Natural gas prices rebounded with a flurry on Monday, driven higher by surging demand for U.S. exports of liquefied natural gas (LNG) and domestic forecasts for colder weather in the month ahead. The January Nymex gas futures contract settled at $3.834, up 14.4 cents day/day. The prompt month was up more than 20 cents in intraday trading.
At A Glance:
- Production back below 100 Bcf/d
- Supply risks fading
- West Coast cash strong
The February contract advanced 11.9 cents to $3.758. The gains marked a reversal from cumulative losses over the prior three weeks, including back-to-back declines last Thursday and Friday.
Spot gas action was mixed, with prices up in most regions but down substantially in the volatile Northeast. NGI’s Spot Gas National Avg. was down 75.5 cents to $4.615.
LNG feed gas volumes climbed above 13 Bcf over the weekend, reaching a new high, according to preliminary estimates early Monday. Estimates are often revised, but analysts said demand for American exports is clearly mounting and expected to set official records this winter.
“Daily LNG feed gas nominations at Sabine Pass spiked above 5.0 Bcf/d on Sunday, lifting national LNG demand to 13.1 Bcf/d and shattering prior records — further contributing to upward movement in the Nymex front-month contract,” EBW Analytics Group senior analyst Eli Rubin said.
European calls for U.S. gas, already elevated ahead of winter due to anemic supplies on the continent, have further intensified in December as freezing weather settles in and heating demand surges.
At the same time, anticipated increases in supply from Russia to Europe this winter via the recently completed Nord Stream 2 (NS2) pipeline have yet to flow. NS2 gas deliveries are in limbo amid regulatory delays, leaving European markets increasingly in need of U.S. LNG. Analysts at Rystad Energy said it appeared NS2 may not get certified in time for this winter season.
Meanwhile, aside from parts of the western United States, domestic weather-driven demand continues to prove modest and is expected to remain so late into December. However, as Rubin noted, forecasts on Monday showed “coalescing indications for a cold first week of January,” providing support for futures.
While forecasts for the week ahead showed above-average temperatures at the national level, Bespoke Weather Services said “things do still turn cold enough to move national demand closer to normal as we end the month and begin January… This still keeps alive the risk that we see some colder variability through the opening third of January.”
In addition, the firm added, futures traders had last week “sold off a ton, more than we believe was necessary, given the risks in the pattern along with supply/demand balances, so some rebound higher makes sense.”
Bespoke noted the weekend jump in LNG volumes and lower production levels. Output dipped below 96 Bcf on Monday after hovering above that level last week.
Given wintry conditions last week in the Midwest and Northeast, combined with robust LNG demand, Bespoke said it expects the U.S. Energy Information Administration (EIA) to report a withdrawal of 65 Bcf from storage for the period ended Dec. 17.
NGI’s model predicted a pull of 53 Bcf. A year earlier, utilities withdrew 147 Bcf from storage, while the five-year average is a 153 Bcf reduction in supplies.
If early estimates in the 50s-60s Bcf bear out, the pending EIA print, slated for release Thursday, would flip the deficit to the five-year average to a surplus around 30 Bcf, NatGasWeather noted.
“What could ultimately determine the direction of prices longer term is if weather patterns for the start of January prove cold enough,” the firm added. “Of course, the failure for cold to come through Jan 1-7 would lead to disappointment and why the nat gas markets will be closely scrutinizing each new model run from” forecasters “during this Christmas Holiday shortened week.”
EIA reported an 88 Bcf withdrawal from inventories for the week ended Dec. 10. That left total working gas in storage at 3,417 Bcf, which was 326 Bcf below year-earlier levels and 64 Bcf below the five-year average.
Spot Prices Mixed
With the exception of the Northeast, next-day cash prices climbed across the country on Monday, led higher by hubs in the West that kicked off the week with below-normal temperatures.
After skyrocketing last Friday ahead of a rash of wintry weather over the weekend, however, prices in the Northeast came crashing back to reality, dragging down the national average.
NatGasWeather said national demand was expected to be moderate most of this week, despite chilly lows in parts of the northern United States.
“Demand would be stronger if not for mild to nice conditions over most of the rest of the U.S., with highs of 50s to 70s,” the firm said. It added that heating needs are expected to ease in coming days as high pressure strengthens over the central, southern and eastern regions of the Lower 48, generating temperatures as high as 50 in Chicago, mid-60s in Atlanta and low 80s in Houston.
Looking to the final days of December and early January, NatGasWeather said the southern two-thirds of the Lower 48 will be mild amid continued high pressure. The northern third of the country, however, “will be cool to cold as weather systems track through” with rain and snow, along with subzero temperatures in northern markets. The colder air is expected to spread over a wider expanse of the country early next month, the firm added.
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