Natural gas futures continued to slide Friday on further warmer trends in the latest weather models, crushing any hopes that bulls had for a return to $2 gas. The March Nymex gas futures contract settled at $1.905/MMBtu, down 1.5 cents from Thursday’s close. April slipped 1.4 cents to $1.917.
Spot gas prices also retreated as temperatures were set to warm over the weekend, lowering national demand. NGI’s Spot Gas National Avg. dropped 10.5 cents to $1.705.
After a brief run-up to $2.025 on Thursday following a larger-than-expected storage withdrawal, Nymex futures failed to maintain the momentum as weather data showed late-February cold moderating into March. Futures continued to peel back early Friday when the European model lost more than 15 heating degree days (HDD), according to NatGasWeather.
The Global Forecast System had already begun to warm in earlier runs but gained back 7 HDDs in Friday’s midday run, though the model is still down more than 30 HDDs from the start of the week, the forecaster said. Specifically, the model favors mild conditions returning across most of the United States March 3-6, besides the far northern part of the country.
“It certainly helps the balance has tightened considerably the past few months to provide a floor to prices, but sustained colder-than-normal patterns are required to fully take advantage,” NatGasWeather said. “Essentially, these bouts of colder air are helpful, but to be full-fledged bullish, there mustn’t be these mild breaks in between, and the weather data keeps disappointing by trending milder in time with longer breaks.”
Meanwhile, traders continued to digest the latest Energy Information Administration (EIA) storage data, which, at 151 Bcf, was the third largest withdrawal of the season, according to Tudor, Pickering, Holt & Co. (TPH) analysts. Looking ahead to next week, the analysts are currently modeling a draw of around 135 Bcf, which they said would trim the surplus to the five-year average to 9% from 10% currently.
Genscape Inc. senior natural gas analyst Eric Fell said the EIA’s reported 151 Bcf draw appears tight/bullish by approximately 2.9 Bcf/d versus the five-year average compared to degree days and normal seasonality, as this week’s draw came in larger than the five-year average while degree days totals were about 11 below the five-year average.
Weekly storage stats have trended much tighter versus weather, driven by a recent decline in production, which Fell attributed to freeze-offs, maintenance and some natural declines starting to set in, as well as very strong weather-adjusted power demand driven by low gas prices and lower-than-normal hydro generation. Surging liquefied natural gas (LNG) exports and HDD-driven growth in residential/commercial demand also have played a role in the tighter environment, according to Fell.
“The last three storage stats have averaged 3.3 Bcf/d tight, which is a remarkable shift versus November, when we averaged 2.9 Bcf/d loose versus weather,” he said. “Lower gas prices have played an important role in the tightening of balances, with an average Henry Hub cash price of $1.88 over the last three storage weeks, compared to an average Henry Hub cash price of $2.62 over the four storage weeks in November, a decrease of $0.74 cents.”
While weather-adjusted balances have averaged 1.2 Bcf/d tight year to date, weather has been much milder than normal as degree day totals over the first seven storage weeks of 2020 have come in 177 degree days below the five-year average, according to Fell. “This decline in weather-related demand has led to storage withdrawals totaling 233 Bcf less than the five-year average over the last seven weeks.”
However tight the supply/demand balance may appear, prices cannot sustain any moves higher. Instead, TPH analysts continue to focus on supply, and after steady declines through January from around 96 Bcf/d down to around 94 Bcf/d, “things have plateaued and even recovered modestly.”
Production currently sits at 94.6 Bcf/d with the trailing 30-day average at 94.4 Bcf/d, and TPH is modeling a February average of 94.3 Bc/fd, dipping to 93 Bcf/d moving through 2Q2020. “With demand set to wane as we move into shoulder season, further declines are likely required if any sort of a recovery is in the cards, especially given the roughly 2 Bcf/d of price-sensitive power generation demand that likely gets backed out if prices rise materially above $2/Mcf.”
With temperatures on the rise, Northeast cash markets continued to lead the pack lower on Friday, with prices tumbling back below the $2 threshold.
New England pricing hubs fell back around 40 cents or more, but even more connected areas of the Northeast experienced a sharp sell-off. Transco Zone 6 NY tumbled 33.5 cents to $1.900 for gas delivered through Monday.
Prices across Appalachia fell 15 cents or less at most hubs, but Texas Eastern M-3, Delivery plunged a more pronounced 26.0 cents to $1.740.
Declines ranged mostly from 5-10 cents across the country’s midsection, while farther west, CIG in the Rockies slipped just 4.0 cents to $1.635.
In California, SoCal Citygate spot gas fell 10.5 cents to $2.150.
Cash prices across the border in Western Canada also gave up ground, shedding around 5 cents at most hubs.
Meanwhile, both Nova Gas Transmission field receipts and net exports experienced a moderate decline during week, with freeze-offs to blame for the former as temperatures dipped towards more normal levels for this time of year, according to TPH. Field receipts dropped to lows of 11.3 Bcf/d from highs of around 12 Bcf/d at the beginning of February, the firm said.
Net exports have continued to run below last year’s levels, according to TPH, averaging only 6.1 Bcf/d year to date versus 6.8 Bcf/d in 2019. Analysts expect it to take only about 300 MMcf/d of lower exports on a sustained basis throughout 2020 to restore western Canadian inventories to the five-year average, from a 23% deficit as of Friday.
As for the latest storage inventory data, Western Canadian inventories fell by 6 Bcf relative to seasonal norms of 10 Bcf, TPH said. Eastern Canada inventories declined by 9 Bcf relative to historical norms of 14 Bcf, holding inventories flat week/week at a 24% surplus to the five-year average, according to the firm.
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