After a 30.5-cent decline midweek, natural gas futures continued to retreat Thursday as traders failed to sustain early momentum after the latest government inventory data. With the midday weather models adding further bearishness to the supply/demand balance, the January contract settled at $6.738/MMBtu, off 19.2 cents day/day. February futures slid 18.7 cents to $6.631.

At A Glance:

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

Spot gas prices cratered as temperatures started to warm up across the United States. With powerful winter storms still pounding the West Coast, however, NGI’s Spot Gas National Avg. fell 33.0 cents to $7.525.

Fresh off a nosedive on Wednesday – driven in part by near-record production – natural gas futures had soared to an intraday high of $7.213 early Thursday. Notably, early Lower 48 output data trended significantly lower, giving bulls a morsel of fundamental data to chew on amid broader weakness.

[Want today’s Henry Hub, Houston Ship Channel and Chicago Citygate prices? Check out NGI’s daily natural gas price snapshot now.]

Bloomberg showed production below 100 Bcf/d. The Rockies appeared to be the culprit of the biggest declines, with the Haynesville Shale and Appalachia also seeing significant losses day/day.

However, the U.S. Energy Information Administration’s (EIA) latest storage report quickly changed the game and sent futures prices tumbling back below the key $7.00 level of support.

The EIA reported a larger-than-normal 81 Bcf withdrawal from natural gas storage inventories for the week ending Nov. 25.

The 81 Bcf pull came in much steeper than both last year’s 54 Bcf draw and the 34 Bcf five-year average withdrawal. And while the draw was generally in line with expectations, estimates ranged widely ahead of the EIA report.

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.

Market observers on energy chat Enelyst said the latest withdrawal was difficult to gauge given the long Thanksgiving weekend. Managing director Het Shah said he viewed the draw as 3.1 Bcf/d looser year/year when adjusted for weather. 

Broken down by region, the East led with a 26 Bcf decline in stocks and the Midwest with a 23 Bcf decrease, according to EIA. The South Central withdrew 19 Bcf, which included a 15 Bcf drop from nonsalt facilities and a 4 Bcf pull from salts.

Both the Mountain and Pacific regions saw stocks fall 6 Bcf, EIA said. For the Pacific, the withdrawal sent inventories 21.5% below five-year average levels.

Total working gas in storage as of Nov. 25 stood at 3,483 Bcf, which is 89 Bcf below the similar week last year and 86 Bcf below the five-year average, according to EIA.

Looking ahead to the next EIA report, Shah said his supply/demand flow model was indicating a few days of net injections during the current reference period ending Dec. 2. His preliminary estimate was for a withdrawal in the 10-20 Bcf range.

Few Supply Risks As Cold Easing

With the calendar flipped to December, weather data remains a central focus for the gas market and – despite the weakness brought on by the EIA storage report – continued to impact prices on Thursday.

There continued to be some discrepancies between the American and European weather models, according to NatGasWeather. The firm said the latest Global Forecast System (GFS) shed a few more heating degree days (HDD) in the midday run, while the European model is a bit colder for Dec. 8-15 as coverage of below-normal temperatures spreads across the northern and eastern United States.

As long as the European data remains more than 10 HDDs colder than the GFS for Dec. 8-15, NatGasWeather said it might prevent natural gas prices from plunging too far. After all, there still are no signs that the Freeport LNG terminal is set to resume liquefied natural gas exports; many expect further delays.

“The Dec. 8-14 pattern is currently just cold enough for a near-normal draw but the natural gas markets are seemingly starting to get impatient waiting for more intimidating weather patterns to arrive,” the forecaster said. “Essentially, if late December and early January aren’t cold enough, there’s little risk U.S. supplies will be in jeopardy this winter barring a historically cold second half of January and February.”

EBW Analytics Group LLC noted that independent forecaster DTN’s week 4 forecast suggested “widespread, enduring cold” sweeping across the eastern United States and Texas heading into mid- to late December. Although the data reflected only a modest bump in demand relative to week three, EBW said there was potential for a 60 HDD gain and 14 Bcf/d demand increase over the next two weeks.

“While the gas market is skeptical of forecasts beyond Day 10, the potential cold pattern durability – led by heavy blocking over Greenland and Northern Canada – may catch the market off guard,” EBW senior analyst Eli Rubin said.

Meanwhile, traders late Thursday gained a little more confidence that a strike could be averted ahead of a Dec. 8 meeting between railroad workers and management. The Senate passed a bill Thursday to avert a rail shutdown amid concerns over the economic danger posed by a strike. Notably, this would substantially curb coal deliveries and drive demand for gas as a substitute.

The House passed the tentative rail agreement on Wednesday. The bill was set to head to President Biden for his final signature.

Rain, Snow Driving California Cash

Despite overwhelming weakness in the majority of U.S. cash markets, a pair of winter storms barrelling across the West Coast continued to stoke prices there.

AccuWeather said the first storm already brought the first measurable snowfall of the season to the Pacific Northwest this week, dumping a few feet of snow over the high country and burying the northern and central Sierra Nevada.

At the same time, the storm was producing heavy rains in northern California. Several inches were forecast, though totals were expected to fade farther south.

This weekend, a second storm was forecast to drop southward and may linger just off the coast of California.

“Some rain should pivot into the San Francisco area on Saturday,” AccuWeather meteorologist Heather Zehr said. “More general rain may develop on Sunday across Northern and Central California and perhaps as far to the south as Southern California.”

The extent and magnitude of the rain and mountain snow that the storm unfurls from Sunday to Monday are still questionable at this early stage, according to AccuWeather. While the storm was not likely to bring an excessive amount of rain and mountain snow to Southern California, it can provide another boost in ground moisture, some runoff into area streams and reservoirs, and more snow for the Sierra Nevada and across Northern California in general.

“It is possible that parts of the Sierra Nevada pick up a fresh one-to-three feet of snow from the second storm during the first part of next week,” AccuWeather said. “At the very least, there will be some opportunities for rain and mountain snow over the upcoming seven days for the drought-stricken state.”

The chilly weather pattern lifted Southern Border Avg. spot gas prices $1.445 day/day to average $18.595 for Friday’s gas day. Farther north, PG&E Citygate jumped $2.400 to $19.195.

For comparison, benchmark Henry Hub prices averaged only $6.215 after falling 58.5 cents on the day.

Wood Mackenzie noted that El Paso Natural Gas (EPNG) declared a force majeure after its Lordsburg B Compressor Station suffered equipment failure that made the station unavailable. EPNG said this would result in a 61,824 MMBtu/d decrease in Westbound operational capacity beginning Thursday until further notice. However, timely and evening data showed a roughly 10,000 MMBtu/d increase in operational capacity and a roughly 25,000 MMBtu/d increase in scheduled capacity from the previous gas day. Given the restrictions and heightened demand, next-day gas prices in the upper teens extended into the Desert Southwest and into the Rockies as well. El Paso S. Mainline/N. Baja cash climbed $1.385 to $18.990, while Northwest S. of Green River shot up $3.260 to $11.145.