Natural gas futures failed to sustain momentum, sliding midweek as traders brushed off what are likely to be temporary declines in production related to freeze-offs and instead focused on a quick warm-up expected this weekend. The March Nymex contract settled Wednesday at $2.468/MMBtu, down 21.6 cents from Tuesday’s close.

At A Glance:

  • Heating demand lingers
  • Production levels hold steady
  • Freeport recovery proves uneven

Spot gas prices were mostly lower, except on the West Coast. Big multi-dollar price gains there helped lift NGI’s Spot Gas National Avg. by 42.0 cents to $5.730.

Most of the Lower 48 remains mired in a days-long stretch of freezing temperatures, which have taken a sizable chunk out of supply this week as demand has escalated. Estimates show production sliding a bit further to around 96 Bcf/d on Wednesday, off from near-record highs of around 100 Bcf/d in recent weeks.

The drop in output is similar to the one seen in late December, when widespread cold led to freeze-offs in the Permian Basin, Rockies, Bakken Shale and Appalachia. Then, as it appears to be expected now, production quickly recovered as temperatures rose.

NatGasWeather said weather models continued to paint a much warmer picture by the weekend, with the latest runs shedding heating demand from the 15-day outlook. In particular, the weather data showed the southern and eastern halves of the United States warming into the “very nice mid-50s to lower 80s, well above normal by early February standards.” What’s more, both the Global Forecast System and European data maintained a much warmer-than-normal U.S. pattern at the end of their forecast runs at days 15-16.

That said, there are some bullish undercurrents in the market, according to NatGasWeather.

Though snow was already falling in New York City, the coldest weather still lies ahead. This means that production could slide further if additional freeze-offs materialize, the firm said.

Based on AccuWeather’s outlook, that appears likely. The forecaster said the surge of Arctic air barreling toward New England and the eastern Great Lakes is forecast to be colder than the outbreak at Christmastime. Portions of the central Appalachians and the Mid-Atlantic region also could be impacted.

“This will be an Arctic blast that will hit hard and fast,” AccuWeather said.

After a high near 40 on Thursday, Boston temperatures were expected to dip to 10 below zero early Saturday. Highs in the single digits were likely.

At the peak of the cold blast, temperatures could feel as much as 50 degrees below zero in central and northern New England, according to AccuWeather. The real-feel temperatures could plummet close to “an unworldly 100 below zero on top of Mount Washington, NH,” AccuWeather senior meteorologist Adam Douty said.

Frigid conditions are expected to stretch into New York City, Philadelphia, as well as Washington, DC. However, AccuWeather said the bitter weather should leave the Northeast just as quickly as it arrives. Temperatures could surge by 40 degrees by Sunday.

Other Factors To Watch

Freeport LNG, meanwhile, is showing additional signs it is moving toward a restart. The liquefied natural gas export terminal requested federal approval to reintroduce feed gas to one of its three trains more than seven months after a fire and explosion knocked the Texas plant offline.

EBW Analytics Group LLC said the latest Freeport development may have been the reason the March Nymex contract on Tuesday bounced off intraday support at $2.61. Signs of a technical double-bottom further lifted near-term optimism, according to the firm.

“Although regulatory snags are clearly a possibility, and Freeport may still not return to full strength until mid-March, the likelihood of more bearish scenarios of a summer restart continue to dwindle – relieving a portion of downward pressure on Nymex gas futures,” EBW senior energy analyst Eli Rubin said.

All of that noted, the analyst acknowledged that the warmer February outlook would be a tough hurdle for bulls to jump. After all, a mostly mild winter has left storage inventories sitting rather comfortably with only weeks left of the peak winter season. Furthermore, Thursday’s government inventory is likely to show even more improvement in the storage picture.

Estimates ahead of the Energy Information Administration’s (EIA) weekly storage report showed withdrawals from 133 Bcf to as much as 155 Bcf.

That was the range of a Reuters survey of 14 analysts, which showed a median decline in stocks of 142 Bcf. Bloomberg’s smaller survey of eight analysts had a tighter range that produced a median draw of 145 Bcf. A Wall Street Journal poll averaged at a 144 Bcf pull. NGI modeled a 141 Bcf draw.

For comparison, the EIA recorded a 261 Bcf withdrawal for the similar week last year, and the five-year average draw stands at 181 Bcf.

As such, the current surpluses to both year-earlier and five-year average levels are set to expand. Looking ahead, the current bitter winter weather is likely to drag down inventories a bit in the following EIA report. However, the warmer weather expected beginning this weekend and through mid-February may push surpluses to more than 250 Bcf, if not closer to 300 Bcf.

“While the market is attempting to form a short-term bottom and signs of medium-term fundamental support are emerging, weather remains king in February,” Rubin said. “The collective weight of recent bearish shifts may drive Nymex gas another leg lower later this month.”

Westcoast Outage Hit Cash

Spot gas prices across most of the country snapped their three-day winning streak despite the ongoing bitter cold blanketing the Lower 48. As they often have throughout this winter, West Coast markets moved against the pack. This time around, a major gas flow curtailment upstream along a key Western Canadian pipeline sent prices surging.

Westcoast Transmission on Tuesday notified shippers of an unplanned outage at T South, cutting up to .75 Bcf of flows through the Huntingdon Delivery Area and lasting until further notice. Station 4B South also is expected to see operational capacity through the segment reduced by 72 MMcf/d as a result of this maintenance.

In response to the Westcoast outage, Northwest Pipeline (NWPL) declared a Stage I (3%) Overrun Entitlement for the entire system effective in the evening cycle for Wednesday’s gas day. This means that shippers cannot flow more than 3% of their contracted entitlements on all points on the laterals. The restriction is in effect until further notice.

Wood Mackenzie said although the Westcoast outage would significantly constrain upstream supply for the Pacific Northwest, demand is likely to start loosening beginning Thursday. Heating degree days in the region are forecast for “a significant drop,” according to the firm.

“As far as other sources of gas for NWPL, the next main receipt point would be the Stanfield receipt interconnect with Gas Transmission Northwest,” said Wood Mackenzie analyst Quinn Schulz. “Capacity through the interconnect is unconstrained with about 385 MMcf of available capacity, as of Feb. 1 timely flows. However, Gas Transmission Northwest will soon have its own brief cuts to flows through Kingsgate too.”

From Thursday to Friday, maintenance at the Starbuck compressor station is scheduled to be cut by about 289 MMcf/d through Kingsgate. That said, since timely flows for Wednesday have dropped substantially, these cuts will likely be closer to 200 MMcf/d, Schulz said.

Prices responded swiftly to the reduction in flows. In Western Canada, next-day gas at Westcoast Station 2 dropped C$2.320/Gj day/day to average only C55 cents for Thursday’s delivery. It traded as low as negative C$5.000.

Downstream, Northwest Sumas cash climbed $1.095 to $10.905. Bigger price gains were seen at Opal, which jumped $5.655 to $16.470.That increase compared similarly with those in the Desert Southwest and California, where the SoCal Citygate rose $5.830 to average $18.500 for Thursday’s gas day.