Spot natural gas prices advanced across the board in Monday's trading, with Northeast and East points earning double-digit gains as the polar vortex kept temperatures well below normal all along the Eastern Seaboard. Forecasts called for no slowdown until the weekend. Supplies into the Midwest were reduced by a fire at a compressor station bringing gas from Canada, and Midwest spot prices soared to record levels.
Futures declined as weather forecasts turned slightly less bullish. At the close on Monday, February had dropped 33.5 cents to $4.847 and March was down 32.4 cents to $4.674. March crude oil skidded 92 cents to $95.72/bbl.
Difficulties at the Emerson compressor station early Saturday on Viking Pipeline prompted price surges at points downstream from Minnesota to Michigan (see related story). Flows had been reduced to zero, but Viking said Monday the interconnect had been repaired. It advised participants that "the gas flow at the Emerson interconnect with TransCanada Pipeline has been restored, however the gas flow and capacity levels have not yet returned to normal levels."
The exact timing and amount of capacity available remained unknown, however Viking anticipated being able to confirm nominations at Emerson during the ID1 cycle. The company asked customers to begin a "staged reinstatement of normal services immediately to allow a progressive normalization of the Viking system."
That interruption was enough to send prices at downstream market points higher, with Chicago Citygates trading at its highest ever, according to NGI figures. Next day deliveries on Alliance jumped $23.67 to $33.10 and gas at the Chicago Citygates vaulted $31.28 to $41.96 after trading as high as $62.00. On Northern Natural Ventura, Tuesday packages came in $45.71 higher at $55.62, and Consumers next-day deliveries jumped $24.83 to $34.24. Michcon gas rose a stout $22.72 to $32.11
Producing regions were less impacted. ANR SW next-day gas added 43 cents to $5.50, and at Demarcation gas was seen 20 cents higher at $6.08.
The driving factor behind the pipeline outage was said to be the high weather-driven demand for natural gas. "A lengthy subzero cold snap will endanger residents in Minneapolis through Tuesday," said AccuWeather.com meteorologist Kristina Pydynowski. "Following the passage of an arctic cold front, one of this winter's coldest air masses is pouring into the Upper Midwest via howling and biting winds. Gusts to 45 mph are expected, which could snap tree branches and easily toss around loose lawn items. The winds will also blow and drift snow that has already fallen, creating hazards for motorists by reducing visibility and covering roads."
The arctic air "being ushered in by the winds will rival the frigid days from earlier this January for the coldest daytime highs and nighttime lows so far this winter," she said. "Temperatures Sunday night plummeted well below zero and remain there through Tuesday night -- even during the daylight hours."
Intense cold at eastern locations led power grid operator PJM Interconnection, the electricity grid operator for more than 61 million people in 13 states and the District of Columbia, to ask customers to conserve electricity on Tuesday. "The call for conservation is prompted by another wave of frigid weather that will push up the demand for electricity. The request is being made throughout the entire area served by PJM. The demand for electricity and the need for conservation is expected to be highest Tuesday evening."
Conserving power would "help ensure adequate power supplies. PJM continues to carefully monitor the power supply conditions. PJM and its members will do everything possible to keep power flowing in the region."
Power prices in the region soared. IntercontinentalExchange reported that next-day peak power at the New England ISO's Massachusetts Hub rocketed higher by $145.43 to $470.43/MWh, and Tuesday power at the PJM Interconnection added $84.68 to $498.68/MWh
Minnesota isn't the only spot inundated by the polar vortex. New York and eastern points can expect to experience bone-rattling cold as well. "Temperatures will plummet across the New York area into Tuesday, as they have several times this winter," said AccuWeather.com's Alex Sosnowski. "The combination of gusty winds, dry air and low temperatures will result in [wind chill] temperatures well below zero on Tuesday, while a storm will blast the southern states with heavy snow and ice, that storm is forecast to slip out to the east of at midweek with nary some clouds.
"The good news is the weather pattern that has delivered over a dozen Alberta Clipper storms and frequent snow events during much of January is coming to an end. The new weather pattern will shut off the flow of totally arctic air and will allow more of a blend of air from the Arctic and the Pacific Ocean. Temperatures are forecast to rebound to seasonable levels by this weekend. The normal high and low temperatures for New York City on Feb. 1-2 are 39 and 27 respectively."
New England gas for Tuesday delivery moved higher. At the Algonquin Citygates, Tuesday parcels were seen at $73.30, up $29.90, and gas upstream at Iroquois Waddington gained $33.54 to $69.44. On Tennessee Zone 6 200 L gas changed hands at $69.55, up $24.63. Deliveries on Tetco M-3 Delivery rose $33.88 to $80.75, and gas bound for New York City at Transco Zone 6 added $34.28 to $90.34. Dominion added 59 cents to $6.00.
Futures traders weren't convinced that even with a 33-cent price plunge, the party is over. "I think you have to look for a place to buy," said a New York floor trader. "This [decline] is an overkill. We were trading close to $5.50 and now we are at $4.80 as a low. Options expire tomorrow, so traders may have been trying to get the market closer to $5," he said. "I'm thinking you will have a little bit of a rebound Tuesday to the $5.00 mark."
Joe Bastardi of WeatherBell Analytics in the Monday 20-day forecast said he expects continued cold, especially in the central part of the country. "While I am very confident that we have the right idea overall (the severe shot in the front five days followed by a war between the attempt at the southeast ridge versus the major cold that is centered over the west and central part of the nation but that wants to come east), there are problems in the details.
"The GFS [Global Forecast System] has gotten cold feet on the extremity of the cold, though its 6z run is closer to the ECWMF [European Model], which looks too cold. The blend of the two gives the right answer, in my opinion, on the coldest temperatures. The two big battles are in Chicago and New York City [NYC]. I think Chicago is 3 degrees lower than the early January shot, so we hit minus 19 [Monday night].
"I think snow cover helps the New York City (NYC) area out. Central Park hit 4 degrees with the last outbreak, and I think we get that again Wednesday morning. The ECWMF is too cold with its minus 5, but I think with all the snow that the GFS is too warm. The metro areas of both these sites will be colder overall, especially NYC because there is deep snow cover, so suburbs will be colder, but if you are spot forecasting, that is problem as there will be a heat island affect around NYC on the coldest night as winds drop off."
If there were any doubt about this strange winter, Bastardi noted, "What may be a never-previously-recorded event, two snow/ice events in the Interstate 10 corridor on the central Gulf Coast are shaping up, a fitting example of what this winter is all about. In fact, the cold in the South and Southeast may be the counterweight as far as total use to whatever warmth there is."
Risk managers don't see any fundamental shift in the market due to a lackluster response by more deferred contracts. "This type of explosive rally indicates to us that the recent move is being driven by a short-term weather short squeeze rather than a major fundamental shift in the natural gas market," said Mike DeVooght of DEVO Capital. "Also putting a damper on the back months is a strong offer by those that would love to lock in a $4.00-plus number (including the basis) so they can untap shut in wells. On a trade basis we will continue to hold the balance of the winter short positions. We will look at adding to our current hedge positions on a rally above $4.50 in the summer strip."
Specifically, DeVooght advised continuing to hold short February calls at 20 cents and also hold short March futures at $4.40 to $4.50. End-users were counseled to stand aside, and producers and those with exposure to lower prices should hold on to the remainder of a short November-March strip at $4.50-4.60 and a short April-October strip at $4.20-4.30. The April-October strip settled Friday at $4.357.
Industry consultant Genscape Inc. on Monday reported not only higher weather-driven demand but also increasing production in eastern markets. "Due to colder than normal temperatures, Appalachia demand has increased plus 3.9 Bcf/d to 19.2 Bcf/d from last week's average of 15.2 Bcf/d. The Southeast is also experiencing colder than normal temperatures and demand has increased plus 2.5 Bcf/d to 18.5 Bcf/d from last week's average of 15.9 Bcf/d."
Production has also increased. "Appalachia production has increased plus 0.6 Bcf/d to 13.2 Bcf/d from last week's average of 12.6 Bcf/d. Due to colder than normal temperatures: Transco, TETCO, and TGP all have OFOs in effect," Genscape said.