Markets | E&P | LNG | Natural Gas Prices | NGI All News Access | Shale Daily
Natural Gas Futures Eke Out Gain; Spot Prices Advance Third Straight Day
Natural gas futures stabilized on Tuesday, supported by a cold front, eased production and strength in cash markets Coming off a 17.2-cent drop in its debut as the front month a day earlier, the March Nymex gas futures contract on Tuesday settled at $2.684/MMBtu, up seven-tenths of a cent day/day. April rose 1.0 cent to $2.741.
At A Glance:
- Heating demand lingers
- Production levels hold steady
- Freeport recovery proves uneven
NGI’s Spot Gas National Avg. gained 73.5 cents to $5.310.
Freezing weather spread from the Mountain West and Midwest to the South and the East on Tuesday. Cold conditions were expected to endure across much of the Lower 48 the remainder of the trading week, galvanizing heating demand.
The harsh winter weather also temporarily interrupted production as far south as Texas, causing a decrease in output. Production dropped about 3 Bcf/d to 97 Bcf/d, according to Bloomberg’s estimate Tuesday.
“Stormy east-bound weather may extend elevated heating demand and reduced production later this week as it sweeps into the densely populated Northeast,” said EBW Analytics Group’s Eli Rubin, senior analyst.
However, Rubin added, weather conditions are expected to shift in a warmer direction by the weekend and production declines are projected to prove short lived. Forecasts call for seasonally mild weather over the southern two-thirds of the country for the first two full weeks of February. This would follow below-average temperatures across most of January.
“Weather remains the dominant factor in mid-winter and sets the stage for renewed downward pressure into the back half of the month,” Rubin said Tuesday. “As temperatures warm over Texas later this week and daily demand nationally plunges 25 Bcf/d over the next seven to 10 days, another leg lower for natural gas pricing remains favored.”
Maxar’s Weather Desk on Tuesday highlighted warmer trends for both the six- to 10-day and 11- to 15-day periods in its latest forecast Tuesday.
In the six- to 10-day, from Sunday through Feb. 9, the outlook trended warmer from the Midwest to the East, the forecaster said. “Temperatures are forecast to be much above normal in the Midwest to start and in the East around mid-period,” Maxar said.
Further out in the 11- to 15-day (Feb. 10-14), the pattern “continues to feature above-normal temperatures from the Plains to the East Coast,” Maxar added.
This would include much above-normal temperatures in the Midwest through the middle of the period and into the East late in the period, according to the forecaster.
“Gas bulls’ hopes for a rally through this winter are slim to none, and slim just left town,” analysts at the Schork Report said.
Brief bouts of freeze-offs aside, production much of this year so far has held around 100 Bcf/d – at times at record levels above 102 Bcf/d – while demand has trailed.
At the same time, LNG demand is lighter than it otherwise would be because of the delayed reopening of an LNG plant in Texas.
The Freeport liquefied natural gas export plant in Texas, on the sidelines since a June fire, had planned to relaunch by mid-January – and still expects to soon — but it has yet to do so amid recent regulatory delays. Full restoration of the facility would add 2.38 Bcf/d of demand to the market, but for now, that remains off the table.
Supplies in storage, as a result, are stout relative to recent years, adding to downward price pressures.
The latest Energy Information Administration (EIA) inventory report found utilities withdrew 91 Bcf of natural gas from storage for the week ended Jan. 20. It followed weak prints each of the two prior weeks. The latest result compared meekly with a five-year average draw of 185 Bcf.
The pull lowered inventories to 2,729 Bcf, but it left stocks well above the year-earlier level of 2,622 Bcf and the five-year average of 2,601 Bcf.
For this Thursday’s storage report, 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 modeled a draw of 141 Bcf. The estimates compare with a five-year average decline of 181 Bcf.
[Decision Maker: A real-time news service focused on the North American natural gas and LNG markets, NGI’s All News Access is the industry’s go-to resource for need-to-know information. Learn more.]
“Production has been at record highs, an exceptionally warm start to January suppressed demand and LNG exports have been hobbled since last June when Freeport LNG went offline,” RBN Energy LLC analyst Sheetal Nasta said in a report Tuesday.
“Freeport’s eventual return will restore existing export capacity, but there’s no new LNG export capacity due online this year — for the first time since 2016,” Nasta added. “After one of the tightest gas markets of the last decade in 2022, the stage is set for one of the most oversupplied markets we’ve seen in years.”
Against that backdrop, Mizuho Securities USA LLC’s Robert Yawger, director of energy futures, said Tuesday’s move modestly higher may have simply reflected market sentiment that natural gas had entered “oversold territory.”
Cash Prices Climb
Spot gas prices advanced a third day in a row on Tuesday, bolstered by the first widespread blast of winter so far in 2023.
Hubs in the frigid Rocky Mountain region helped lead the upward charge. El Paso Bondad jumped $3.175 to $11.165, and Opal gained $2.560 to $10.815.
Elsewhere in the West, Malin climbed $2.855 to $10.720, while PG&E Citygate rose $3.465 to $11.865.
National Weather Service data showed a string of weather systems pushing across the nation’s midsection and to the east on Wednesday, setting the stage for doses of bitter cold on the East Coast before the close of the trading week.
Freezing conditions also spread to the South on Tuesday, impacting major markets such as Austin and Dallas with freezing rain.
Space City Weather meteorologist Eric Berger called it a “major winter icing event” that affected much of central Texas. “These conditions may persist through Wednesday,” he said.
Prices across Texas had climbed Monday in advance of the wintry mix. But hubs in the Lone Star State leveled back off Tuesday, with Waha down 60.0 cents to $2.675.
While warmer air lies ahead next week, AccuWeather said the current surge of Arctic air could impact tens of millions of residents in the Northeast before it passes, potentially adding additional price support for spot markets in the near term.
“There will be places that will be 30-50 degrees colder Saturday morning than they were Thursday afternoon,” AccuWeather meteorologist Tom Kines said. Major markets such as Boston could see subzero temperatures Saturday.
Still, the cold air will leave the Northeast by early next week, he said.
By Sunday, “in many areas, temperatures will surge by 40 degrees on average compared to Saturday morning’s frigid levels,” Kines said.
© 2023 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 | ISSN © 2158-8023 |