Natural gas futures floundered Friday, capping a see-saw week of trading that ultimately left prompt prices in a holding pattern of sorts, with traders trying to assess an uncertain weather outlook, choppy production estimates and stubbornly high storage levels.

At A Glance:

  • Stout storage endures
  • Weather outlook evolves
  • Freeport remains key factor

The April Nymex gas futures contract settled at $2.338/MMBtu, down 17.6 cents day/day. The May contract lost 18.0 cents to $2.446.

NGI’s Spot Gas National Avg. slid 3.5 cents to $2.550.

The front month closed above $2.50 three times during the past week. With notable drops in other sessions, though, Friday’s finish left the April contract down from the prior week’s finish of $2.430.

NatGasWeather said forecasts Friday continued to show frigid weather in the week ahead and again later in March, though the European weather model gave up some of its bullish bent. Heading into Friday trading, it dropped 11 heating degree days from a prior outlook to bring it into rough agreement with the American dataset – still seasonally cold, but not as cold.

The change was “due to a warmer break over the southern and eastern U.S. late next week,” NatGasWeather said Friday. The European model’s outlook was also “not quite as cold with weather systems to follow March 25-30.”

Still, production during the past week was off about 2 Bcf/d from 2023 highs. The Freeport LNG export facility in Texas continued its ramp back to full capacity, adding so far about 1 Bcf/d to the demand side of the equation. The liquefied natural gas plant, pushed out of commission last year following a fire, is working to get back to nearly 2.4 Bcf/d of capacity.

Demand for LNG is expected to remain strong as rebounding Asian economies look for gas to replace coal and as Europe calls for the super-chilled fuel to supplant lost Russian supplies in connection with the Kremlin’s ongoing war in Ukraine.

RBN Energy LLC analyst Richard Pratt noted that Europe is emerging from winter with robust volumes of stored gas, thanks to LNG imports. Still, with some of that gas needed for the coming summer, the continent will have to stock up again ahead of next winter. With the war ongoing, already dwindled Russian gas sent to Europe could decline further, while Asian countries may step up competition for LNG.

“This is no time for complacency,” Pratt said of Europe. “While it’s many months away, the winter of 2023-24 looms, with dire warnings that things could be considerably worse in gas markets. Although the storage element in the supply/demand equation gives cause for optimism, we are still facing a very uncertain future in the next 12 months, and likely beyond.”

With those bullish factors in play, analysts widely expect above-average U.S. storage pulls in the second half of March.

“High-level natural gas fundamentals remain modestly supportive on projections for narrowing storage surpluses, soft production, and strong LNG,” EBW Analytics Group analyst Eli Rubin said.

Storage Scenario

Preliminary estimates submitted to Reuters for the week ended March 17 ranged from withdrawals of 67 Bcf to 86 Bcf, with an average decrease of 80 Bcf. That compares with a pull of 55 Bcf a year earlier and a five-year average decline of 45 Bcf.

Rubin said markets remain relatively subdued because Energy Information Administration (EIA) data has easily favored bears the bulk of 2023, given generally mild winter weather through early March.

EIA reported a withdrawal of 58 Bcf for the week ended March 10. The print fell well shy of the year-earlier 86 Bcf draw and the five-year average pull of 77 Bcf. It left inventories at 1,972 Bcf, a substantial surplus to the year-earlier level of 1,451 Bcf and the five-year average of 1,594 Bcf. 

Tudor, Pickering, Holt & Co. (TPH) analysts noted that the South Central region counter-seasonally reported an injection for a second straight week and supplies in storage there are now tracking 45% above norms. On a weather-adjusted basis, TPH estimated the overall market was 2 Bcf/d oversupplied during the latest EIA report period.

That noted, with cooler temperatures rolling in and Freeport building back, the TPH analysts see “some tightening to come.” For the next EIA print, their preliminary modeling points to a draw of 60 Bcf.

Physical Prices

Spot gas prices on Friday fell in the West and climbed in the East, as wintry weather pushed from the nation’s midsection toward New England and the Mid-Atlantic.

Wood Mackenzie analyst Kevin Ong said the near-term cold shots could also interrupt production and affect gas flows in the Northeast. He said several pipelines issued operational flow orders ahead of the weekend, including Columbia Gas Transmission and Algonquin Gas Transmission.

Columbia Gas on Friday ticked up 4.0 cents day/day to average $2.210, while Algonquin Citygate jumped 85.0 cents to $3.200.

Elsewhere in the East, Cove Point climbed 32.0 cents to $2.700.

Out West, however, prices in the Rockies dropped. Opal lost 22.5 cents to $4.110 and Northwest Sumas fell 48.5 cents to $2.015.

NatGasWeather said that, over the weekend and early in the coming trading week, “a frosty upstream weather system over the western and central U.S. will sweep across” the country, ushering in freezing air “for a return to strong national demand.”

A milder break could emerge over the southern and eastern United States late in the week ahead. However, another bout of seasonally cold conditions is expected in the final week of March before retreating during the last couple days of the month, NatGasWeather said.