Natural gas futures gave up ground Wednesday as traders absorbed reports of increased production, uneven weather-driven demand and the potential to avert a railroad strike. 

At A Glance:

  • BREAKING: U.S. EIA reports 81 Bcf withdrawal from storage
  • Production picks up
  • Markets mull weather

The January Nymex natural gas futures contract, a day after edging ahead 3.9 cents in its debut as the prompt month, shed 30.5 cents day/day and settled at $6.930/MMBtu. February fell 26.6 cents to $6.818.

NGI’s Spot Gas National Avg., in contrast, rallied a second straight day and advanced 34.5 cents to $7.855 on stout gains in both the West and Northeast.

Production on Wednesday bounced back close to 101 Bcf/d, according to Bloomberg’s estimate, after dipping below the century mark earlier in the week on maintenance events in Texas and Louisiana.

Tudor, Pickering, Holt & Co. analysts said that, despite the decline early this week, output in recent weeks had held around 101-102 Bcf/d – and near record highs. “Volumes continue to run slightly ahead of our model, which similar to last year, is ramping into year-end,” they said, noting strong activity in the Haynesville Shale and Permian Basin.

Heating demand, meanwhile, was expected to jump Thursday and Friday, explaining the strength in cash prices. Demand also is expected to intensify deeper in December, though the pace of natural gas consumption increases has proven difficult to gauge given choppy weather conditions.

“Weather trends have been flip-flopping daily between warmer and colder and that likely aided wild swings” in trading over the final days of November, NatGasWeather said Wednesday. The firm said that, after weather models trended colder midday Tuesday for Dec. 8-15, data Wednesday reversed warmer for the same period and “lost a decent amount of demand.”   

EBW Analytics Group senior analyst Eli Rubin said increasing prospects for federal intervention in an ongoing railroad labor dispute blunted a bullish catalyst.

President Biden this week called on Congress to act swiftly in passing legislation that could avert a national rail strike, Rubin noted. “Both Democratic and Republican Congressional leaders have indicated a bill is likely to pass,” he said.

Indeed, the House on Wednesday passed legislation that would require a tentative rail labor agreement and avert a walkout. The bill next goes to the Senate, where Majority Leader Chuck Schumer, D-NY, assured passage.

Absent an intervention, however, labor unions appear ready to strike beginning Dec. 9, Rubin said, a development that would disrupt coal shipments and put “increased upward pressure on natural gas demand and prices.”

Bulls Back On Parade?

Rubin has noted that, in addition to potential bullish impacts from a rail strike, the Freeport LNG export plant in Texas, shuttered in June following a fire, was wrapping up repairs and work to secure regulatory approvals in late November and planned to reboot by mid-December. The liquefied natural gas exporter hopes to ramp up to 2 Bcf/d of production capacity by January, with full restoration to 2.38 Bcf/d to follow in February or March.

The facility’s return would bolster U.S. exporters’ collective ability to meet strong demand from Europe and Asia. Europe is clamoring for gas as it weans itself off Russian supplies in protest of the Kremlin’s war in Ukraine. What’s more, as Maxar’s Weather Desk noted Wednesday, forecasts for both Europe and North Asia call for increasing cold – and greater gas consumption – in December.

Meeting greater export needs would mean diverting domestic supplies to LNG facilities, cutting into U.S. storage just as winter settles in across much of the Lower 48.

East Daley Analytics said this week its outlook for LNG exports “has never been brighter.” In addition to current robust demand, the firm’s analysts expect rising levels of consumption for several years to come.

“Assuming 90% utilization,” they said, “we expect 26.7 Bcf/d of LNG exports by 2028, a 260% increase over recent volumes…LNG exports will power long-term demand for natural gas and lift several midstream companies.”

In the near term, more LNG demand would contribute to ongoing withdrawals from storage. The Energy Information Administration (EIA) reported the first pull of the season last week, and analysts widely expect another robust withdrawal with the next EIA print, slated for Thursday at 10:30 a.m. ET.

Ahead of the report for the week ended Nov. 25, a Bloomberg survey found withdrawal estimates ranging from 72 Bcf to 121 Bcf, with a median 82 Bcf decline in stocks. A Reuters poll found estimates spanning from pulls of 72 Bcf to 92 Bcf, and a median of 84 Bcf.   

A Wall Street Journal poll, meanwhile, landed at an average withdrawal of 88 Bcf. Estimates ranged from decreases of 76 Bcf to 99 Bcf.

NGI modeled a pull of 89 Bcf. That compares with a decrease of 54 Bcf during the similar week of 2021 and a five-year average withdrawal of 34 Bcf.

EIA printed a pull of 80 Bcf natural gas from storage for the week ended Nov. 18. The result compared with a decline of 14 Bcf in the year-earlier period and a five-year average decrease of 48 Bcf.

Following that withdrawal, inventories fell to 3,564 Bcf and left stocks below the 3,626 Bcf level a year earlier and the five-year average of 3,603 Bcf.

Strong Spot Prices

Next-day prices surged Wednesday following a big run-up the previous day. NGI’s national cash price average had soared more than $1.00 on Tuesday.

Chilly conditions in the West and expectations for the same in the Northeast by the end of the week helped to fuel the ongoing gains.

Northwest Sumas jumped $1.390 day/day to average $16.455, and Malin spiked $2.290 to $17.100.

In the Northeast, Algonquin Citygate climbed $3.345 to $9.905 and PNGTS gained $4.345 to $10.710.

NatGasWeather noted that demand was generally light in the South on Wednesday, given mild temperatures. But the firm said that could change by the end of the trading week “as frosty air over the northern Plains advances south and eastward” Thursday and Friday.

The firm said much of the East could see bitterly cold overnight lows, while Texas and other Southern markets could experience lows in the 20s and 30s.  

“However, a warmer break over the southern and eastern U.S. this weekend into early next week will ease national demand back to lighter levels,” NatGasWeather added.

Prices fell across Texas on Wednesday and were mixed elsewhere across the South. Henry Hub in Louisiana advanced 77.5 cents to $6.800, while Tenn Zone 1 100L in the Southeast shed 50.0 cents to $5.760.

NatGasWeather still expects strong bouts of cold in northern markets heading toward the middle of December. But weather data Wednesday “suggested temperatures could warm above normal over much of the U.S. Dec 14-15 as subfreezing air retreats to Canada in a bearish set-up.”

That noted, “the weather models have been quite inconsistent and bouncing between colder and warmer trends, and that’s likely to continue.”