Natural gas futures, which only last month traded around $6/MMBtu, have steadily lost ground in the new year amid seasonally mild weather and closed near the $3 level on Wednesday. It marked the lowest front-month settlement since 2021.

At A Glance:

  • Prompt month falls 19 cents
  • Supplies strong relative to demand
  • Analysts expect bearish storage print

A day after dropping 18.9 cents, the February Nymex futures contract shed another 19.1 cents day/day and closed regular trading at $3.067. Natural gas for delivery in March lost 14.2 cents to $2.915.

NGI’s Spot Gas National Avg. fell 40.5 cents to $5.320.

Analysts at Goldman Sachs Group said mild January weather to date, combined with robust production levels, spurred enduring concerns about supply/demand imbalance, pushing buyers to the sidelines and allowing prices to plummet. Restart delays at the Freeport LNG export facility have added to price pressure, they said in a report this week, leaving the near-term outlook notably “less favorable” than at the end of 2022.

BTU Analytics’ Matt Hagerty, senior energy strategist, said robust production that has registered near or above 100 Bcf/d most of this year – around record averages – is bound to ease if Henry Hub pricing remains low. But there are no immediate signs of slowdown in gas-directed plays such as the Haynesville Shale.

DTN weather data show January on track to be among the mildest in 20 years, resulting in relatively modest demand for natural gas to heat homes. At the same time, the Freeport liquefied natural gas export plant in Texas, forced offline in June following a fire, was initially expected to relaunch in November, then December, now late this month at the earliest.

The company hopes to get to 2 Bcf/d of capacity within weeks of a restart, adding meaningfully to the demand side of the equation. But it has faced a series of regulatory delays, leaving analysts skeptical it can ramp up before winter ends.

EBW Analytics Group’s Eli Rubin, senior analyst, cited “repeated delays and mismanaged guidance” for the bearish views on Freeport.

Storage Snapshot

Without Freeport or mid-winter heating demand, supplies in storage are relatively strong and expected to remain so with Thursday’s Energy Information Administration (EIA) inventory report.

Bloomberg’s poll as of Wednesday found estimates spanning decreases of 76 Bcf to 91 Bcf, with a median of 82 Bcf. Responses to Reuters’ survey ranged from withdrawals of 76 Bcf to 94 Bcf, with a median decrease of 83 Bcf. The Wall Street Journal’s survey produced draw estimates from 76 Bcf to 87 Bcf and landed at an average of 82 Bcf.

NGI predicted a pull of 81 Bcf.

That compares with a withdrawal of 217 Bcf a year earlier and a five-year average decline of about 185 Bcf.

EIA printed a decrease of 82 Bcf for the week ended Jan. 13. The result compared bearishly to the five-year average draw of 156 Bcf and the year-earlier pull of 203 Bcf. It lowered inventories to 2,820 Bcf but left stocks above the five-year average of 2,786 Bcf. It followed a rare January injection of 11 Bcf reported a week earlier.

Absent sustained cold in the weeks ahead, prices could remain under pressure, analysts at The Schork Report said. “Gas bulls are running out of winter,” they said.

Rubin agreed that bears have a clear advantage at this stage in the season.

“The combination of high production, Freeport offline, swelling surpluses and lack of winter supply adequacy risks points to extended downside risks over the next 30-45 days,” he said.

That noted, NatGasWeather said there is still reason to believe wintry conditions could return in time to at least prop up prices late this month or early next.

“A colder system will sweep across the Midwest Friday to Sunday and will open the door for a series of frigid shots over Canada to advance aggressively into the northern and central U.S. next week, with lows of -20s to 20s, including lows of 10s-20s into northern Texas,” the firm said. 

However, the forecaster added, “frosty air is still forecast to moderate and slowly retreat towards the Canadian border Feb. 7-9 for easing national demand.”

Cash Prices Clunk

Spot gas prices slumped Wednesday alongside the futures market.

While messy weather patterns peppered the Lower 48 Wednesday, bitter cold conditions were less prevalent, leaving heating demand modest and production unencumbered by wellhead freeze-offs.

Price decliners spanned the country, with hubs in the volatile West leading the downward trend.

SoCal Citygate slid $2.420 day/day to average $16.770, and PG&E Citygate dropped $3.235 to $15.320.

In the nation’s midsection, Dawn shed 19.0 cents to $2.995, while El Paso Permian gave back 57.0 cents to $2.420 and Houston Ship Channel lost 26.0 cents to $2.730.

Hubs in the Northeast were the exception, with Algonquin Citygate up 53.5 cents to $4.225.

NatGasWeather said stronger heating demand is on the way, with the Midwest freeze that it forecast for this weekend eventually spreading to the East in the final days of January, covering major markets in the Mid-Atlantic and New England with “solidly frosty” air.

For the first several days of February, the firm expects “cool to cold temperatures will cover the western, central and northern U.S.”