After some fluctuations in last week’s weather data, outlooks turned decidedly colder during the past weekend and then built on that momentum Monday, resulting in strong gains for natural gas futures. The Nymex March gas futures contract settled 11.9 cents higher at $2.836/MMBtu, and April climbed 7.6 cents to $2.815.
Spot gas prices were also higher as a brief cold snap hit the eastern United States on Monday, while much of the Midwest and West Coast continued to see chilly weather as well. The NGI Spot Gas National Avg. jumped 39.5 cents to $3.34.
While much of the United States is expected to see mild conditions return midweek, all eyes have been on what weather models are showing for early March. Weather data trended notably colder through the weekend, particularly for the period starting Friday and continuing through March 9, according to NatGasWeather.
Models showed “much of the country becoming significantly colder than normal as frigid cold blasts with Arctic origins sweep across the northern and central United States,” NatGasWeather said. “However, the weather data March 10-12 favors a warm ridge building over the southern and eastern United States in a much less intimidating pattern.”
Bespoke Weather Services similarly noted a “healthy addition” of gas-weighted degree days over the weekend in its forecast for the first third of March.
The forecaster called it “one of the coldest starts to March we’ve seen in quite a long time. This is the window where we believe factors such as as tropical forcing do solidly favor colder weather spreading into the eastern half of the nation, but the intensity has picked up since Friday.”
The firm continues to see support for cold waning beyond March 10, which is showing up at the ends of the weather model ensembles, “but the colder shift prior to that time frame is the main weather headline at this point in time, along with the consideration that models can often be too quick regarding pattern change ideas,” Bespoke chief meteorologist Jacob Meisel said.
The latest midday Global Forecast System data was notably colder trending March 5-9 to add nearly 10 heating degree days during that period, although again showed a warm ridge across the southern and eastern parts of the country. “This March 10-12 break easily could be relatively short in duration before cold returns after,” NatGasWeather said.
The firm said that forecasts are cold enough to bring a couple much larger-than-normal storage draws in the weeks ahead, “especially with the Energy Information Administration (EIA) storage report three weeks out, where it could potentially reach 200 Bcf versus the five-year average of 99 Bcf” and push deficits towards 500 Bcf.
Last week, the EIA reported that as of Feb. 15 inventories stood at 1,705 Bcf, 73 Bcf below last year and 362 Bcf below the five-year average.
Bespoke correctly identified the risk for a tighter EIA number last week, and although Thursday’s draw is not expected to be as tight because of the Presidents Day holiday, it still expects a large pull to be announced that will indicate the market has remained tight overall.
“Liquefied natural gas exports were quite elevated last week, and production and imports only ticked up while burns remained tight as well. Each of the next two to three EIA numbers should accordingly be quite tight as we see storage levels dip below 1.1 Tcf moving into the middle of March, which will ensure that prices are able to remain rather firm at the front of the strip,” Meisel said.
Regardless of the level of inventories at the end of the winter season, the current forward curve for natural gas for the balance of 2019 is almost certainly not sustainable, according to EBW Analytics. The spreads are too low to justify injecting gas into storage and holding it until next winter — or even retaining existing gas in storage as buying gas and injecting it into storage for later use requires paying for storage rights and bearing the financing costs required to hold natural gas in storage, the firm said.
“Marketers and industrial users are better off buying futures and avoiding the physical market,” EBW CEO Andy Weissman said.
Furthermore, with the market structurally oversupplied, the need to inject gas into storage is less than in previous years. “While colder-than-normal weather could keep prices falling near term, the April-June contracts are likely to come under further pressure soon,” Weissman said.
For the near term, though, the front of the curve continued to strengthen after hours as the latest European data trended colder through its 15-day run.
Cash Rallies On Brief Cold Snap
Spot gas prices posted notable increases Monday as a quick cold shot swept across the northeastern United States, while chilly air held over the country’s midsection. Unsurprisingly, gains were strongest in the Northeast, but pricing hubs across the United States put up solid, double-digit increases.
National demand was set to be stronger than normal as overnight temperatures were expected to drop as low as the minus 10s in areas of the Midwest and reach only as high as 20 in the East, according to NatGasWeather.
Conditions were expected to quickly warm Wednesday through Friday, however, before the next polar blasts remain on track across the northern, central and eastern United States beginning Friday (March 1) through March 9, with lows dropping into the 20s and 30s into Texas and portions of the South, the firm said.
Prices across Louisiana were up no more than 15.5 cents, while Northern Natural Demarc in the Midcontinent jumped more than 35 cents to $3.165.
The Rockies and California continued to see significant volatility as weather remains unsettled in the region, driving up demand while import and storage restrictions remain in place. Gains of 50 cents-plus were common across the Rockies, with Kern River next-day gas rocketing some 57 cents higher to $4.495.
In California, PG&E Citygate rose 89.5 cents to $5.03.
Despite the high prices the Rockies and California have experienced in recent weeks, a bearish picture has emerged for the summer. Since early December, statewide snowpack levels had been well below normal. In mid-January, however, California began to get pounded by an “atmospheric river” that has boosted Sierra snowpack levels to 144% of normal for this time of year, according to Genscape Inc.
“Current snowpack levels are at their second highest level for this time of year in the past 10 years. This is also just the third instance where mid-February snowpack has exceed 100% of normal,” Genscape senior natural gas analyst Rick Margolin said.
The last two times that February snowpack exceeded 100% of normal corresponded with notably higher hydro generation and lower gas-fired generation in the subsequent summer. In February 2011, snowpack ran as much as 105% above normal, and that summer, California Independent System Operator (CAISO) hydro generation averaged 91 GWh/d, about 28 GWh/d (or 45%) above the 10-year average. Also that summer, gas-fired generation averaged about 12 GWh/d (or minus 6%) lower, according to Genscape.
In February 2017, statewide snowpack ran 177% above normal, the firm said. Hydro generation in the subsequent summer averaged about 92 GWh/d, 30 GWh/d (47%) above the 10-year average. Gas-fired generation averaged 167 GWh/d, 17% below the average.
“As with all things California, we caution overly weighting history as prologue since the grid continues to evolve so rapidly. This year, the bearish impact of a high-hydro season may be slightly more pronounced given sustained growth of renewables: Genscape’s CAISO power group noted in its recent Spring Outlook about 700 MW of new solar and nearly 200 MW of new wind will be brought online this spring,” Margolin said.
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