Natural gas futures dived lower Wednesday even as demand for U.S. exports held strong, forecasts called for the harshest freeze of the winter and analysts expected a hefty storage withdrawal. The February Nymex gas futures contract lost 25.2 cents day/day and settled at $4.031/MMBtu. March fell 20.3 cents to $3.845.

At A Glance:

  • Forecasts for cold ease slightly
  • Demand for U.S. LNG near record
  • Market expects storage pull near 200 Bcf

Cash markets moved in the opposite direction as near-term demand loomed large. NGI’s Spot Gas National Avg. jumped $1.010 cents to $6.520.

The latest forecasts pulled back modestly from expectations earlier in the week for a bitter cold pattern over the northern and eastern United States for late January into early February. But the anticipated bursts of Arctic air were still expected to make January the coldest since 2014 and drive robust heating demand over the next two weeks.

The American weather model on Wednesday was “not quite as cold Jan. 28-Feb. 2,” though it “remained quite cold late this week and again Jan. 26-28 for very strong national demand,” NatGasWeather said in a midday note to clients.

“Both the domestic and European models still forecast the coldest/best 15-day pattern so far this winter season as lows of minus 20s to 20s impact much of the northern two-thirds of the U.S., including anticipated freeze-offs of several Bcf/day to production,” the firm said.

Bloomberg estimated production at around 94 Bcf on Wednesday, already well below late 2021 highs near 97 Bcf following freeze-offs earlier this month.

More disruptions to output could further lower daily supply levels just as demand soars, NatGasWeather said.

“However,” the firm added, “price is king and the natural gas markets are clearly stating they don’t view the coming pattern as cold enough to justify” prices near $4.30, a level the prompt month approached on Tuesday.

Multiple news reports during the trading day also said that China was preparing to send to Europe some of the liquefied natural gas (LNG) that it had imported in 2021. This indicated that China, the world’s largest gas importer, was well-stocked and may not need further U.S. supplies in the near term.

That noted, demand from Europe remains strong, Rystad Energy analysts said, owing to the geopolitical standoff between the United States and Russia – with the U.S. threatening new sanctions against Russia that could affect a natural gas pipeline that would deliver much-needed Russian gas to Europe. Russia has recently curtailed gas flows to Europe via other routes as well.

Europe, already light on supplies heading into winter, is clamoring for U.S. LNG as a result. U.S. LNG feed gas volumes hovered above 12.5 Bcf on Tuesday, within striking distance of the record 13.2 Bcf level reached earlier in the week, according to NGI estimates.

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“Gas market sentiment is cautiously bearish this week, driven by tepid demand in Asia,” Rystad Energy senior analyst Kaushal Ramesh said. But Europe’s woes amount to a “bullish overhang” that “could limit the downside to prices.”

The United States is concerned that tensions between Russia and Ukraine could devolve into war. Potential sanctions to head off that threat could further impact the already delayed Nord Stream 2 pipeline regulatory process and prevent added Russian gas from getting to Europe this winter, Ramesh said.

Storage Expectations

The solid LNG volumes combined with winter heating demand galvanized analyst expectations for the biggest withdrawal from storage with Thursday’s Energy Information Administration (EIA) natural gas inventory report.

NGI estimated a withdrawal of 195 Bcf for the week ended Jan 14. That would compare with an actual pull of 179 Bcf a year earlier and a five-year average of 167 Bcf.

A Reuters poll of 16 analysts, whose estimates ranged from withdrawals of 153 Bcf to 250 Bcf, landed at a median pull of 196 Bcf. A Bloomberg survey found the same range and a median of 186 Bcf.

The Wall Street Journal said its poll found analysts on average expecting a withdrawal of 201 Bcf.

EIA reported a pull of 179 Bcf natural gas from underground inventories for the week ended Jan. 7. The draw decreased stocks to 3,016 Bcf, leaving inventories below the year-earlier level of 3,215 Bcf but above the five-year average of 2,944 Bcf.

Spot Prices Spike

While temperatures were mild across much of the Lower 48 Wednesday, Arctic air had descended from Canada into the Northern Plains and Upper Midwest. This delivered freezing conditions that were expected to spread across the eastern half of the United States and as far south as Texas this week.

If National Weather Service forecasts for subzero temperatures and snow from Thursday into the weekend prove accurate, heating demand is likely to surge and supplies could be curtailed by freeze-offs. 

Kinder Morgan Inc. said Wednesday in a notice to customers that the expected weather could cause freeze-offs and limit flows of gas on its El Paso Natural Gas Pipeline. This could result in supply shortfalls and power outages in parts of Texas. 

Physical gas buyers got ahead of the weather on Wednesday, pushing up cash prices.

The gains were most pronounced in the supply-constrained Northeast, where Algonquin Citygate spiked 7.705 day/day to average $22.690.

But prices climbed in nearly every region. Elsewhere in the East, Cove Point climbed $7.530 to $13.000 and Transco Zone 5 gained $7.495 to $13.015.

In the Midwest, NGPL Amarillo Mainline rose 34.5 cents to $4.750 and Waha in Texas advanced 52.5 cents to $4.685.

AccuWeather meteorologists said Wednesday that temperatures were likely to plummet throughout the Midwest, Plains and East on Thursday, with harsh subzero conditions in parts of the Northeast.

Temperatures could reach the lowest levels of this winter in Boston, New York City, Philadelphia and Washington, D.C., by the weekend, the firm said.

Another cold shot is expected next week.

“Heating demands across much of the northern Plains and East will continue to remain high through at least the end of January and perhaps into the first couple of days of February,” said AccuWeather meteorologist Paul Pastelok.