Natural gas futures advanced Monday – the first trading session of 2021 – building on the nearly 12-cent gain to finish last year, with U.S. liquefied natural gas (LNG) exports strong, production flat and the weather-driven demand outlook improved.
The February Nymex gas futures contract settled at $2.581/MMBtu, up 4.2 cents day/day. March rose 3.5 cents to $2.561.
NGI’s Spot Gas National Avg. climbed 18.5 cents to $2.625.
Bespoke Weather Services said forecasts over the holiday weekend shifted “materially colder,” tacking on about 20 gas-weighted degree days to the outlook through mid-January.
“While the 15-day period as a whole remains solidly warmer than normal, we have chipped away at a good deal of the warmth, and it is important, in our view, to note that the colder changes are focused over the next eight to 10 days,” Bespoke said. “This signals risk that models toward mid-month and beyond could again be too warm.”
LNG volumes, meanwhile, hovered above 11 Bcf/d on Monday – near record levels – according to NGI data, while production levels were essentially even with a week earlier.
EBW Analytics Group analysts said demand from destinations in both Europe and Asia for U.S. exports is holding strong.
“With continued cold weather expected in Asia and Western Europe during the first two weeks of this year, prices at major global hubs continued to climb over the holidays and reached multi-year highs,” EBW said Monday.
Demand, the analysts said, could further intensify in Europe.
With “record European Union carbon prices discouraging coal use, poor performance by France’s nuclear fleet, Russian supply trailing 2019 levels and strong Asian demand diverting LNG cargoes away from Europe, European gas storage has begun to decline rapidly,” EBW said. Gas storage in Europe “could drop below five-year average levels by mid-January and end the winter several hundred Bcf below 2020 levels, buttressing injection-season demand for U.S. LNG.”
Analysts at Tudor, Pickering, Holt & Co. (TPH) agreed that conditions are lining up to fuel continued momentum for LNG exports. If this bears out, it would cut into U.S. stockpiles.
Inventories should “contract marginally” versus five-year average levels in the first quarter “before diverging materially” through the second and third quarters as “much stronger year/year LNG utilization pushes the market into undersupply,” the TPH analysts said. “If pricing doesn’t respond to force gas to coal switching, we expect inventories to exit the second quarter at a 6% deficit to the five-year average and widen to a 19% deficit by the end of the third quarter.”
Against that anticipated backdrop, the TPH analysts forecasted a return to $3.00-plus pricing ahead of the 2021/2022 winter as the market looks to avoid entering the next heating season with storage “at such precarious levels.”
Analysts at Raymond James and Associates Inc. estimated gas futures would approach $4.00 by the end of 2021 as demand growth exceeds production recovery. They anticipate associated gas – produced alongside oil – is to remain relatively light this year because of the steep oil production cuts implemented in 2020 in response to the coronavirus pandemic.
“We are convinced that current oil/gas strip pricing would drive a significant domestic supply decline and leave us dramatically short on natural gas in 2021,” the Raymond James analysts said. “In our view, the transition to a relatively normal demand environment in the coming year paired with significant domestic natural gas production declines sets up quite well for Henry Hub natural gas prices throughout 2021,” barring exceptionally mild weather.
While vaccines hit the market late in 2020, public health officials have repeatedly cautioned that it could take several months to inoculate enough Americans to end the pandemic. That means the virus could continue to disrupt economic activity and transportation fuel demand throughout the current winter, delaying substantial oil and associated gas production increases.
While reported cases in the United States declined on Sunday, the number of people hospitalized with the disease hit a record-high 125,544, according to the Covid Tracking Project. At the same time, immunization rates are developing more slowly than federal authorities initially expected. Federal data show that about 2.8 million vaccines were administered by the start of 2021, well below the target of 20 million.
Spot gas prices climbed higher Monday as new weather systems moved into the northern half of the country.
NatGasWeather said winter storm systems would bring rain and snow to the Northwest and Northeast over the course of Monday and Tuesday this week, though temperatures were expected to be “only slightly cool” over both regions with highs of 30s to 50s.
The forecaster said a similar range of high temperatures was expected across the north-central United States early this week, and warmer conditions were anticipated across much of the southern half of the country, with highs from the 50s to 70s.
However, “a new weather system will strengthen over the central U.S. midweek, then track into the South and Southeast Thursday and Friday,” NatGasWeather said.
Cash prices jumped throughout the Midwest and much of the East on Monday.
On the pipeline front, Kinder Morgan Inc. (KMI) said Monday that the Permian Highway Pipeline (PHP) began full commercial in-service on Jan. 1. The pipeline had been flowing volumes during the commissioning process for several weeks prior to full commercial in-service, the company said. PHP delivers natural gas from the Waha to the Katy, TX, area, with connections to the U.S. Gulf Coast and Mexico markets.
KMI subsidiary Kinder Morgan Texas Pipeline (KMTP), EagleClaw Midstream LLC and Altus Midstream LP each hold an ownership interest of approximately 26.7%, and an affiliate of an anchor shipper has a 20% interest. KMTP is the operator of the pipeline.
Prices at Waha on Monday rose 6.0 cents to $2.410.
Other Texas market hubs were trading up similarly, with El Paso Permian ahead 4.5 cents to $2.445.
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