• EIA reports second largest storage draw on record
  • Traders focused on mild weather this spring
  • Cash prices fall further amid mostly light demand

The April natural gas futures contract failed to make a big impression on its first day at the front of the Nymex curve. The new prompt month struggled to get off the ground early in Thursday’s session and only reached a $2.855/MMBtu intraday high before settling at $2.777, off 1.8 cents from Wednesday’s close.

EIA storage Feb 19

Spot gas, which traded Thursday for delivery through Sunday, continued to retreat as well, with losses accelerating on the East Coast. NGI’s Spot Gas National Avg. dropped 19.5 cents to $2.555.

After five straight days in the red, it would not have been surprising to see the newly prompt April contract make a big splash. Instead, prices languished early in the session, teetering on either side of flat ahead of Thursday’s Energy Information Administration (EIA) report. Analysts had been banking on a steep drawdown, with estimates more or less clustered around a draw near 335 Bcf.

However, there was a host of factors that easily could have resulted in much less gas being pulled out of storage during the unparalleled freeze that draped the Midcontinent and Texas last week.

“This is like Powerball this week,” independent weather forecaster Corey Lefkof said on The Desk’s online energy chat Enelyst.

The EIA’s monster 338 Bcf withdrawal was near consensus but failed to surpass the record 359 Bcf draw reported by EIA in January 2018. Still, participants on Enelyst were surprised to see the lack of response from futures.

“Can someone please remind traders on the Nymex that the EIA report came out?” asked analyst Stephen Schork.

Enelyst managing director Het Shah said with the Nymex front month flipping to April, there was not the same level of excitement than if the EIA’s draw would have been posted a week ago.

Nevertheless, the draw brought total inventories down to 1,943 Bcf, 298 Bcf lower than year-ago levels and 161 Bcf below the five-year average of 2,104 Bcf, according to EIA.

Broken down by region, the South Central region recorded a massive 156 Bcf withdrawal, including an 83 Bcf pull from salt facilities and a 73 Bcf draw from nonsalts, EIA said. The Midwest took out 81 Bcf from storage, and the East withdrew 61 Bcf. Pacific inventories declined by 26 Bcf, while Mountain inventories fell by 14 Bcf.

Lefkof questioned the level of demand that would have resulted had it not been for the widespread power outages that affected natural gas production, pipelines, plants, storage facilities and other infrastructure. During the unrivaled Arctic storm, Texas Gov. Greg Abbott also ordered gas producers to not sell gas across state lines in an attempt to help restore power to the grid.

Criterion Research LLC analyst James Bevan noted that given the shuffling of supply, South Central supply was actually higher last week. “When you add up the weekly pipeline exports, decreased liquefied natural gas export deliveries, Mexican exports and production freeze-offs, supply actually gained 1.5 Bcf/d,” he said on Enelyst.

Looking ahead to next week, market observers eyed a less pronounced decline in storage. Taking into account the quick pace of production recovery and the rapid rise in temperatures in the Midcontinent, Texas and across much of the country, early estimates were pointing to a near 140 Bcf.

Increased Deficits?

NatGasWeather said deficits may increase to more than 200 Bcf after the next EIA report, and recent cold also has dropped estimates for end-of-season supplies. Analysts now forecast stocks to sit near or under 1.5 Tcf at the end of March.

“This is relatively supportive going into the refill season compared to the past few years,” NatGasWeather said. “However, price action this week has been anything but supportive as every 3- to 5-cent bounce gets heavily sold.”

The firm views $2.770 as an important level, as prices rallied from this support area twice earlier in the month. “If taken out, there could be thin air under it.”

On the weather front, there may be some brief bouts of chillier weather still to be had in the Lower 48 this winter. The overnight Global Forecast System model gained three heating degree days (HDD), while the European model gained six. This left the European model still much colder by nearly 20 HDDs, according to NatGasWeather, mainly because it favored a stronger weather system into the U.S. Northeast March 5-7. Although the midday GFS caught onto this cold shot and added demand for March 4-7, it still was not quite as cold as the European model.

“However, the March 8-11 period is still forecast to be quite comfortable over vast stretches of the country,” the forecaster said. “This March 8-11 period could very well be too bearish and has the potential to add a few HDDs in time. But it would need to add a considerable amount to prevent the back end of the 11- to 15-day forecast from remaining warm/bearish biased.”

Another Day, Another Loss

Spot gas prices also registered another day in the red, with losses ramping up on the East Coast as downright balmy weather blanketed the region.

Dominion South gas traded at $2.085, off 30.0 cents day/day, for deliveries through Sunday, the last day of February. Friday’s trading is for gas delivered on Monday.

In the Northeast, Tenn Zone 5 200L cash was down 47.0 cents to $2.645, though steeper losses were seen elsewhere in the region.

Despite the near-perfect weather conditions, AccuWeather forecasters said a quick-hitting clipper storm that traveled along the border of the United States and Canada into Wednesday night was triggering accumulating snow along its path in northern New England. The fast-moving system’s primary role will be to drag chillier air southward across the Northeast late this week.

As has been the case with many storms this winter, this was projected to be a two-part system that could affect the region this weekend. The first and colder of the two storms was predicted to roll through Friday night into Saturday.

“Even though Arctic air is not returning to the Northeast until perhaps next week, the chilly air moving in from Thursday to Friday may try to develop some shallow roots in the central Appalachians, the Piedmont and interior New England for a time,” AccuWeather senior meteorologist Brett Anderson said.

The shallow wedge of cold air may get stuck in the mountains and valleys and lead to a period of freezing rain and drizzle in parts of Maryland, New York, Pennsylvania, Virginia and West Virginia through Saturday, according to AccuWeather. The layer of cold air may be thick enough to allow wet snow to fall in some of the higher elevations from western North Carolina to Pennsylvania and New York, as well as northwestern New England at the onset of the storm.

[For the third year, NGI is surveying active players in the Mexico natural gas market to track the evolution of the industry as it continues to open. If you buy or sell natural gas in Mexico or on the border, please contribute your perspective. It takes two minutes to complete the survey linked here, but the transparency it provides empowers a nation.]

The second and milder of the two storms is likely to roll along from late Saturday night to Sunday night.

“The storm that will pivot through the Midwest and Northeast later in the weekend will not have much, if any, cold air to work with, so most areas from the Ohio Valley through the Mid-Atlantic are likely to just have occasional rain or drizzle,” Anderson said.

Elsewhere in the Lower 48, Henry Hub was down 6.0 cents to $2.690, while Panhandle Eastern was down 21.0 cents to $2.330.

West Texas prices also fell by 20.0 cents or more, and in California, Malin dropped 12.5 cents to $2.625.