Monstrous increases throughout the western United States overshadowed a general softening in natural gas prices throughout the Dec. 5-9 trading week. As cash prices surged to $55.00/MMBtu in California, the Desert Southwest and the Rockies, NGI’s Spot Gas National Avg. jumped 39.5 cents to $7.575.
Nymex natural gas futures took a back seat to the West Coast action, but the potential for more widespread cold next week drove January prices back above $6.00. By Friday, the prompt month had climbed to $6.245, up 28.3 cents on the day and up 66.8 cents from Monday’s close.
After a warm start to December, traders have been fixated on long-range weather forecasts calling for the possibility of Arctic air plunging deep into the Lower 48 next week. Unfortunately, there remain discrepancies between the American Global Forecast System (GFS) and the European Centre (EC) data that need to be resolved.
There’s also another nearly week-long stretch of unseasonably mild weather to get through first. With daytime temperatures soaring into the mid-80s near the Gulf Coast, what little gas demand there was this week was likely for cooling needs rather than heating. Houston Ship Channel averaged only $4.085 after falling 85.5 cents on the week. It traded as low as $3.600.
In West Texas, tight pipeline capacity continued to weigh on prices, with both planned and unplanned maintenance further curtailing flows out of the region. The stranded supply sent Waha cash tumbling to minus 30.0 cents. The location ultimately averaged 62.0 cents for the Dec. 5-9 period, off $3.795 week/week.
Despite the widespread losses throughout most U.S. cash markets, sustained cold throughout the West resulted in historic price spikes there this week. When the dust settled, prices had jumped more than $10 week/week in some locations, with $50 gas in play at several locations.
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Though unlikely to soar anywhere close to those levels if frigid Canadian air sweeps deep into the Lower 48 next week, the potential for gas demand to ratchet up again was enough to breathe some life back into Nymex futures this week.
The shift in the weather models occurred midweek, with both the GFS and EC trending much colder for mid-December. Since then, however, the models have diverged a bit. After the latest runs on Friday afternoon, the EC model stood a bit colder compared to the GFS for Dec. 17-23 – by nearly 15 heating degree days.
“It’s quite interesting that we added that much demand that quickly, but weather can be the cure to everything, they say,” said a participant on Enelyst, an online energy chat.
To be sure, blowtorch weather in the South Central region so far this month has made a significant impact on prices and regional storage inventories alike. Other regions also have moved back to normal levels after lagging throughout the summer.
After back-to-back withdrawals in the 80 Bcf range, the Energy Information Administration (EIA) this week said total stocks fell by a net 21 Bcf during the week ending Dec. 2.
This was considerably lower than the year-earlier 59 Bcf withdrawal and the 49 Bcf five-year average draw. As such, total working gas in storage fell to 3,462 Bcf, trimming the deficits to year-ago levels to only 51 Bcf and to the five-year average to 58 Bcf.
Broken down by region, the South Central region posted a stout 10 Bcf net injection that included a 13 Bcf build in salt facilities and a 3 Bcf withdrawal from nonsalts, EIA said. Midwest stocks declined by 12 Bcf, and the Pacific pulled out 9 Bcf. East inventories slipped only 6 Bcf, while Mountain stocks fell 4 Bcf.
A larger withdrawal is expected in the next EIA report, with lower production because of pipeline maintenance and wind and solar power generation sliding week/week. Nevertheless, estimates calling for a draw in the 40 Bcf range also would fall short of historical levels and therefore would continue to close the modest storage gap. What’s more, analysts largely expect inventories to flip to a surplus after the next couple of EIA reports.
“The market may yet underestimate the magnitude of tightening during the coming cold with near-term upside likely,” said EBW Analytics Group LLC’s Eli Rubin, senior energy analyst. “Still, the current 58 Bcf deficit to the five-year average may flip to a 66 Bcf surplus over the next two EIA reports, and the seasonal storage outlook is robust. The relief rally for Nymex gas may last only until the market can see past the cold blast to a likely milder weather pattern in early to mid-January.”
The February Nymex contract settled Friday at $6.082.
$55 West Coast Cash
After steady gains throughout the week, West Coast spot gas prices surged even higher on Friday as the region braced for a potent winter storm.
Pacific Gas & Electric Corp. (PG&E) was preparing crews to respond to potential power outages as its meteorologists, along with the National Weather Service forecasters, were monitoring a weather system heading toward the West Coast. The storm was expected to produce downpours, strong gusty winds and heavy mountain snow. Strong winds in the 40-50 mph range may be widespread, according to PG&E. Gusts in excess of 50-55 mph were possible for the northern areas, coastal strip north of Monterey, and across the northern San Joaquin and Sacramento valleys.
“We have a plan to respond to outages and have activated our company-wide Emergency Operations Center to more efficiently allocate crews, materials and other resources for restoration efforts across our service area,” PG&E said Friday. “Local PG&E operations emergency centers will also activate in impacted regions to provide efficient support to our customers.”
The spike in heating demand helped send PG&E Citygate spot gas prices as high as $55.00 for gas deliveries through Monday. Prices ultimately averaged $46.590, up $14.56 on the day.
Little relief is in sight. PG&E Citygate balance of the month traded at $75.00 on Friday.
Farther south, the expected cold combined with unexpected pipeline maintenance to drive up cash prices in Southern California.
El Paso Natural Gas Co. (EPNG) on Thursday declared a force majeure because of an issue on Line 1100 downstream of the El Paso D Compressor Station (El Paso CS). As a result, EPNG limited the operational capacity of El Paso CS to 924 MMcf/d from Friday to Monday (Dec. 9-12), resulting in a day/day cut in scheduled capacity of 185 MMcf/d, according to Wood Mackenzie.
As such, SoCal Citygate spot gas prices soared to $55.00 for the three-day gas flows, averaging $45.460.
Prices in the Desert Southwest also hit $55.00 on Friday at KRGT Del Pool, but prices ultimately averaged $46.995. Rockies prices topped out around $50.00, with Opal rocketing up $14.445 day/day to average $44.960.Elsewhere across the country, spot gas generally traded in the $4.00-5.00 range. Henry Hub edged up 23.0 cents on the day to average $4.995. Waha averaged only 57.0 cents.
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