Despite being on the cusp of a potentially record-setting Arctic blast, the natural gas futures market on Monday expressed its dissatisfaction with a mild break expected next week, selling off sharply to slip back below the $3 mark. In the spot market, the prospect of dangerously cold temperatures over the next few days helped drive hefty gains in the Midwest; the NGI Spot Gas National Avg. climbed 31.0 cents to $3.625/MMBtu.

The February Nymex futures contract, set to expire Tuesday, fell 26.7 cents to settle at $2.911 after trading as low as $2.888. Further along the strip, March settled at $2.873, down 19.9 cents, while April fell 7.7 cents to settle at $2.807.

Similar to guidance over the weekend, the midday weather data Monday continued to show a milder pattern developing around Sunday and extending through Feb. 7, according to NatGasWeather. The latest Global Forecast System data returned some demand to the outlook but maintained the same overall timeline showing extreme cold this week followed by “mild high pressure returning across the southern and eastern U.S. late this weekend through much of next week.”

Cold could return across the northern part of the country Feb. 8-12, but models still have more to prove. Despite impressive cold this week — including lows reaching negative 40 degrees in some places — markets on Monday appeared disappointed by the mild pattern expected to follow, according to the forecaster.

“This milder trending break has shed a huge” number of heating degree days (HDD) “compared to last week, with several days losing more than 10 HDDs each, swinging national demand back to lighter than normal levels and triggering” Monday’s sell-off, NatGasWeather. “There will still be very cold air over portions of the country Feb. 3-8,” but it will be limited to “lower populations of the West and Plains, failing to counter lighter demand across the rest of the country.”

The six- to 10-day outlook from Radiant Solutions Monday featured “significant warm changes” compared to Friday’s forecast, and showed additional warming versus Sunday’s report.

“This comes in response to a lifting of the polar vortex northward and an increasingly active storm track into North America,” the forecaster said. “The first disturbance enters the West at the start of the period and quickly sends moisture eastward toward the Midwest by mid-period.

“Temperatures are forecast to rise into the above and in some cases strong above normal categories out ahead of this disturbance; although, troughing left in its wake has belows gaining coverage” over the western half of the country late in the period.

Natural gas prices could be in “deep trouble” after the forecasts that helped stabilize the February contract last week warmed significantly over the weekend, according to EBW Analytics Group CEO Andy Weissman.

In Week 2 the “ensembles have completely flipped, with the extreme cold weather expected this week sucking very warm weather into the eastern U.S. for a five to seven day period starting this Friday,” Weissman said. The forecast for Week to as a result has dropped demand expectations by a “mind-numbing” 96 Bcf.

Near-term gains for the cash market with record-level cold arriving this week could temporarily limit the extent of selling in the futures market, according to the analyst.

“Prices are likely to sink further, however, as soon as brutally cold weather passes,” he said.

Longer term, the 2019 strip faces downside risks as the market is about 2 Bcf/d oversupplied adjusting for weather, which by the second quarter should erase the current inventory deficit to the five-year average, according to analyst with Tudor, Pickering, Holt & Co. (TPH).

While the firm expects demand to roughly keep pace with production growth this year, the sharp ramp-up in supply in 2018 shifted balances from around 3 Bcf/d undersupplied to 2 Bcf/d oversupplied, “putting the market behind the 8-ball to start 2019,” the analysts said. “Supply growth is expected to be back-half weighted, as we see pipe flows out of the Permian being flat until the 2 Bcf/d Gulf Coast Express” enters service in the fall.

This mirrors the expected demand growth from liquefied natural gas expansions slated to come online in the second half of 2019, according to TPH.

Meanwhile, considering the associated gas output from liquids-focused plays, oversupply could require gas-focused producers to cut growth, according to the analysts.

“When producing a commodity that is viewed as a free byproduct for oil producers, and when that associated gas growth alone can satiate a large chunk of structural demand, the industry has to question what role growth should play in gas basins,” the TPH team said. “Long term, we believe pure-play gas producers will once again play a necessary role, but until liquids basins slow meaningfully, we believe gas companies need to cut growth, potentially toward maintenance capital, to help balance the market.”

Midwest Surges As Cold Looms

With what could be the coldest weather system of the season arriving this week, physical prices surged across much of the Midwest, Midcontinent and East Coast Monday.

“A dangerous polar blast will advance across the northern and central U.S. the next several days with brutally cold, record-setting temperatures” including lows ranging from negative 40 degrees to negative single digits, according to NatGasWeather. The coldest temperatures are expected to hit the Midwest, Ohio Valley and interior Northeast.

“To highlight the intensity of the upcoming Arctic blast, Chicago is expected to drop into the negative teens to negative 20s Tuesday through Thursday, with highs Wednesday only reaching the negative teens,” the forecaster said. “There will also be areas of snowfall as the polar front sweeps across the Midwest” Monday, “with snowfall then increasing across the South, Southeast and East as the polar front pushes through Tuesday to Wednesday.

“This is likely to be the coldest Arctic outbreak this winter season and should result in wellhead freeze-offs that drop Lower 48 production by several Bcf/d.”

Chicago Citygate jumped $1.005 cents to $4.140, while Northern Natural Ventura shot up $2.100 to $5.355.

Pipelines in the region were bracing for heavy demand on their systems ahead of this week’s frigid temperatures. Natural Gas Pipeline Company of America LLC issued an operational flow order effective Tuesday for its market delivery zone. Northern Natural similarly had operational alerts in place for the next several gas days.

“Northern is expecting record cold temperatures and record market deliveries this week,” the pipeline said in a notice to shippers.

In the Northeast, Transco Zone 6 NY jumped $1.235 to $4.660, while further upstream in Appalachia, Texas Eastern M-2, 30 Receipt picked up 16.0 cents to $2.890.

Enbridge Inc. on Sunday restored partial capacity on a section of the Texas Eastern Transmission (Tetco) system in southeast Ohio, about a week after part of the pipeline was damaged in an explosion.

The company managed to return Line 25 to service, one of the 30-inch diameter pipes in the same right-of-way as Line 10, which exploded south of the system’s Berne compressor on Jan. 21 in Noble County near Summerfield, OH, cutting flows through the station to zero. Tetco said about 1.6 Bcf/d of north to south flows through Berne have been restored now that Line 25 is back online.

As of Monday morning, Genscape Inc. said only 511 MMcf/d had been scheduled through the Berne compressor for Monday’s gas day. Genscape analyst Josh Garcia also said investigations are required on Line 10 both downstream and upstream of Berne, between Athens, OH, and Uniontown, PA.

“Capacity through Uniontown was reduced by around 200 MMcf/d to 4.2 Bcf/d beginning Sunday (Jan. 27), but early intraday flows for Monday (Jan. 28) have fallen well below capacity by 500 MMcf/d to 3.67 Bcf/d,” Garcia said. “Pending revisions, this is 260 MMcf/d below the 30-day average, and 800 MMcf/d below the 30-day max.”

Meanwhile, Tetco also experienced an outage over the weekend at its Bedford compressor station affecting its southern 36-inch diameter line in the M-3 zone, according to the analyst. That outage was resolved within 24 hours.

“Capacity from Bedford to Heidlersburg would have been reduced by 270 MMcf/d to 2.20 Bcf/d,” Garcia said. “However, flows through the compressor are currently at 1.93 Bcf/d” as of Monday morning because of constraints further upstream on Line 10 associated with the 30-inch diameter line force majeure investigations. “Pending revisions, this is 284 MMcf/d lower than the 30-day average and 442 MMcf/d lower than the 30-day max. Downstream of Bedford, flows further into M3 through Chambersburg and Heidlersburg are unaffected.”

Elsewhere, points throughout Louisiana and Texas posted discounts Monday, with benchmark Henry Hub shedding 4.5 cents to $3.045. Points in West Texas, meanwhile, recovered some of the losses recorded in Friday’s trading. Waha picked up 25.0 cents to $2.550.