Natural gas futures climbed back into positive territory on Friday amid updated forecasts for freezing conditions to extend into next month and expectations for stout withdrawals from storage. The February Nymex gas futures contract settled at $3.999, up 19.7 cents day/day. March rose 13.3 cents to $3.782.

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At A Glance:

  • EIA posts 89 Bcf injection
  • Export volumes hit 13 Bcf
  • Production challenges linger

NGI’s Spot Gas National Avg., in contrast, shed 61.0 cents to $5.990.

While the prompt month rebounded to close the week on Friday, it fell far short of recovering the 48 cents it lost over the two previous trading sessions, when bears dominated following shifting weather outlooks that called into doubt the likelihood of a cold February.

However, the American Global Forecast System (GFS) model trended colder by 15 heating degree days ahead of Friday’s opening, NatGasWeather said, providing futures a boost.

Most of the added demand was focused during the Jan. 28-Feb. 3 time frame, with the model “holding frosty air across the northern and eastern U.S. stronger and longer” than forecasts on Thursday, the firm said. The European weather model also trended colder, but “not by nearly as much” as its American counterpart.

NatGasWeather also noted Thursday’s bullish storage report from the U.S. Energy Information Administration (EIA), a print that exceeded analysts’ expectations and marked the steepest withdrawal of the winter. Analysts broadly expect hefty pulls in coming weeks as well, which could provide additional support for prices.

“There’s still at least three larger-than-normal draws lined up due to recent and coming cold,” the firm said, estimating that this could lead to a deficit to the five-year average of around 100 Bcf by early February.

EIA on Thursday reported a 206 Bcf pull from storage for the week ended Jan. 14. That compared with a pull of 179 Bcf for the similar week a year earlier, while the five-year average is 167 Bcf. Total working gas in storage stood at 2,810 Bcf, which was 226 Bcf below year-earlier levels and 33 Bcf above the five-year average, EIA said.

Production Challenges

The hefty withdrawal reflected both strong weather demand and light production levels that have persisted. Freeze-offs in the Permian Basin following a blast of cold earlier this month interrupted output efforts and kept production in a range of 92-93 Bcf over the past several days. That was well below late 2021 highs that topped 97 Bcf.

Tudor, Pickering, Holt & Co. (TPH) analysts noted strength in residential/commercial and power generation demand, as well as liquefied natural gas exports (LNG), in addition to the relatively modest supply. “Questions abound as to the sustainability of recent supplies in the 93 Bcf/d range…following prints greater than 97 Bcf/d to wrap up” 2021, the analysts said.

On the LNG front, feed gas volumes approached record levels above 13 Bcf multiple times over the past week, including Friday. Geopolitical tensions affecting gas supplies to Europe have resulted in steady demand from the continent for U.S. exports. U.S. and European officials have ramped up warnings to Russia, the leading gas supplier to Europe, to tamp down aggressions against Ukraine. Potential sanctions against Russia could result in further curtailments of Russian gas exports to Europe.

“It would not be surprising to see the February contract try to push higher again” in the coming week, EBW Analytics Group senior analyst Eli Rubin said, noting the lofty LNG demand and the potential for more freeze-offs. Near-term forecasts Friday called for an Arctic blast of cold over the eastern half the country during the weekend and more widespread cold in the week ahead, presenting the possibility for additional weather-induced production curtailments.

Bespoke Weather Services said it too was tracking production closely and noted the colder overnight weather models as key support Friday. But it also said forecasts over the past week were volatile and that its outlook still calls for a warm-up in February.

“All in all, we moved back to neutral, for now, given the production story, and a little more shakiness in the last couple of model cycles, but our gun-to-head lean is that price risks are a bit lower into next week,” Bespoke said.

“Our stance has been that we see a return of the La Niña state in a more classic fashion, meaning cold risks shift west, while the East can warm, and the middle of the nation is more of a battle,” the firm added Friday. “We still lean this way, though the overnight runs pushed more chill into the Midwest, something to watch.”

Spot Prices Sink

Physical gas prices dropped on Friday, led lower by widespread declines in the East. Prices had soared across eastern hubs earlier in the month and remained elevated, but upward pressure eased after a midweek spate of seasonally mild weather.

Texas Eastern M-3, Delivery lost $5.085 day/day to $12.600, while Transco Zone 6 non-NY fell $5.180 to $12.660 and Transco Zone 5 dropped $7.750 to $14.020.

While the mid-range outlook proved a tad dubious in recent days, NatGasWeather said the near-term outlook was nearly as certain as it gets – and the expected cold should keep furnaces cranking.

Over the weekend, the firm said Friday, a “frigid blast” was expected to take hold over the Midwest and East, with lows ranging from 20 below zero to the low 20s. Lows in the teens to the 30s were expected in Texas and parts of the South, raising the specter of both elevated demand and production freeze-offs.

After a brief break from the cold early in the week ahead, NatGasWeather added, “another frosty cold shot” is projected to deliver freezing temperatures across the northern and eastern United States, driving solid demand for much of the next trading week.  

The West was expected to prove an exception, with comfortable temperatures forecast for major markets from Phoenix to Los Angeles. Ahead of that, SoCal Citygate shed 39.0 cents to $4.345 and El Paso S. Mainline/N. Baja lost $44.0 cents to $4.145.

Looking into the first few days of February, NatGasWeather said, forecasts showed cold air lingering over northern and eastern markets. However, temperatures were projected to warm across the southern United States, leaving comfortable highs in the 50s to 70s over large swaths of the Lower 48, blurring the national demand outlook.