Disappointing storage data notwithstanding, natural gas futures prices surged well past $6.00/MMBtu Thursday as traders appear convinced that colder weather is coming next week – and may even stick around. The January Nymex natural gas futures contract simmered down a little and eventually settled at $5.962, up 23.9 cents on the day. February futures climbed 20.3 cents to $5.820.

At A Glance:

  • Robust supplies loom large
  • Cold weather shift lies ahead
  • Freeport LNG lingering wildcard

Spot natural gas prices continued to rally on the West Coast, with some California points reaching as high as $36. Hefty increases were also seen in the Northeast. NGI’s Spot Gas National Avg. jumped $2.330 to $8.870.

For all the mild temperatures that have kept a lid on U.S. heating demand this month – not to mention the hot, sticky weather lingering throughout the South – recent weather models have gotten the gas market excited that Old Man Winter may return in time for the holidays.

[Attacks on U.S. Utilities: What could the recent attacks on utilities in Washington, Oregon and North Carolina mean for the energy market and the natural gas industry? Tune in to NGI’s Hub & Flow to learn more.]

Both the Global Forecast System (GFS) and the European Centre (EC) data reflected a frigid shift in weather by Dec. 16 in which low temperatures could plunge below zero in parts of the country.

Overnight Wednesday, though, the data was a little less convincing. The GFS added 7 heating degree days (HDD) to the 15-day forecast, but the EC was 4 HDDs warmer. The midday run of the GFS added even more heating demand. That said, both maintained a frosty pattern for the Dec. 16- 22 period as Arctic air over Canada may invade the Lower 48.

After several failures in the weather models in recent weeks, NatGasWeather said this time around, the odds of cold arriving have a higher probability and are fueling this week’s price rally. This is because a strong ridge over the eastern half of the United States looks to finally weaken enough to allow subfreezing air over Canada to spread across the Lower 48 relatively unabated.

What’s more, there’s potential for a cold U.S. pattern to continue the last week of December, according to the forecaster. “But make no mistake, the weather data better not back off on cold Dec. 16-22 or it will lead to considerable disappointment.”

Closing The Storage Gap

To be sure, futures tumbled considerably before this week’s recovery as early December weather has been unusually warm, dragging down demand. With heating needs lagging, and production more or less holding near record levels, once-struggling storage inventories have risen to more seasonal levels and could even swell further.

On Thursday, the latest government inventory reflected the impact of mild temperatures.

The U.S. Energy Information Administration (EIA) reported a paltry 21 Bcf withdrawal from natural gas storage inventories for the week ending Dec. 2. The draw was light compared with historical pulls and came in on the lower end of a wide 52 Bcf-range of expectations ahead of the report.

The 21 Bcf withdrawal compared with a 59 Bcf pull during the same week a year ago and a five-year average decrease of 49 Bcf, according to EIA.

“Overall, this number continues the loose theme,” said Enelyst’s Het Shah, managing director of the online energy chat. He said the data was 4 Bcf loose year/year when adjusted for weather.

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.

Several market observers on Enelyst noted that the Midwest and South Central regions were big misses for the reference period. A bit of Thanksgiving holiday hangover, warmth in the Midwest and missing storage data all likely contributed to the miss, they said.

Total working gas in storage fell to 3,462 Bcf, trimming the deficit to 51 Bcf below year-earlier levels and 58 Bcf below the five-year average, according to EIA.

Looking ahead to next week, Enelyst participants were looking for a withdrawal in the 40 Bcf range. That would compare with a 93 Bcf decline in inventories during the similar week last year and an 83 Bcf five-year average decline.

Shah noted that lower production because of pipeline maintenance and a huge drop in wind generation, along with a decline in solar generation, likely drove gas demand higher by 3.0 Bcf/d this week.

On the weather front, NatGasWeather’s Brian Lovern said it’s too early to know specifics of the upcoming cold blast, or if it verifies. “But just from what we see, it’s the textbook overall pattern type if you are looking for risk of big cold down the middle of the nation all the way to Texas. Time will tell if it can deliver.”

California Neck-And-Neck With Europe?

The West Coast hasn’t had to wait around waiting for cold, with prices trending closer in line with gas prices in Asia than U.S. benchmark Henry Hub on Thursday. Another $10, and California may find itself neck-and-neck with Europe.

The West has been pounded by harsh wintry weather, including heavy rains and accumulating snow, which have driven up demand and prices alike. Meanwhile, various pipeline maintenance events have cut into gas flows, and output in nearby producing basins has started to succumb to freeze-offs. The region also is set to receive a double dose of winter storms that are sure to drive up demand even further.

AccuWeather said back-to-back storms from the Pacific would take aim at the West through the weekend, with the second of the two storms likely to usher in severe weather and blizzard conditions. While the storms should offer some relief to the drought-stricken region, it does little to lower natural gas demand and thus, prices.

The first storm was forecast to produce rain and high-elevation snow into Thursday night in Northern California, Oregon and Washington, according to AccuWeather. Snow was likely in the central and eastern portions of Washington and Oregon, while locally heavy rain could fall in Oregon and Northern California. Snow totals could hit up to three inches, while Northern California may end up with as much as six inches.

A break on Friday was expected to be short lived, with rain, snow and wind likely to crash into the Pacific Northwest in the evening and ratchet up over the weekend. The Los Angeles Basin is expected to receive up to one inch of rain, roughly 50% of Los Angeles’ normal December rainfall, according to AccuWeather.

Spot gas prices have surged this week, with no end in sight. On Thursday, the SoCal Citygate reached a high of $33.00 for Friday’s gas delivery, while PG&E Citygate soared to $36.00.

“We might have seen a price spike here and there anytime it gets cold … and certainly during Winter Storm Uri…but this is unprecedented,” said Los Angeles Department of Water and Power’s Marlon Santa Cruz, manager of Fuel and Purchased Power.

No stranger to volatility, the West Coast has seen its fair share of price spikes. The region, though, typically sees its highest energy usage in the summer, Santa Cruz said. At the end of August – when cash prices hit their highest levels of the season – prices topped out at about $16.00.

The spikes have spread across the greater western United States as well. In the Desert Southwest, El Paso S. Mainline/N. Baja next-day gas shot up $12.980 day/day to average $33.780. Northwest Sumas in the Rockies was up $9.735 to $30.925.

On the East Coast, which is a winter-peaking region, prices started to climb ahead of possible snow resulting from two “mini” storm systems arriving this weekend. A general one-to-three inches of snow was in store over part of the interior Northeast from the storm, according to AccuWeather.

Snow and a wintry mix may struggle to reach areas in New England north of Boston. At this time, forecasters did not expect the atmosphere to cool fast enough to allow snowflakes to fly from Washington, DC, to areas farther south. Still, some wet snowflakes could not be ruled out north and west of the nation’s capital for a time Sunday night to early Monday.In the Northeast, PNGTS spot gas climbed $1.935 to average $7.445 for Friday’s gas day. Transco Zone 6 non-NY picked up 57.0 cents to $4.935.