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Modest Warming Trend Pounds Midwest, Northeast Prices; Futures Advance

Spot natural gas for Wednesday delivery traded sharply lower Tuesday and with the exception of a handful of West Coast points all actively traded market locations fell into the loss column, with some Northeast and Midwest locations dropping $20 to $60.

The super-sized gains registered in Monday's spot trading for the most part reversed themselves as power prices fell and temperatures were expected to begin a modest warming trend. Midwest points returned to more conventional pricing as a major pipeline into the area returned to more normal operations (see related story). At the close of futures trading, February had jumped 18.6 cents to $5.033 and March was up 26.7 cents to $4.941. March crude oil gained $1.69 to $97.41/bbl.

At eastern and northeast points next-day gas prices had the trajectory of a safe falling from a 10-story building as temperatures were expected to warm although still remained well below seasonal norms. According to Wunderground.com, New York City's Tuesday high of 20 was expected to rise to 23 Wednesday before making it to 29 on Thursday. The seasonal high in the Big Apple is 39. Philadelphia's Tuesday high of 18 was anticipated to reach 22 Wednesday before advancing to 27 Thursday. The normal late January high for Philadelphia is 37. Baltimore's Tuesday max of 20 was seen rising to 22 Wednesday before jumping to 31 on Thursday. The normal high for Baltimore this time of year is 42.

The National Weather Service in New York City expected high pressure followed by a cold front. "A low-pressure system will pass to the south and east of Long Island tonight into Wednesday. High pressure builds in Wednesday night through Thursday [and] a cold front cross[es] the region on Friday followed by a wave of low pressure tracking north of the region Saturday night. High pressure builds in on Sunday into the start of next week.

Next-day gas on Tetco M-3 Delivery tumbled $57.27 to $23.48 and gas headed for New York City on Transco Zone 6 fell a sharp $62.48 to $27.86. To the west gas on Transco Leidy dropped 97 cents to $4.47, and deliveries to Dominion shed 80 cents to $5.20.

Prices fell in New England as power loads were expected to ease and next-day peak power dropped. New England ISO predicted Tuesday's peak load of 20,370 MW would drop to 20,010 MW Wednesday and 19,550 MW Thursday. IntercontinentalExchange reported that next-day peak power at the New England ISO's Massachusetts Hub fell $77.96 to $245.71/MWh, and next-day peak power at the PJM Interconnect's West Hub tumbled $207.84 to $290.84/MWh.

Gas was quoted at the Algonquin Citygates $45.36 lower to $27.94, and deliveries to Iroquois Waddington skidded $46.31 to $23.13. On Tennessee Zone 6 200 L next-day gas was seen at $34.09, down $35.46.

Northern Natural Gas said, "Temperatures for Wednesday's gas day are forecast to moderate. Northern does not at this time anticipate having to call a critical day for Wednesday," and prices at Midwest market points returned to more "normal" levels. Northern also said that "given the extreme gas price volatility, Northern reminds its customers of the need to balance supply receipts with deliveries. Should significant supply shortfalls occur, Northern may be forced to issue a critical day for Wednesday's gas day as late as 3:00 pm Wednesday..."

Wednesday gas on Alliance dropped $26.31 to $6.79, and gas at the Chicago Citygates fell $35.40 to $6.56. At Northern Natural Ventura gas was quoted at $6.72, down $48.90, and at Demarcation Wednesday gas came in at $5.26, down 82 cents. On ANR SW Wednesday packages were seen at $5.04, down 46 cents.

Other market centers were mostly lower. At the Henry Hub Wednesday parcels fell 46 cents to $5.23, and at El Paso non-Bondad gas was seen at $4.83, down 18 cents. Opal deliveries fell by 12 cents to $4.89, and SoCal Citygate gas was quoted 2 cents higher at $5.07.

Industry consultant Genscape reported increased well freeze-offs. Total freeze offs for Tuesday were 1,717 MMcf , up from Monday's 838 MMcf. Particularly hard hit were Arkansas at 293 MMcf, Northeast Pennsylvania 446, West Virginia 280, and Ohio 188.

Futures traders were mulling longer-term weather forecasts calling for pervasive cold as well as a Thursday inventory report expected to show withdrawals north of 200 Bcf, well above historical norms.

Overnight weather forecasts continued to show ongoing below to well below normal temperature patterns for the next two weeks. Commodity Weather Group in both its morning six- to 10-day and 11- to 15-day forecasts showed a broad ridge of below to much below normal temperatures extending generally from Maine to Montana and Minnesota to Mississippi. A narrow portion of the Eastern Seaboard is predicted to be normal.

"The modeling is generally in better agreement [Tuesday] morning versus yesterday, but we still have a bit of a split between the coldest American modeling and the now-aligned European/Canadian guidance on the cold intensity over the next two weeks (but all agree on a cold-dominated pattern through the six-15 day)," said Matt Rogers, president of the firm. "The European adjustments on the last two model cycles were sufficiently reasonable for us to cool down the six-10 day for many parts of the U.S., but the bigger colder changes were in the Midwest.

"The 11-15 day is also same-to-colder today with the bigger shifts for the Midwest and Texas. At the end of the modeling, the Alaskan ridge retreats toward Asia more. We have seen temporary retreats like this already this winter, but we watch each one carefully for signs of a bigger shift."

Analysts didn't see Monday's price plunge as indicative of a change in trend. "We feel that a meaningful price plunge capable of forcing values below $5 will need to await some evidence of broad-based normal or above normal weather patterns. In the meantime, the market will still need to negotiate through a couple of huge storage draws this week and next that are leaving open the possibility of end-of-season supply as low as 1.2 Tcf," said Jim Ritterbusch of Ritterbusch and Associates.

"Overall, we still view it as premature to rule out fresh highs in this market as was demonstrated a week ago. Daily updates to the ST temperature views have also been quite volatile and any indication of another polar vortex could easily trigger another short-covering spree into new high territory. As a result, we will advise caution in approaching this market from either side at the present time. We also expect continued high-pitched volatility within the March-April spread and would stand aside for now."

Addison Armstrong of Tradition Energy said, "Gas prices have pushed back above $5.00 [overnight] for the second time in the past three trading days as strong seasonal demand fundamentals and growing concerns of depleted end-of-winter storage levels continue to pin the market just below [Monday's] nearly four-year high. But robust production levels of gas and uncertainty surrounding the weather outlook for the second half of this winter should provide growing resistance to rising gas prices, especially if forecasts moderate in the coming weeks."

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