With a far-reaching blizzard and record-setting cold moving out of the Midwest and into the Northeast Thursday, it came as no surprise that January natural gas bidweek prices not only shot higher, but in at least one instance reached a record high.
The NGI National Average for January bidweek bounded higher by 77 cents to $4.54 and nearly all actively traded points scored double-digit gains with $1-plus advances prevailing at a few locations. Tennessee Zone 6 200 L rose the most, adding $7.91 to $21.28, but Algonquin Citygates, which serve key New England markets, were right behind, rising $6.99 to average $21.79. The slimmest advance was seen at Dominion gaining just 15 cents to $3.46.
The only individual point drop for the week also came in the East, where Tennessee Zone 5 200 L dropped $1.55 to average $4.06.
The bidweek price of $21.79 is the highest recorded since September 1999 when NGI began keeping Algonquin Citygate figures. Regionally, the Northeast posted the greatest gains, adding 95 cents to an average $4.75, and South Texas had the smallest advance, rising 59 cents to $4.29.
"Air blasting southward from eastern Canada on Friday will send temperatures down to their lowest levels since January 2009 in many locations from New England to part of the Mid-Atlantic," said Alex Sosnowski, a meteorologist with AccuWeather.com. "This includes temperatures dipping well below zero from northern Pennsylvania to the Hudson Valley of New York to southern New England, on northward into neighboring Canada. Cities that will plunge below zero Friday night include Boston, Hartford, Conn., and Scranton, Pa."
South Louisiana and East Texas rose 62 cents and 63 cents to $4.38 and $4.32, respectively, and California was higher by 70 cents to $4.59. The Rocky Mountains gained 75 cents to $4.45, and the Midwest rose 88 cents to $4.81. Midcontinent bidweek average rose 91 cents to $4.48.
January futures settled at $4.407, up 58.9 cents from the December settlement of $3.818.
In spite of heavier than usual weather-driven draws on storage gas, buyers didn't plan to step up purchase of bidweek volumes. "We didn't go out and buy much more than we did for December. We just bought our normal baseload and will rely on storage to fill in," said a Midwest utility buyer. "December, January and February we pretty much have a set volume and go with that. After we add storage, spot sales, if we are still short we will use LNG."
A Houston pipeline official echoed the experience of the Midwest utility buyer. "I think most people were planning on full withdrawals for January anyway. Sometimes you may have pulled a little early if November and December [demand] kicks in, but you are probably within your ability to take all your gas out. It's better because you are not having to pull it out in March when the prices are lower. I don't think there is going to be a big change in any of that.
"If you were smart and could replace $25 gas with $14 [bidweek] gas all month for January, you could do that. You could buy yourself some delivered gas, pull your gas out of storage, transport it and sell it, but there is no incentive for the LDCs to do that and capture that revenue [or take that risk]."
A Michigan marketer said he wasn't going to be taking any additional January volumes and that "was something of a rarity and [we] didn't take any volumes out of storage for December. We covered our tails every which way and bought a little cash gas, but our customers are almost perfectly matched."
At the end of bidweek Tuesday, northeastern physical gas values for Wednesday and Thursday delivery mostly ticked higher as traders had to lock up volumes ahead of mind-numbing cold and snow expected to pound eastern energy markets. Mid-Atlantic points posted stout gains, but pipes serving the Boston area suffered declines. Futures took a big hit, with February dropping 19.7 cents to $4.230 and March falling 18.9 cents to $4.193.
Futures traders watched prices crumble. "Prices were slowly coming off during the course of the day, but not on very great volume," said a New York floor trader. "It could be profit-taking and also the end of the year. Whatever people want to show or not show for tax purposes. This way it shows they got in or out of the market on Dec. 31."
Spot prices jumped ahead of cold and snowy weather forecast for New York City and the Eastern Seaboard. "Cold air has returned to the New York area in time for New Year's Eve revelers on Times Square and will set the stage for a Thursday to Friday snowstorm," said Sosnowski.
Gas for Wednesday and Thursday delivery bound for New York on Transco Zone 6 vaulted $7.57 to $13.62, and deliveries on Tetco M-3 Delivery added 61 cents to $4.98.
Farther west, prices were steady to sharply lower in the Marcellus. Gas on Dominion added 3 cents, but Wednesday-Thursday gas on Transco-Leidy tumbled $1.85 to $1.75.
New England prices took a curious turn with points upstream of Boston jumping while Algonquin and Tennessee Zone 6 200 L fell.
Wednesday and Thursday deliveries at the Algonquin Citygates tumbled $5.88 to $18.77, and gas on Tennessee Zone 6 200 L fell $4.93 to $19.29. At Iroquois Waddington, however, next day deliveries surged $9.89 to $21.29.
Pipelines were also bracing for the cold weather. Tennessee issued an OFO for Zones 5 and 6 and cautioned against trying to compensate with over-deliveries at Marcellus points.
Weather forecasts turned warmer overnight in the 11- to 15-day period. WSI Corp. in its morning outlook said, "[Tuesday's] forecast has trended much warmer across the Plains and Midwest when compared to the previous forecast. Confidence is considered near average standards as a result of very good consistency with regards to the subsequent runs of the European ensemble suite."
It added that risks to the forecast include a warmer "eastern two-thirds [of the country] under a highly anomalous building warm ridge. Risk is to the colder side across the interior West, Southwest early, followed by the Plains and Midwest late if another cold trough digs down across the region as advertised by a cluster of European ensemble members."
Analysts see colder temperatures prevailing through the first half of the month. "Cooler-than-normal temperatures and above-average storage withdrawals now look as though they will continue through the first half of January," said Tim Evans of Citi Futures Perspective in closing comments to clients on Tuesday.
"The estimates for DOE storage withdrawals for the week ended Dec. 27 may vary a bit more than usual, with the impact of the Christmas holiday on commercial and industrial demand as a complicating factor. Estimates for the week ended Jan. 3 spanning the New Year's Day break will show similar variation. Our model, which does factor in the five-year average pattern for the holidays, still translates into above-average storage withdrawals, but we recognize competing estimates may tell a different story."
Evans estimates a pull of 139 Bcf for the week ended Dec. 27 and 182 Bcf for the week ended Jan. 3. Last year on Dec. 27, 126 Bcf was withdrawn and the five-year average is for a 121 Bcf reduction.
Under those conditions, Evans sees the year-on-five-year deficit growing to 508 Bcf by Jan. 17, "with some chance for the trend to persist beyond that date. We think this further tightening of the market could support a move to the $5.00 area, although given the uncertainty of the forecast itself, we understand that the market will need to see additional evidence that our scenario is on track before accepting the bullish implications."
Evans is bullish on the market but is watching from the sidelines for a low-risk trade entry.