Natural gas traders turned a blind eye to some of the coldest weather of the winter set to arrive in days, sending natural gas forward prices plummeting across the country during the trading period from Jan. 13-19, NGI’s Forward Look showed.

While fixed prices for the February contract came off as much as $2.610/MMBtu at a couple of New England locations, a steep sell-off in basis prices also proved noteworthy. The region is notorious for its volatility during the winter – and sometimes in summer too – and this week was no different.

Facing another blast of Arctic air, this time longer lasting, gas demand is expected to remain strong as temperatures were to plunge beginning Thursday night. AccuWeather said the polar push would help fuel a snow and ice storm for parts of the South and Atlantic Coast. From Friday night through the weekend, the coldest night of the season so far may occur for many interior areas in the Southeast. Some areas in the interior Northeast could see their coldest night in years.

By dawn on Saturday, AccuWeather said temperatures were likely to dip below zero across a large swath of the Northeast, from eastern Ohio and western Pennsylvania through much of upstate New York and into the mountains of interior New England. For many, this would be the coldest night in at least a couple of years.

“Pittsburgh is forecast to dip to near zero Friday night,” said AccuWeather meteorologist Jake Sojda. “If the temperature manages to dip a bit more, it would be the first reading below zero since Jan. 31, 2019. In Syracuse, NY, the low temperature is forecast to challenge the record for the day of 12 below zero, set back in 2005. The last time Syracuse dropped lower than 10 below zero was Jan. 14, 2018.”

Nevertheless, the bitter outlook wasn’t enough to stave off the widespread sell-off in the Northeast. At the Algonquin Citygate, February basis declined by $1.920 over the Jan. 13-19 period but remained at a stout $13.727 premium over the benchmark Henry Hub. The February fixed price settled Wednesday at $17.758; cash prices averaged above $22.00.

Prices further out the Algonquin curve were far less volatile. The summer strip (April-October) fell 9.0 cents to $3.710, while the winter 2022-2023 strip dropped 11.0 cents to $13.515.

In New York, Transco Zone 6 NY February basis was down 62.0 cents for the period to $5.009, while the fixed price of $9.04 was off 86.0 cents, according to Forward Look. Summer prices averaged 11.0 cents lower at $3.180, and the winter strip averaged only 6.0 cents lower at $6.286.

Losses upstream were not as significant, with basis prices ending the period through Jan. 19 a few cents higher. Eastern Gas South February basis climbed 7.0 cents to minus 57.6 cents, while the fixed price slid 17.0 cents to $3.455, Forward Look showed. The summer strip was down 10.0 cents to $3.000, and the winter 2022-2023 was down 8.0 cents to $3.497.

The weakness across U.S. markets is certainly not a reflection of the current demand picture given the biting chill across the country. Instead, it appears traders remain confident that supplies are plentiful enough to meet winter heating needs – even with a string of 200-plus Bcf withdrawals on tap amid the record cold.

Is The Gas Market Tight?

That said, the latest snapshot of inventories from the Energy Information Administration (EIA) showed continued tightness in the supply/demand balance. The agency reported a monstrous 206 Bcf withdrawal from storage for the week ending Jan. 14, much steeper than the market was expecting.

Ahead of the EIA report, estimates were wide ranging and as steep as 250 Bcf. A Reuters poll of 16 analysts, whose estimates ranged from withdrawals of 153 Bcf to 250 Bcf, landed at a median pull of 196 Bcf. The Wall Street Journal said its poll found analysts on average expecting a withdrawal of 201 Bcf.

The median of 12 withdrawal estimates submitted to Bloomberg produced a 197 Bcf median and a range from 176 Bcf to 250 Bcf. NGI estimated a withdrawal of 195 Bcf.

Last year, the EIA recorded a pull of 179 Bcf for the similar week, while the five-year average is 167 Bcf.

Bespoke Weather Services said the 206 Bcf pull was “a very tight number” in terms of the supply/demand balance. Much of this is because of the production declines thanks to freeze-offs, which should be temporary. However, it points to a couple more strong numbers to come.

Indeed, early estimates point to more 200-plus Bcf withdrawals in the next two EIA reports.

Broken down by region, the South Central region led with a 69 Bcf withdrawal, including a stout 48 Bcf pull from nonsalt facilities and a 22 Bcf pull from salts, according to EIA. Midwest stocks fell by 65 Bcf, while the East dropped by 61 Bcf. The Mountain region pulled out 8 Bcf, and the Pacific delivered a modest 3 Bcf.

Total working gas in storage as of Jan. 14 stood at 2,810 Bcf, which is 226 Bcf below year-ago levels and 33 Bcf above the five-year average, EIA said.

Is Warmer Weather Ahead?

Meanwhile, the latest weather outlooks are pointing to a much warmer February. NatGasWeather said the midday data held an impressive frigid shot the next several days with widespread lows of minus 20s to 30s before a brief break late Sunday and Monday. Another polar blast was expected by the middle of next week, but cold air is seen shifting over the Rockies and Plains Jan. 30-Feb 3. Temperatures were expected to slowly warm over the southern and eastern United States, paving the way for demand to move closer to seasonal levels.

“It’s this closer-to-seasonal 11- to 15-day period over the southern and eastern U.S. that’s led to disappointment the past 30 hours,” NatGasWeather said.

Bespoke said the February warming was a reflection of weather models gravitating toward more of a western U.S. trough and a downstream eastern U.S. ridge. This would equate to a warmer-than-normal pattern on the national level and is because of the projected return of the more classic La Niña base state, which has been on hiatus for most of this month.

“We still are on pace for the coldest January since 2014, just with less intensity, and more likely to be followed by a February warm-up,” Bespoke said. Still, the forecaster said it remains “a little surprised how confident the market already has become in this warmer February idea, as we still have some hefty storage draws ahead of us.”

Despite being on board with the gradual warmup, Bespoke noted that production remains very low, down to 91 Bcf as of early Thursday.

“Obviously, this should rebound notably higher again once the cold moves out of the picture, but it remains to be seen exactly to what level,” the firm said.

EBW Analytics Group LLC senior analyst Eli Rubin said the duration and extent of production freeze-offs remains a critical wildcard. Freeze-offs are subject to the specific geography, cold duration and extent of producer weatherization, he pointed out.

“The locus of below-normal forecasts in Appalachia and strong cold anomalies extending into Texas, however, suggest heightened caution,” Rubin said. “If outages return towards early-month levels, however, the market could quickly tighten by an incremental 15-20 Bcf/week.”

Ahead of the coming weekend cold snap, Kinder Morgan Inc. posted a notice Wednesday on the El Paso Natural Gas Pipeline warning that the expected weather could limit flows of gas and result in supply shortfalls and power outages in the Lone Star State.

The weather-driven spike in demand comes on the heels of record export demand. Liquefied natural gas (LNG) feed gas deliveries have crested 13 Bcf/d on several days over the past couple of weeks. Feed gas reached an all-time high of 13.2 Bcf/d on Sunday (Jan. 16) as the sixth train at Sabine Pass continued to ramp up toward full commercial operations.

The near-term bullish backdrop means the gas market could run almost 10 Bcf/d tighter than the five-year average over the next five weeks, according to EBW. This creates the possibility of significant further gains.

“The end-of-March storage trajectory is on pace for 1,400 Bcf, implying an ample cushion and no current storage adequacy concerns,”Rubin said. “Still, tremendous near-term tightening — and price-inelastic demand generating the potential for heightened volatility — together create the risk of the Nymex February contract to push sharply higher over the next seven to 10 days.

On Thursday, however, the February contract settled sharply lower, plunging 22.9 cents to $3.802. March fell 19.6 cents to $3.649.