Traders looked past the arrival of below-average temperatures this week and focused on strong production and expectations for mild mid-February weather, sending Natural gas futures lower on Monday.

At A Glance:

  • Weather front delivers cold shots
  • February forecast tilts warmer
  • Production continues to hold strong

The March Nymex gas futures contract, in its first regular session as the prompt month, fell 17.2 cents day/day and settled at $2.677/MMBtu. April lost 14.7 cents to $2.731.

NGI’s Spot Gas National Avg., meanwhile, advanced 15.5 cents to $4.575 on the strength of freezing air in the Rocky Mountains and central United States pushing to the East.

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NatGasWeather said powerful cold shots would impact much of the Lower 48 this week, bolstering near-term demand and cash prices. But futures traders fixated on mid-range weather models that shifted warmer beginning next week.

The current week is still on track to deliver “strong to very strong” natural gas demand nationally as “frigid air sweeps across the interior U.S.,” the firm said. However, by early next week, “the eastern half of the U.S. warms into the comfortable upper 40s to 70s.”

January has proven mild overall and, while there were blasts of winter storms in December, they proved short-lived, leaving the market shy of enduring demand.

“What’s been the primary issue to the bullish case this winter has been frigid patterns haven’t been able to last more than five to six days before a much warmer pattern is close on its heels,” NatGasWeather said. This is “exactly what’s setting up for the next 15 days.”

Erasing Demand

The warming forecast trends “erased” an estimated 46 Bcf of natural gas demand from the outlook through mid-February, according to EBW Analytics Group on Monday.

While wellhead freeze-offs are in the cards this week and could impact the supply side, given the cold snap, production on Monday stood above 100 Bcf/d – as it has most of the month – and near record levels, Bloomberg estimates showed.  

Goldman Sachs Group analyst Samantha Dart said the combination of robust output and limited LNG capacity in the near-term could weigh on prices through the year – absent an exceptionally cold late winter, another near-record hot summer or a notable pullback on production.

On the liquefied natural gas front, global demand is strong but no new U.S. facilities are expected to come online this year. In the meantime, the Freeport LNG export plant in Texas, forced offline last June following a fire, is working to resume operations soon. The precise timing, however, remains in flux, and the facility has missed multiple restart targets spanning late 2022 and early this year.

The company expects to ramp up to 2 Bcf/d of production capacity within weeks of securing all regulatory approvals, though full restoration to 2.38 Bcf/d may take longer. In the meantime, the demand generated by the plant remains off the table.

Prices “are by no means at a hard floor” and “warmer weather forecasts or disappointing demand could push gas prices further down,” Dart said.

Storage Surplus?

Against the backdrop of relatively light heating demand and steadily strong output, U.S. supplies of gas in underground storage continue to exceed historic norms for midwinter.

The Energy Information Administration (EIA) most recently reported a withdrawal of 91 Bcf of natural gas from storage for the week ended Jan. 20. It fell far shy of the five-year average draw of 185 Bcf and followed a similarly weak print the week before. For the first week of January, EIA posted a rare injection.

Looking to the next EIA report on Thursday, the market anticipates another relatively modest pull. Early estimates submitted to Reuters for the week ended Jan. 27 ranged from withdrawals of 76 Bcf to 167 Bcf, with an average decrease of 138 Bcf.

NGI predicted a pull of 141 Bcf. That would compare with a draw of 261 Bcf during the comparable week of 2022 and a five-year average decline of 181 Bcf.

The Desk’s mean consensus as of Friday was 143 Bcf

Assuming Thursday’s print is around The Desk’s average estimate, analysts at The Schork Report said, “then storage is now on trend to finish the season around 1.784 Tcf, miles and miles above EIA’s latest end-of-season forecasts of 1.493 Tcf, as well as leagues above last year’s balance of 1.382 Tcf.”

Given the fundamentals, analyst Walter Zimmermann of ICAP Technical Analysis set a low for the prompt month in the range of $2.700 to $2.330 for this year. That noted, he added, “the risk is that, once the long liquidation ends, a powerful short covered rally will ensue.”

Spot Price Momentum

Next-day cash prices diverted from the futures market on Monday, gaining ground amid a new round of winter weather that started in the Rockies, spread to the Midwest over the weekend and was forecast to envelop much of the country.

“A series of frosty weather systems will sweep across the northern and central U.S. this week with rain, snow and chilly lows of -20s to 20s for strong demand, while aided by lows of 10s to 30s into Texas and the South,” NatGasWeather.

After gains last week ahead of the weather, prices in the Midwest and Rockies pulled back Monday. But with the cold air moving to the East, prices powered ahead at hubs spanning the Appalachian region to New England. 

Eastern Gas North gained 24.0 cents from Friday to average $2.595, while Millennium East Pool rose 21.5 cents to $2.695 and Tenn Zone 4 200L advanced 22.5 cents to $2.685.

Hubs in the traditionally volatile Northeast popped on Monday. Algonquin Citygate spiked $8.810 to $12.025, and Tenn Zone 6 200L soared $9.355 to $12.865.

Wood Mackenzie analyst Amanda Fairfax noted that, ahead of the freezing weather that took hold over the weekend in the nation’s midsection, several pipeline operators issued winter weather advisories and operational flow orders.

She said as “extreme cold approached the Rockies and Midwest regions” pipelines from Colorado to North Dakota were vulnerable to freeze-offs that could temporarily hamper production activity this week.

The demand picture, however, may soon fade.

“The far West will be comfortable with highs of 40s to 60s,” this week, “while nice over the Southeast with highs of 60s to 80s,” NatGasWeather said. By the weekend, “cold air will retreat to the northern tier,” while “the southern two-thirds of the U.S. warms into the 50s to 70s.”

Next week, the firm added, chilly weather systems will linger in parts of the Mountain West and northern Plains, but “mild to nice temperatures are favored” over much of the South and East “for moderate to low national demand.”