Natural gas prices spiked Tuesday, extending the gain made a day earlier to jumpstart 2021 trading, as weather models pointed to fresh bouts of cold air over the Midwest and East in the second half of January.

Evening Markets

The February Nymex gas futures contract jumped 12.1 cents day/day and settled at $2.702/MMBtu. March advanced 11.2 cents to $2.673.

NGI’s Spot Gas National Avg. climbed again Tuesday, rising 8.5 cents to $2.710 after advancing more than 18 cents a day earlier.

Midday weather models were not as bullish as those overnight, NatGasWeather said Tuesday, but they still favored chilly patterns across the central United States and into the eastern third of the country Jan. 17-20.

“With this winter again playing out much warmer than normal so far, it’s critical colder air come through,” the firm said.

Should freezing winter conditions ultimately pervade January, analysts expect that underground stockpiles of natural gas could decline quickly, particularly if demand of U.S. liquefied natural gas (LNG) remains elevated. LNG volumes held near 11 Bcf/d most of December, and they have remained close to that level this month amid robust export demand from destinations in Asia and Europe.

EBW Analytics Group analysts said Tuesday the current gas surplus “may vanish entirely” by the storage week ending Jan. 14, “implying a tightening versus year-ago conditions of a startling 12.1 Bcf/d.”

The year-over-year storage comparison has not been in a deficit since April 2019, EBW said.

“It is possible that the emerging deficit may finally shock the gas market into recognizing the extent of tight underlying supply/demand balances,” the firm said. “Over the back half of winter, the storage trajectory may tighten by more than 600 Bcf versus year-ago levels.” Early 2021 advances in futures prices “are consistent with the market’s nascent recognition of long-term undersupplied conditions.”

The Energy Information Administration (EIA) most recently reported a 114 Bcf withdrawal for the week ended Dec. 25. That fell on the bearish side of market expectations. Ahead of the report, major surveys had clustered around a pull in the mid-120s Bcf, while NGI had forecast a draw of 124 Bcf.

Total working gas in storage fell to 3,460 Bcf, but it was still 251 Bcf above year-earlier levels and 206 Bcf above the five-year average.

Early estimates for the week ended Jan. 1 call for a steeper withdrawal. Bespoke Weather Services, for example, modeled a 135 Bcf pull.

Potentially adding to demand early this year is the still-raging coronavirus pandemic. With virus outbreaks widespread, more people are working from home and, as a result, cranking their gas-fired furnaces more hours of the day and fueling residential demand.

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Health authorities across the United States reported more than 180,000 new cases on Monday, and hospitalizations hit a record high of 128,210, according to the Covid Tracking Project.

Of course, virus outbreaks simultaneously present an ongoing threat to the domestic economy and those overseas, potentially impacting commercial and industrial energy demand this winter.

A return to normal largely depends on the rollout of vaccines – a process underway but that is expected to take several months – and it remains difficult to gauge what overall demand for energy would look like post-pandemic, said chief economist Scott Brown of Raymond James & Associates Inc.

Still, Brown said most forecasts call for a stronger economic recovery in 2021.

The recent surge in cases “is likely to dampen the pace of economic improvement” early this year after a rough 2020, he said. However, “the arrival of vaccines should lead to more robust growth in the second half of the year.”

Cash Prices  

Spot gas prices advanced for a second consecutive day across the nation’s midsection as winter conditions settled in and galvanized near-term heating demand.

Demand may increase this weekend as lows from around zero to the 30s expand from the upper areas of the Midwest “to cover all but the far southern” United States before “swinging back to light demand mid-next week,” NatGasWeather said. Much of the Lower 48 is expected to see warmer-than-normal temperatures besides Texas and the South.

Cash prices were relatively strong in the Midwest on Tuesday. Chicago Citygate gained 10.0 cents day/day to average $2.585, while Defiance advanced 12.0 cents to $2.550.

In the Midcontinent, OGT picked up 12.5 cents to $2.475 and ANR SW climbed 13.5 cents to $2.540.

Next-day prices also advanced across Texas. Houston Ship Channel gained 14.0 cents to $2.640, while Carthage rose 13.0 cents to $2.545.

In pipeline news, Wood Mackenzie noted that TC Energy Corp.’s Columbia Gas Transmission LLC filed an in-service request to begin operating the 275 MMcf/day Buckeye XPress Project, and it has been approved by federal regulators. Nominations were accepted beginning on Jan. 1. The project involved replacing pipelines in southern Ohio and West Virginia to increase safety and reliability.