Natural gas futures floundered a second consecutive day as weather patterns tilted warmer, overshadowing record export volumes, threats to production and the steepest storage withdrawal of the season. A day after dropping 25.2 cents, the February Nymex gas futures contract on Thursday shed 22.9 cents day/day and settled at $3.802/MMBtu. March fell 19.6 cents to $3.649.

At A Glance:

  • EIA posts 89 Bcf injection
  • Export volumes hit 13 Bcf
  • Production challenges linger

NGI’s Spot Gas National Avg. declined 8.0 cents to $6.600.

Bespoke Weather Services said Thursday weather models showed substantial warmer trends day/day. The firm lowered its gas-weighted degree day projections through Feb. 3 by 12.5 as a result.

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“While still a colder-than-normal picture, we simply are not getting the extreme cold days that were advertised by numerous model runs over the last couple of weeks,” Bespoke said. “More importantly, signs of warming into February continue to grow, as models gravitate toward more of a western U.S. trough and a downstream eastern U.S. ridge, which would equate to a warmer than normal pattern on the national level.”

Even with signs of a “material warm-up” next month, the firm said it was “a little surprised” by the level of confidence the market was showing in the prospect of a milder February. “We still have some hefty storage draws ahead of us,” Bespoke cautioned.  

Indeed, the Energy Information Administration (EIA) on Thursday reported a 206 Bcf pull from storage for the week ended Jan. 14. It marked the steepest decrease of the season and reflected both strong weather demand during the period – freezing conditions permeated the Plains, Midwest and East — and relatively modest production levels.

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

Freeze-Offs Impact

Production during the latest covered week hovered several Bcf below the late 2021 high of about 97 Bcf, largely because of freeze-offs. Estimates Thursday put output at 92 Bcf. “This should rebound notably higher again once the cold moves out of the picture, but it remains to be seen exactly to what level,” Bespoke said.

In the meantime, Bespoke and other forecasters expect bouts of frigid air late this week and again next week that could drive strong heating demand in the eastern half of the country and potentially interrupt production again. The firm also expects storage decreases to exceed 200 Bcf with each of the next two EIA prints.

EBW Analytics Group’s Eli Rubin, senior analyst, also looks for hefty pulls.  “We believe the market is moderately underestimating the extent of near-term cold and its effect on production freeze-offs and on withdrawals,” he said.

What’s more, Rubin added, if estimates hold, U.S. liquefied natural gas (LNG) export volumes touched another record high above 13.2 Bcf on Thursday amid continued strong demand from Europe. LNG feed gas volumes have eclipsed the 13 Bcf level multiple times in January.

Against that backdrop, analysts at The Schork Report said the recent selling may be overdone. “This is odd, to say the least,” they said.

As for the latest storage data, the South Central region led with a 69 Bcf withdrawal, including a 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 posted a decrease of 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.

Cash Prices Clunk

Spot gas prices dipped lower throughout much of the nation’s midsection – despite colder temperatures – and also fell in the West, where conditions were mild on Thursday and expected to remain so through the week.

In California, SoCal Citygate lost 56.0 cents day/day to average $4.735, and SoCal Border Avg. dropped 59.0 cents to $4.510.

Hubs throughout the Rocky Mountains also gave up ground. CIG dropped 82.5 cents to $3.960, while Kingsgate declined 48.5 cents to $3.315.

While the early February outlook shifted warmer, a National Weather Service (NWS) forecast  showed Arctic air over the Midwest Thursday advancing to the south and east, with subzero temperatures in northern areas and lows in the teens as far south as Texas by Friday.

After a brief reprieve later in the coming weekend, another dose of frigid air was forecast to permeate northern and eastern markets next week, NWS data showed.

Wood Mackenzie analyst Quinn Schulz said the forecasts for late this week had necessitated several pipeline notices in the southern Plains warning of “potential system reliability issues” that may portend supply disruptions.

“The only pipeline which warns of a potential freeze-off is El Paso Natural Gas, which faces a risk of undersupply due to below freezing temperatures” in the Permian Basin, much of which is in Texas, Schulz said.

Kinder Morgan Inc. said Wednesday in a notice to customers the expected weather could limit flows of gas and result in supply shortfalls and power outages in the Lone Star State. However, after substantial cash price increases in Texas Wednesday, prices in the state dropped on Thursday. El Paso Permian fell 93.5 cents to $3.880 and Waha lost 83.0 cents to $3.855.