb. 7, inventories stood at 2,494 Bcf, which is 601 Bcf above year-ago levels and 215 Bcf above the five-year average, according to the Energy Information Administration.
With prompt-month pricing nearing the $2 mark following Tuesday’s rally, EBW Analytics Group cautioned that the impact of the colder shift “should not be exaggerated.” Only a few days are expected to be significantly colder than normal nationally, the firm said, and overall market sentiment is likely to remain bearish and end-of-season storage is still expected to be high.
“Near-term, however, the slide in prices is most likely over, with the potential for significant gains, especially with a huge outstanding short position, creating the potential for a short squeeze,” EBW said.
Speculator net short positioning extended prior record levels over the Presidents’ Day holiday weekend, with shorts increasing to 309,000 contracts and setting a new record high for the sixth straight week, according to EBW. “This weekend’s rare bullish weather shift, following nearly three months of uninterrupted bearish weather revisions, may prompt an exaggerated market reaction, as recently established shorts may be forced to buy natural gas to cover positions.”
In addition, traders “riding” natural gas lower for weeks may take profits, further reinforcing bullish momentum, according to the firm. From a fundamental perspective, the weekend bullish weather shift in isolation may be too small to materially change the overall seasonal outlook, EBW said. “But the potential effect on market psychology after a winter of mounting downward pressure may offer bulls a brief glimmer of hope.”
Meanwhile, other fundamentals remained supportive for prices. Genscape Inc.’s estimate of daily Lower 48 production has stayed below the 93 Bcf/d mark for the past week. During this time, production has averaged 92.6 Bcf/d, about 0.35 Bcf/d below the prior 30-day average, Genscape senior natural gas analyst Rick Margolin said.
“Comparing the past week to the prior 30-day average, we see Gulf region volumes down about 0.36 Bcf/d and Northeast production off 0.31 Bcf/d. Permian volumes are up 0.21 Bcf/d, Texas is up 0.1 Bcf/d, and all other regions are essentially flat,” Margolin said.
Month to date, total Lower 48 output is trailing Genscape’s forecast by 0.78 Bcf/d because of freeze-offs throughout the West and unplanned/unreported field maintenance in many eastern regions, it said.
Enverus, meanwhile, noted that residential/commercial demand saw an increase of 5.47 Bcf/d on the week, while power and industrial demand increased 1.57 Bcf/d and 0.69 Bcf/d, respectively. Liquefied natural gas (LNG) export demand fell 1.14 Bcf/d because of fewer shipments from Sabine Pass amid maintenance on the Creole Trail pipeline and from Cameron LNG, where Train 2 is undergoing maintenance related to commissioning.
Mexican exports rebounded from the prior week, gaining 0.40 Bcf/d, according to Enverus, while weekly average totals show the market gaining 1.29 Bcf/d in total supply and total demand increasing by 7.27 Bcf/d last week.
A midweek winter storm set to unleash across the northern United States boosted spot gas prices across the majority of the country Tuesday. The only exceptions were in West Texas/southeastern New Mexico, where Permian Basin pricing remained under pressure from a lack of gas takeaway infrastructure and abundant supplies.
Compounding the issue and what likely contributed to Tuesday’s modest selloff in the region is that Natural Gas PipeLine Co. of America ended a six-month-long force majeure that had been restricting the Indian Basin lateral of its Permian takeaway line to zero flow. The issue had constrained about 50 MMcf/d of Permian takeaway and was the result of an unexplained failure near its compressor station 167 in Eddy County, NM, according to Genscape. The line required hydrostatic testing and environmental permitting in addition to “regulatory approval” according to notices issued during the event, Genscape analyst Matthew McDowell said.
Waha next-day gas fell 6.0 cents to average 59.0 cents.
Elsewhere across the United States, Northeast cash markets rose by the double-digits as cold Canadian air was forecast to spread southward through the Plains on Wednesday before drifting into the panhandles of Texas and Oklahoma on Thursday, according to AccuWeather. Farther to the east, wintry precipitation was likely across northern Georgia, eastern Tennessee, southern Virginia, upstate South Carolina and much of North Carolina through Thursday night, the forecaster said.
On the pipeline front, Texas Eastern Transmission (aka Tetco) on Monday released its first update since Oct. 31 regarding the force majeure on its 30-inch diameter line initiated following an explosion near Danville, KY, on Aug. 1, 2019. The force majeue has been in place since the incident.
Tetco expects work on Line 15 to continue into 3Q2020, according to Genscape, with tool runs are to begin as early as Thursday. The pipeline has indicated dates for planned maintenance are almost certain to change and said individual segments may be returned to higher capacities as conditions allow and work progresses. Operational capacity at Danville was about 0.5 Bcf/d below pre-explosion levels, restricting M2 production exports to Gulf Coast demand markets, Genscape analyst Josh Garcia said.
Spot gas prices across the Southeast and into Louisiana were higher day/day, including a 16.0-cent increase at Transco Zone 5, which averaged $2.045.
Kinder Morgan Louisiana Pipeline (KMLP) began meter maintenance at two interstate interconnects on Tuesday that was scheduled to continue through Wednesday, potentially cutting up to 510 MMcf/d of receipts onto the pipeline, according to Genscape. The interstate interconnect with Columbia Gulf Transmission was shut in on Tuesday, and the interstate interconnect with ANR Pipeline is set to be shut in on Wednesday.
“KMLP noted that each location will be unavailable for transports until the work at that specific location has been completed,” Genscape analyst Anthony Ferrara said.
Meanwhile, the Southeast Supply Header (SESH) and Southern Natural Gas (Sonat) declared forces majeure from an unplanned outage at SESH’s Gwinville, MS, compressor station that was to affect downstream deliveries into Sonat, Genscape said. The outage took place while an existing planned maintenance event was in effect that reduced mainline capacity through SESH at the Delhi compressor, cutting flows by 85 MMcf/d to 810 MMcf/d.
The additional outage is to take effect on Wednesday, and mainline capacity through Delhi is to be further reduced by 68 MMcf/d, bringing the total capacity reduction to 151 MMcf/d, Genscape analyst Josh Garcia said. Total Sonat receipts from SESH are to fall from 495 MMcf/d to 394 MMcf/d, with no estimate for a return to service, he said.
Farther west, cash prices were up between 10 cents and 35 cents in the Rockies, while most pricing hubs in California rose mostly between 10 cents and 20 cents.