Natural gas futures on Monday dropped as mid-range weather worries overshadowed continued strong liquefied natural gas (LNG) levels. The December Nymex contract shed 11.0 cents day/day and settled at $3.244/MMBtu. January lost 9.4 cents to $3.375.

Markets

Spot gas prices, meanwhile, dipped lower despite a chilly start to the week. NGI’s Spot Gas National Avg. fell 5.5 cents to $2.825.

Bespoke Weather Services said warmer revisions to both the domestic and European forecasts for the first half of November, “and hints that a warmer regime can roll on into the second half of the month,” minimized the demand outlook and put downward pressure on futures Monday. The firm said both the American and European models early Monday had lost 10-12 gas-weighted degree days (GWDD) from earlier weekend forecasts, turning “decidedly bearish.”

The change “raises concerns that warmth will continue into the back half of November, noteworthy since the first half of the month is already about 50 GWDD warmer than the first half of the last two Novembers,” the firm said. “Such a scenario would at least give us a shot at a Top 5 or 6 warm November.”

The new outlook, Bespoke added, “will lend itself to more downside risks in prices at the front of the curve.”

Production, meanwhile, continued to come back following Hurricane Zeta. The Category 2 storm made landfall last Wednesday southwest of New Orleans. About 45% of natural gas produced in the Gulf of Mexico was taken offline ahead of the storm. By midday Monday, that figure had declined to 16%, the Bureau of Safety and Environmental Enforcement said.

EBW Analytics Group said that the new expectations for comfortable temperatures through much of November – and therefore lighter heating demand in northern states and weaker cooling demand in the nation’s southern reaches – marked a sharp reversal after finishing the prior week on a high note amid ongoing LNG advances.

“As of Sunday, natural gas appeared poised for further gains, supported by a surge in LNG feed gas flows, which topped 10 Bcf/d for the first time” in 2020 over the weekend, EBW said.  

The markets have increasingly anticipated that continued strong U.S. LNG exports to fuel heating needs in Asia and Europe would sop up excesses of domestic supply ahead of winter. A recent stretch of bullish Energy Information Administration (EIA) storage reports fueled the positive sentiment.

The last three EIA-reported injections “have all been smaller than expected,” the EBW analysts said, punctuated by last week’s 29 Bcf injection.

Ahead of the report, injection estimates had reached a consensus for a build in the upper 30s Bcf. Total working gas in storage as of Oct. 23 rose to 3,955 Bcf, which was 285 Bcf above year-ago levels and 289 Bcf above the five-year average, according to EIA.  

Despite the latest November forecasts, EIA expects the coming winter to prove notably colder than a year earlier, creating robust heating demand during the heart of the season.

Premised on weather forecasts from the National Oceanic and Atmospheric Administration that call for prolonged cold snaps across much of the northern United States, in part because of the La Niña weather pattern that has taken hold, EIA expects the 2020-21 winter to have 602 heating degree days (HDDs). That would be on par with the 10-year average and notably stronger than last winter, which averaged 572 HDDs. 

Last winter’s relatively warm conditions limited residential natural gas consumption, which averaged 20.0 Bcf/d, the lowest since the 2016-17 season. In the wake of EIA’s outlook, analysts are looking for notable improvement because of colder weather deeper into winter and the enduring impacts of the coronavirus pandemic.

The latest storage report “may be an early sign of a potential major increase in residential space heating demand this winter due to remote working and learning,” EBW said. “If confirmed by subsequent storage reports, this could strengthen the bullish case for natural gas considerably, with particularly strong gains further down the curve.”

Export levels, however, depend not only on residential needs but also continued economic recovery and accompanying increases in commercial and industrial energy demand. While markets across Asia and Europe have adapted to the pandemic, new virus outbreaks threaten to interrupt activity in Europe in particular.

Global deaths tied to the virus reached 1.2 million on Sunday, and United Kingdom Prime Minister Boris Johnson said his government would follow France and Germany in imposing new restrictions to contain the spread of the virus.

Domestic challenges with the virus could also curb economic recovery in the Lower 48, said Raymond James Chief Investment Officer Larry Adam. He noted that, during the final week of October, the United States posted its largest daily increase in cases on record, hospitalizations were at the highest level in two months, and 34 states reported seven-day positivity rates above the Centers for Disease Control and Prevention’s recommended 5% threshold to fully open schools and businesses.

“While nationwide lockdown measures are not our base case,” Adam said, “we anticipate local restrictions as needed…a high number of which would be detrimental” to the U.S. economy.

Cash Mixed

Spot gas prices crawled lower overall Monday as warmer air followed freezing overnight temperatures. 

The month got off to a chilly start with widespread lows in the 20s and 30s, even in the South and Southeast, lifting heating demand over the weekend and into Monday in some regions.

National Weather Service forecasts, however, called for mild weather across most of the Lower 48 in the first half November, starting Monday, with highs in the 50s and 60s in the northern United States over the coming week and in the 70s to 80s over large swaths of the southern half of the country.

In the Rocky Mountains, Kern River prices advanced 25.0 cents day/day to an average $3.185, while Opal picked up 22.5 cents to $3.180.

Out East, Algonquin Citygate prices rose 26.0 cents to $3.870, and PNGTS jumped 61.5 cents to $4.905.

Elsewhere, though, prices dropped as warmer air settled in on Monday. In the Midwest, Chicago Citygate fell 10.5 cents to $2.845, and in the Midcontinent, Enable East lost 17.5 cents to $2.675.

The biggest negative changes developed in West Texas as production came back after Zeta. El Paso Permian plunged 93.5 cents to $1.585.

On the pipeline front, Genscape Inc. said scheduled maintenance work on the Corpus Christi Pipeline in South Texas could impact 200 MMcf/d of LNG feed gas volumes this week.

The work is slated to start Tuesday and continue through Thursday, and it would involve expansion activities at Corpus Christi’s Transcontinental Gas Pipe Line receipt location. “As a result, operational capacity will be reduced to zero, jeopardizing up to 200 MMcf/d of flows to Cheniere’s Corpus Christi liquefaction facilities,” Genscape said.

Additionally, beginning Tuesday and lasting through Friday, Transwestern Pipeline is to perform substation maintenance and emergency shutdown testing at its WT-1 compressor near Carlsbad, NM, Genscape said. This could restrict roughly 234 MMcf/d of Permian outflow while the work is completed.