February natural gas futures floundered most of Friday but bounced back in the final hour, avoiding a fourth-consecutive loss under the pressure of steady production and supply/demand imbalance.

At A Glance:

  • Heating demand lingers
  • Production levels hold steady
  • Freeport recovery proves uneven

The February Nymex contract gained 16.5 cents day/day and settled at $3.109/MMBtu before rolling off the board. March, which takes over as the prompt month, ticked up one-tenth of a cent to $2.849.

NGI’s Spot Gas National Avg. recovered ground Friday after steep losses the two prior days. It rose 83.5 cents to $4.420.

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Despite the Friday gain, futures finished the week down 2% — and analysts cautioned that fundamentals pointed to the potential for more losses ahead.

Production held above 100 Bcf/d on Friday and through most of the week, according to Bloomberg estimates. That put output within reach of record levels around 102 Bcf/d and bolstered supplies during a mild weather stretch of winter in which heating demand proved light, consistently pressuring prices.

Futures on Thursday closed below the $3 handle for the first time since 2021 and only climbed comfortably back above that mark in the week’s final flurry of trading on Friday, with traders taking profits late.

Through most of Friday, market participants focused on a dearth of demand drivers to soak up supplies.

East Daley Analytics said its models “have consistently shown overheated supply growth.”

Temperatures across much of the Lower 48 over the past week – and through January to date – proved above average. Additionally, while the Freeport LNG export facility in Texas won regulators’ nod to begin the process of restarting, it will not be able to fully relaunch in January as it had hoped.

Management of the liquefied natural gas facility said Thursday initial start-up steps would take about 11 days. Following this, it will need additional regulatory approvals to continue ramping up. EBW Analytics Group said the process would take several weeks and estimated Freeport could reach full operational capacity by March.

The 2.38 Bcf/d export plant in Texas was forced offline in June following a fire, removing a substantial chunk of demand from the market for several months and adding to bearish market sentiment.

Stout Storage

As a result of elusive demand and strong output, storage prints so far this year have been weak relative to averages. Most recently, on Thursday, the U.S. Energy Information Administration (EIA) posted a withdrawal of 91 Bcf of natural gas from storage for the week ended Jan. 20.

It compared with a five-year average draw of 185 Bcf and a year-earlier pull of 217 Bcf. The decrease lowered inventories to 2,729 Bcf, but it left stocks well above the year-earlier level of 2,622 Bcf and the five-year average of 2,601 Bcf. 

The latest inventory result followed a similarly modest draw the prior week and a rare January injection to start the year.

“January gas storage withdrawals have severely underperformed, exemplified by a historic injection, leading to a relative glut of natural gas,” energy analyst Connor McLean of BTU Analytics said.

“As a result, the outlook for U.S. gas pricing has progressively weakened as winter has gone on,” McLean added. “With robust associated gas production growth driven by supportive oil prices in 2023 and limited upside for U.S. demand, a cold end to the winter may be the only thing preventing” further price declines in coming weeks.

As for the next EIA report, most analysts are expecting another modest pull. Early estimates submitted to Reuters for the week ended Jan. 27 ranged from withdrawals of 76 Bcf to 167 Bcf, with an average decrease of 138 Bcf.

That would compare with a draw of 261 Bcf during the comparable week of 2022 and a five-year average decline of 181 Bcf.

Given the January surplus relative to historic averages, McLean said February withdrawals would need to total more than 775 Bcf to align the market with a typical winter.

“That mark has been eclipsed just once in the last 12 years: in 2021 because of Winter Storm Uri,” McLean said. “While it’s never wise to count out extreme weather events disrupting the U.S. gas market, a potential winter storm could be the only thing keeping the bottom from dropping out of Henry Hub.”

Spot Prices Advance

Cash prices climbed for the first time in three sessions on Friday. While previously hampered by the mild weather and ample supplies, colder weather on the horizon provided a late-week boost.

NatGasWeather expects “strong to very strong demand” during the coming week “as frigid air sweeps across the U.S.”

A weather system with subzero lows that was expected to track across the Midwest over the weekend was forecast to spread south and eastward to cover much of the Lower 48 by the start of February. It could send freezing air down to the southern Plains and across the Great Lakes and East Coast.

A separate system was forecast to deliver a messy mix of rain and snow to the West, as well as below-average temperatures, from California to the Rocky Mountains.

“This will provide a short-term upside catalyst” for prices, said Rystad Energy analyst Ade Allen.

Against that backdrop, spot prices on Friday rebounded in the central United States and in the West.

In the nation’s midsection, Chicago Citygate jumped $1.175 day/day to average $3.955, while Southern Star gained $1.795 to $4.410 and Joliet advanced 91.5 cents to $3.655.

Out West, Malin spiked $3.890 to $11.220 and Questar forged ahead $3.385 to $11.035.

As has been the case so far in 2023, however, the cold shots are projected to prove short-lived, with temperatures warming back to moderate levels by the second week of February.

Should freezing weather quickly fade as forecast, Allen said prices could remain under pressure, “as the market works to find an equilibrium between ramping up production and dwindling demand.”