There’s not much on the record books to compare this week.
Spot gas prices in some areas ballooned to the thousands and one of the biggest states in the country left more than four million of its residents in the dark and cold during a prolonged, unprecedented Arctic freeze.
And that’s only a fraction of what occurred in probably the longest short week of the year, during which NGI’s Weekly Spot Gas National Avg. rocketed $16.855 higher week/week to $33.680.
A major component of that gargantuan increase stemmed from jaw-dropping gains in Oklahoma, where overnight temperatures plunged to within 10 degrees of zero beginning on Saturday (Feb. 13) and remained there through Friday. Daytime highs barely hit the freezing mark by the end of the week.
With operational issues on dozens of natural gas pipelines restricting gas flows, and power demand surging to winter highs, OGT, aka Oneok Gas Transmission, soared as high as $1,250.000 before crashing back to the $3.000 range by Friday. Weekly OGT spot gas prices averaged $538.685, up $446.240 from the prior week. Several other pricing hubs in the Midcontinent posted similarly stout gains.
The meteoric rise in gas prices did not stop there, with the polar air plunging deep into Texas. Spot gas at the Houston Ship Channel shot up as much as $400.000 during the week and averaged $201.795, up $162.390 on the week.
The hefty premiums were a reflection of the myriad of pipeline issues that ensued as the bitter cold descended into the state. In addition to operational flow orders, forces majeure and other issues, pipelines in West Texas also contended with wellhead freeze-offs. RBN Energy LLC reported that Permian Basin associated gas bottomed out at around 3 Bcf/d but by Friday, output was back at above 5.5 Bcf/d. Earlier this month, it was around 11.5 Bcf/d.
Total Lower 48 production levels, meanwhile, fell below 70 Bcf during the week, the first time production has dropped below that level since January 2017, according to Wood Mackenzie.
But the crisis in Texas extended far beyond natural gas.
The state’s electric grid operator, the Electric Reliability Council of Texas (ERCOT), implemented what were initially expected to be rolling blackouts that ultimately ended up being prolonged, multi-day outages that left millions of Texas residents without electricity. The lack of power eventually led to water issues as several cities had to initiate boil notices since their treatment facilities lacked power. The one in Houston was still in effect late Friday.
At the start of the week, ERCOT said it had lost more than 30,000 MW of generation because of the extreme winter weather. It was another two days before the grid operator provided an update on its website. By then, the amount of generation offline had grown to 46,000 MW, including 28,000 MW of natural gas and coal generation and 18,000 MW of wind and solar. Altogether, “approximately 185 generating units had tripped offline for one reason or another,” ERCOT said.
To help keep more natural gas flowing within the state, Texas Gov. Greg Abbott asked liquefied natural gas (LNG) exporters to curb their operations. He also ordered Texas producers to not sell their gas outside state lines through Sunday (Feb. 21). The impacts of those initiatives, even though temporary, may be felt far more long term.
The situation in the Lone Star State started to improve on Thursday and by Friday, the grid operator returned to normal operations. Still, around 34,000 MW of generation remained offline. Of that, 20,000 MW was a mix of natural gas and coal, and the rest was wind and solar.
Elsewhere in the Lower 48, Midwest spot gas prices were mixed, though price changes were not nearly as extreme as the Midcontinent and Texas. Chicago Citygate cash averaged $12.760 for the week, down $16.840 from the prior period.
In the Rockies, CIG DJ Basin spot gas prices were up $92.550 on the week to average $100.000.
Northeast prices were mixed, but averaged closer to levels typically experienced in the region this time of year. Transco Zone 6 NY averaged $5.420 higher week/week at $10.355.
The historic storm finally elevated futures prices back above $3.000, even though the long-term implications of the Texas energy crisis were still unclear.
Mobius Risk Group said the sluggishness in the futures is to be expected with such intense cold being “undeniably temporary.” However, market participants with short interest may once again be “looking at a mirage” when viewing the forward curve as a representation of fundamental fair value, it said.
“If colder-than-normal temperatures linger longer than expected (Friday’s 6- to 10-day weather forecasts hinted at this) or another cold short or two arrive in March, the Nymex curve may finally begin to reflect the very uncertain path towards sufficient storage builds during the summer 2021 injection season,” the Houston-based firm said.
At a minimum, the premium on March-delivered volumes may price in the risk that fixed monthly procurement costs are far less risky than floating month ahead or daily exposure, according to Mobius.
Indeed, the recent blast of Arctic air that lingered for days in the country’s midsection is seen very quickly depleting what once were robust storage inventories. Though a small surplus to the five-year average still exists, the coming weeks could sharply reduce stocks to a steep deficit.
On Thursday, the Energy Information Administration (EIA) said inventories for the week ending Feb. 12 fell by 237 Bcf, which was the largest pull of the winter season so far but more than 10 Bcf shy of what the market had been expecting.
Broken down by region, South Central withdrew a massive 89 Bcf from storage, including 61 Bcf from nonsalt facilities and 28 Bcf from salts, according to EIA. The Midwest pulled out 77 Bcf, and the East took out 44 Bcf. Stocks fell by 13 Bcf in both the Mountain and Pacific regions.
Total working gas in storage stood at 2,281 Bcf, down 105 Bcf from year-ago levels and 57 Bcf above the five-year average, EIA said.
Morgan Stanley Research analysts said it was lowering its end-of-March inventory estimate to 1.413 Tcf, down from 1.466 Tcf. Reaching this level would bring stocks 30% below last year and 20% lower than the five-year average.
Morgan Stanley analysts said the U.S. gas market entered 2021 with impaired supply and growing demand, but the tightness was initially masked by the milder than normal winter weather through much of January. A colder February accelerated storage draws and boosted prices, it said, with Henry Hub rallying 13% year to date.
“We continue to forecast roughly $3/MMBtu average Henry Hub prices this year, although continued colder-than-normal weather, stronger-than-expected gas demand from the power sector (which has been trending above our estimates year to date), or a more protracted supply recovery could skew this higher.”
The March Nymex futures contract settled Friday at $3.069, off 1.3 cents from Thursday’s close.
Cash Back To Normal
Price action in the spot gas market on Friday reverted back to more typical patterns experienced in winter, with the highest prices being fetched in the Northeast, rather than the middle of the country.
That’s largely because another, yes another, winter storm was heading toward the Midwest, Great Lakes and portions of the Northeast early in the week, according to AccuWeather. Mother Nature may be a bit forgiving this time around, though, with forecasters expecting snow amounts to be lower and little threat of ice. The South that suffered her wrath over the past week also is likely to be spared.
Snow was forecast to develop beginning Sunday as low pressure tracked from Missouri into Illinois. Along and north of the low track, accumulating snow was expected to fall, AccuWeather said. Snow was forecast to move farther to the east late Sunday, with much of New England, New York and northern/central Pennsylvania to receive accumulating snow Monday. Close to the East Coast, it could be a different story.
“Based on the current forecast track of this system, cities along the Interstate 95 corridor such as Washington, DC, Baltimore and Philadelphia will likely end up with mostly rain, but if this storm tracks a bit farther south, then these locations could end up with a slushy coating of wet snow,” said AccuWeather.
Nevertheless, prices on the East Coast came off earlier highs, though they still commanded a sharp premium to markets farther west. Algonquin Citygate prices for gas delivery through Monday averaged $6.670, down $2.105 from Thursday’s levels. Transco Zone 6 NY was the only hub in the Northeast and Appalachia that landed in positive territory, tacking on $1.185 to average $7.055.
Appalachia prices averaged mostly in the $3.000-4.000 range.
Similar pricing was seen in Louisiana, where Henry Hub spot gas dropped $2.510 day/day to $4.985.
Spot gas at the now infamous OGT in Oklahoma averaged $3.415 for the three-day gas period, falling $10.285 from Thursday’s levels.
Texas cash was still all over the board despite posting sharp declines day/day. Waha traded as high as $8.000, while Houston Ship Channel topped out at $4.000. Losses across the Lone Star State ranged anywhere from 70.0 cents to $93.870.
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